10 Tax Credit Transfer Lessons from 2024: a Letter from Reunion
2024 was a breakout year for Reunion, and we have ambitious plans for 2025.
Dear Reunion clients and partners,
2024 was a breakout year for Reunion; we facilitated over $3.5 billion in tax credit transfers with a small but dedicated team of technology and clean energy finance experts. We are proud to have played a key role on the three largest tax credit transfers of 2024, including the sale of up to $870 million in 45X credits from First Solar to Visa.
We have ambitious plans for 2025. We will double our headcount, with the goal of becoming one of the most exciting workplaces for clean energy finance professionals. We plan to aggressively grow our core tax credit transfer business and, in parallel, launch several new products aimed at improving the tax credit transfer process. Next up is a software platform that we will announce later this month — stay tuned!
While policy uncertainty has been in the headlines, we recently conducted a tax credit buyer survey and the vast majority of our clients have not changed their tax credit purchase plans for 2025. We’ll share more data from our survey, along with updated pricing charts, in February.
Over the last year we spent a lot of time working with and learning from tax credit buyers and sellers, which has shaped our approach to the tax credit market. In the spirit of transparency and continuous improvement, we’d like to share ten lessons we learned in 2024.
Finally, we are grateful for all of our colleagues and peers in the industry — from solar developers and battery manufacturers, to tax directors at leading corporations — working hard to increase adoption of clean energy.
We look forward to working with you in 2025.
-Andy Moon, Billy Lee, and the Reunion team
Key lessons from 2024
Direct relationships with tax credit buyers is our secret weapon
Reunion works directly with buyers to ensure they are “ready to transact”; this typically means that the right stakeholders are on board, and internal approvals are in place.
If buyers start engaging on tax credits opportunities before they are ready, there is a high risk that the deal falls apart later in the process.
Producing a diligence memo within a week of term sheet execution greatly reduces the potential for 11th hour surprises
On one of our very first deals in 2023, the seller unexpectedly walked away from the deal at the last minute due to a dispute around the calculation of the tax credit amount. This was a bad experience for the buyer, particularly because they had already paid a law firm to start diligence and draft contracts.
We changed how we do business as a result: as part of our offering, Reunion produces a diligence memo within a week of signing a term sheet. This enables the buyer to quickly understand the key issues before spending significant time and expense on the deal.
Efficient but thorough due diligence maximizes certainty of closing
Reunion runs a more comprehensive diligence process than typical brokers or marketplaces. Our diligence memos have been used to gain internal approval at dozens of Fortune 500 clients.
Some buyers retain accounting firms for an additional layer of diligence. Major accounting firms love working with us and view our work as complementary; Reunion efficiently prepares the data room and summary due diligence memo, which the accounting firm can use as an input to their review. This saves time, and reduces third party diligence expenses.
There are often multiple paths to satisfying a buyer’s diligence requirements
We worked on a PTC transaction where more than a dozen of the seller entities were JVs, and the buyer requested a specific document from each JV that was not practical to collect. We ended up downloading and analyzing hundreds of data files from the grid operator’s website, and ultimately were able to trace the electricity generation back to the relevant facilities.
On multiple large transactions, the seller (or buyer) stated: “If Reunion was not involved, there was no way that we would have been able to satisfy the buyer’s diligence requirements and get the deal done.”
Understanding “what is market” can help buyers and sellers move deals forward
We often see a gap between the level of diligence the buyer wants to see, and what the seller is willing to provide.
Reunion helps set clear expectations between buyer and seller around what documentation is necessary. We also publish due diligence checklists (PTC and ITC) to create a common understanding of what is required.
Very few buyers are committing to purchase tax credits generated in future years
Sellers with projects being placed into service in future years have a major pain point if they are not able to identify a tax credit buyer early. Lenders are providing low advance rates on tax credit transfer bridge loans that do not have a creditworthy buyer in place (”naked TRABLs”).
Reunion is developing a product to address this financing constraint; stay tuned for more details.
Not all bids are equal. Sellers should investigate who their counterparty is
There are a lot of bids flying around the market. However, a bid from a named counterparty with an outline of key terms is far more likely to close than an anonymous bid with only pricing information. Sellers should ask for more information during the bid stage; some anonymous bids do not have a committed buyer on the other end, or involve multiple intermediaries which impact price or certainty of close.
