Aligned Climate Capital’s latest infrastructure fund dedicated to community solar was oversubscribed, at $240 million. And in a difficult fundraising environment, CEO Peter Davidson thinks that’s a sign of the resilience of renewables, and of solar in particular, despite this moment of political uncertainty.
Aligned Solar Partners 6 closed at $40 million over the fund’s original target —and is about eight times bigger than its predecessor, Aligned Solar Partners 5, back in 2022. And for the first time, Davidson told Latitude Media, 95% of the investors in the fund were large institutional investors; the previous five funds were dominated by individuals and family offices.
“It’s a really good sign,” he added. “Sophisticated institutional investors are seeing beyond the choppiness at the top of the water and what the Trump administration is trying to do, which is a distraction from the longer-term trends happening, like the decarbonization of our energy system and the move to cheaper and more quickly dispatchable energy.”
Aligned’s solar strategy entails acquiring construction-ready distributed solar projects ranging from one to 10 megawatt alternating current, and from $10 million to $30 million. “It’s the middle-market of solar — not rooftop, and not utility-scale,” Davidson said; they’re in a “sweet spot” that allows them to move through the increasingly long interconnection queues faster.
These projects are mostly located in rural and underserved areas of the U.S., where the abundance of land means there’s less local opposition to siting, one of the leading causes of canceled clean energy projects. “We like underserved areas because we sell to individuals, and in underserved communities, they haven’t been targeted to buy energy from other people,” he added. “There’s less competition and people are receptive because they haven’t had the opportunity to buy clean energy… and we sell it at a discount to what the utility charges.”
These projects tend to be concentrated in states “that are not only continuing in the energy transition but are almost doubling down now in the face of a hostile federal government,” Davidson said, like Maine, New Hampshire, and California.
Three ways to make money
Aligned’s solar strategy makes money for its investors in three different ways. First, once they’re operational, the solar plants in the company’s portfolio create yearly profits that are distributed to investors. Then, like any infrastructure fund, Aligned bundles together its assets and sells them at the end of the fund’s lifecycle, assuming the market conditions are favorable.
But the company also leverages tax credits and the rapidly expanding transferable tax credit market, which was created in 2023 when the Inflation Reduction Act started allowing buyers and sellers to trade clean energy tax credits for cash.
Once Aligned has brought a new solar project online, a process that takes them six to seven months, according to Davidson, it receives a tax credit. With a 40% tax credit, for example, a $10 million solar project would receive $4 million in tax credits. Aligned then sells the credits in the transferability market, making a profit that in this case could be around $3.5 million.
“We then take $3.5 and distribute it to our investors,” Davidson explained. “So they get a very big chunk of their money back within the first year based on the tax credit sales.”
Ultimately, Aligned targets returns of over 20%, on the higher end of the spectrum for infrastructure funds.
The company’s use of the transferable tax credit market is yet another example of the potential embedded in the transferability provision to funnel more money into clean energy projects. The provision in itself is what allowed Aligned to graduate from individual investors and family offices to institutional investors, and to raise a significantly bigger fund than it has previously. Before the IRA, tax credits could only be used to offset passive income, and consequently Aligned only raised money from investors with passive income.
“Opening [the fund] up to new types of investors, like pensions and endowments, is one of the reasons why we were able to raise so much more capital,” Davidson said.
While there have been concerns recently about potential changes to tax credit policies and their transferability, Davidson said that transferability in itself “is not a budget item at all” and as a result shouldn’t “even be allowed to be a part of the reconciliation language.”
The uncertainty around it is yet another element of the political turmoil of the moment.
“Yes, there’s political choppiness, but there always is,” Davidson said. “We’ve been in this business for a long time, and there’s always political and national turmoil. Sometimes the incentives are better and sometimes they’re worse, but the fundamental trends are in our favor and investors have agreed with us.”