Transactions with step-ups above 20 or 30% are becoming increasingly challenging to execute
In the world where there is lots of credit supply, insurers are choosing to focus their risk appetite on projects with lower step ups. Sellers with step-ups should think about ways to insulate buyers from risk.
Prevailing wage and apprenticeship (PWA) documentation and compliance is complicated, frustrating, and expensive
An increasing number of projects require PWA compliance, which results in a large documentation burden and in some cases, an unexpectedly large compliance expense.
Reunion sees a big opportunity to simplify and reduce the cost of PWA compliance using software — stay tuned for our product launch in February.
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San Francisco, CA – Reunion, a leading platform for clean energy tax credit transfers, is proud to have facilitated two transactions, entered into on December 6, 2024, for a third-party to purchase up to $870 million in advanced manufacturing production tax credits from Arizona-headquartered First Solar, the Western Hemisphere’s largest solar technology and manufacturing company.
The credits are associated with the fully integrated manufacturing of advanced thin film photovoltaic (PV) solar panels – equivalent to the production of wafers, cells and modules – at certain First Solar manufacturing facilities in both Ohio and Alabama in 2024.
First Solar, which has manufactured in the United States since 2002, operates three manufacturing facilities in Ohio and a fourth in Alabama. The company also operates what is believed to be one of the most extensive solar supply chains in the U.S., using 100% U.S.-made glass and steel. As a result of its American manufacturing footprint, which is expected to include a fifth factory in Louisiana in the second half of 2025, and domestic supply chain, First Solar expects to support over 30,000 direct, indirect, and induced jobs across the nation, representing a payroll of almost $2.8 billion per year by 2026.
Reunion served as a trusted advisor and facilitator throughout the transactions’ lifecycle. The firm identified a suitable buyer and led a thorough negotiation of deal terms between the parties. Reunion also played a key role in spearheading the technical and commercial due diligence process.
“We are excited to have supported these transactions through to close, which underscores our expertise in helping the largest and most sophisticated organizations navigate the tax credit diligence and purchase process. These transactions demonstrate the impact that tax credit transfers can have on strengthening America’s solar manufacturing capabilities,” said Andy Moon, CEO of Reunion.
These transactions are one of the largest advanced manufacturing tax credit transfers to date, reflecting the growing scale of the domestic power generation technology manufacturing base.
First Solar (NASDAQ: FSLR) disclosed the transaction in an 8-K. The 8-K included copies of the tax credit transfer agreements, which disclosed key deal terms such as price ($0.955), counterparty (Visa), and payment terms.
Novogradac Journal of Tax Credits | December 2024 | Volume XV | Issue XII
RETC Transfers Boom Throughout 2024, Including Community Solar Portfolio in Virginia
Nick DeCicco, Senior Writer, Novogradac
Transfer of federal renewable energy tax credits (RETCs) exploded in 2024, according to professionals in the field, including a team who transacted in August on a portfolio of community solar systems in Virginia.
Reunion Infrastructure teamed earlier this year with Summit Ridge Energy, a commercial solar company based in Arlington, Virginia, to facilitate the transfer of $40 million in investment tax credits (ITCs) to a privately held real estate company.
The transaction is the wheelhouse of Reunion, a San Francisco-based clean energy finance company that has closed more than $2.5 billion in transfers as of early November. The firm has facilitated transfer transactions of ITCs, production tax credits (PTCs), Section 45X and Section 30C credits varying in size from under $10 million to more than $500 million, said Billy Lee, co-founder and president of Reunion.
“We’re seeing a lot of activity, both large and small deals,” said Lee. “One of the beauties of transferability is that it levels the playing field. For example, small developers who have projects generating relatively small volumes of credits are still able to get deals completed efficiently."
Lee said the Virginia portfolio buyer is a “sophisticated investor and and has a keen interest in community solar.” Jake Compton, Summit Ridge Energy’s senior director of project finance, said the systems are in varying stages of completion, with some already online and others slated to come online before year’s end as well as into 2025.
Compton said the Virginia portfolio was not Summit Ridge’s first transfer, although it did fall within the first batch of the company’s transfers.
“It was in parallel with a few others,” Compton said. “This one was appealing for a couple of reasons. The buyers had the opportunity to think about this as a long-term partner. We were also able to pair this with an existing tax equity investment in the portfolio and do a hybrid of tax equity and transfer in [the] same transaction.”
Content with domestic content
Having an existing tax equity partner who liked the Virginia market combined with the transfer buyer and the opportunity to expand the tax equity investment was a winning combo, said Compton.
“Our investment will be exclusively providing energy to low-income households throughout the state,” said Compton. “Our goal as a company is to do exactly that. ... It’ll let us continue to expand our footprint.”
The transaction also was one of Summit Ridge’s first to apply domestic content adder guidance from the Inflation Reduction Act of 2022. The expansion of solar cell manufacturer Hanwha Qcells Co.’s facilities increased the supply of American-made solar cells for projects such as Summit Ridge’s Virginia portfolio. Compton said the increase in output of cells, combined with clarification from the Internal Revenue Service and the Department of Energy about the domestic content regulations, allowed Summit Ridge to “cement (its) plans” to deploy 800 megawatts of Hanwha’s Qcells.
“If I look at projections of the need for tax investment, the tax equity market alone just can’t keep pace with the available credits from these projects,” said Compton. “Reunion estimated $22 billion of tax equity this year, but out of a total market appetite of $45 billion. Other groups have come up with very similar projections. That’s a great problem to have, so for us, it’s a ‘yes, and’ strategy – to meet our ambitious goals of expanding community solar and access to clean energy for all, we’re going to need all of both the tax equity and tax credit transfers that we can arrange.”
A learning curve
Lee and Compton said education is an important component of RETC tax credit transfers.
Compton said many tax credit transfer buyers are new to the RETC market, bringing a need to learn about the nuances of the process as well as a desire for a low-touch transfer.
“They may have different concerns than we’re used to with a more typical equity investor,” said Compton.
Lee outlined a two-stage process for most transfers: Educating taxpayers about the overall transfer opportunities and then guiding participants through the transaction process, from term sheet to closing.
“We spend a significant amount of time getting buyers 'transaction ready,' which often includes getting internal stakeholders up to speed and ensuring approvals are in place," said Lee. "At that point, we start sharing opportunities that fit the buyer's specific requirements. Our buyers are busy finance and tax professionals, so we provide a very curated approach. We can provide a lot of insights and market data to help buyers differentiate deals that, on the face of it, may appear to be very similar."
Lee said Reunion weighs factors beyond the headline credit amount and price, factoring in seller motivation, urgency, competitive dynamics, and other more qualitative aspects.
“We want to make sure we are truly giving them opportunities that fit their needs and align with their expectations,” said Lee.
Moving buyers and sellers through the process is one area where Lee and Reunion’s experience and history in renewable energy is valuable. Lee said the company brings a “deep data set” that informs commercial terms, structuring of indemnities and insurance, and more. He said Reunion also provides a due diligence review for buyers to help streamline their evaluation of the transaction.
“For sellers, the value we bring is certainty and speed of execution,” said Lee. "Critically, we have direct relationships with tax credit buyers, which gives us insights into the priorities and the readiness of the buyers." Lee said the timing from term sheet to close for most transfers that Reunion participates in is measured in weeks, which differs from many RETC transactions, for which a standard transaction is about six months.
Most buyers want to do one or two transfers transactions per year and move on, Lee said.
"Finding a buyer and seller who want to transact on a similar amount of credits is only part of the challenge," said Lee. "Buyers have varying requirements: some want PTC or 45X. Some want ITC. Some want insurance, while others want a creditworthy or investment-grade seller. Some are comfortable with higher basis step-ups assuming risk mitigation measures are in place, while others are not. There are a lot of factors in finding the right buyer and seller in order to complete a successful transaction."
Evolution of transfers
Lee said there was “a pioneering aspect” to taking on transfer deals earlier this year when the opportunity was fresher. As the year progressed, Lee said the transaction process has become more efficient. Many transfers require only a few major transaction documents, including the tax credit purchase agreement, an insurance policy (if required) and a guaranty agreement (if required). Lee said Reunion’s goal is to continue to streamline transactions and take a lot of friction out of transfer transactions for buyers and sellers.
"The amount of hours needed to transact on one of these transactions is fairly limited," said Lee. "We have a finely tuned playbook on what the buyer and sellers need to do to get a deal done. We're getting pretty good at identifying and resolving any issues early in the deal process, as opposed to at the 11th hour."
Although the Virginia deal was a mid-sized deal in the pantheon of Reunion's experience, Lee said the challenges and complexities of transfers don't necessarily grow with scale.
"We don't see a huge correlation between size and deal complexity," said Lee. "Some of our most challenging deals are really small."
Likewise, Lee said larger developers are not always the most sophisticated, noting some experienced sellers are relatively inexperienced in transfers and need a fair amount of hand-holding while some smaller developers are highly sophisticated and much more transaction ready.
"Right now, there is no rule of thumb in terms of what deals are more challenging or more complex than others," said Lee. "That's where we step in and provide guidance and support."
Into the future
Lee said those considering transfer transactions such as the Virginia community solar portfolio should know that transferability still benefits from the guidance of deal teams that have deep transaction experience.
"There's still a lot of detail and nuance to deals," said Lee. "Particularly for first-time buyers and sellers, having a transaction partner who can identify risk and has the experience to structure solutions that properly mitigate and allocate that risk will significantly increase the likelihood of a successful transaction."
Compton expressed excitement for the future possibilities of transfers.
"The transfer market opens up an enormous aperture of the pot of investors to get involved with projects," said Compton. "It's created its own set of challenges and nuances. It's certainly interesting to see how it evolves. Everyone has tax equity as reference points. This arose as a unique animal in response to its own quirks. It's fascinating to see how the market evolves. Does it stay very close to tax equity, which is kind of a reference point? Or will it look and feel like something different? There's a lot of reasons to be doing transfers."
Copyright Novogradac 2024 - All Rights Reserved
This article first appeared in the December 2024 issues of the Novogradac Journal of Tax Credits. Reproduction of this publication in whole or in part in any form without written permission from the publisher is prohibited by law.
Notice pursuant to IRS regulations: Any discussion of U.S. federal or state tax issues contained in this article is not intended to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties under the Internal Revenue Code; nor is any such advice intended to be used to support the promotion or marketing of a transaction. Any discussion on tax issues reflected in the article are not intended to be construed as tax advice or to create an accountant-client relationship between the reader and Novogradac & Company LLP and/or the author(s) of this article, and should not be relied upon by readers since tax results depend on the particular circumstances of each taxpayer. Readers should consult a competent tax advisor before pursuing any tax savings strategies. Any opinions or conclusions expressed by the author(s) should not be construed as opinions or conclusions of Novogradac & Company LLP.
This editorial material is for informational purposes only and should not be construed otherwise. Advice and interpretation regarding property compliance or any other material covered in this article can only be obtained from your tax advisor. For further information, visit www.novoco.com.
The IRA has fueled clean energy deployment
The Inflation Reduction Act has had a significant impact on clean energy deployment in the U.S., leading to accelerated growth among solar, wind, battery storage, and other clean energy technologies:
- The two-year post-IRA period has seen $89 billion in investment in new, US-based clean energy manufacturing, versus $22B in the two years preceding the IRA (see Figure 1)
- Investment in clean energy production and industrial decarbonization is $161 billion since the passage of the IRA, a 43% increase from the comparable pre-IRA period
Americans overwhelmingly support clean energy
Clean energy is now a major part of the US economy, employing over 3.5 million workers. Since 2020, the clean energy industry has added 400,000 new jobs, significantly outpacing the rest of the energy sector.
The federal solar investment tax credit was first passed under the George W. Bush administration via the Energy Policy Act of 2005, and for the last 20 years there has been a looming threat that this tax credit will be removed. But it has persisted, because it has been highly effective in driving solar adoption, and solar energy is extraordinarily popular among Americans.
The IRA has growing, bipartisan support
Similarly, the Inflation Reduction Act has bipartisan support:
- In August 2024, a group of 18 Republican Congress members wrote to a letter to Speaker Mike Johnson saying: “Prematurely repealing energy tax credits, particularly those which were used to justify investments that already broke ground, would undermine private investments and stop development that is already ongoing.” Speaker Johnson responded that when making changes to the IRA, “you’ve got to use a scalpel and not a sledgehammer.”
- The total clean investment of $493 billion in the two-year post-IRA period has flowed into all 50 states, but over half of that has gone to Republican states
We have reason for optimism that the major provisions in the Inflation Reduction Act will persist. It’s unlikely that a majority of Congress will support a significant repeal of a law that is driving new jobs and significant investments in clean energy. Repealing the IRA after it has been in force for over two years will also upend many private businesses, which have made billions in investments under the anticipation that the law will be in force for a decade, if not substantially longer.
Furthermore, the final house race was called December 2nd, landing at 220 Republican seats and 215 Democrat seats. Given that 218 votes are required to form a majority and pass legislation, Republicans have a very thin margin for defections - only two.
Buyers and sellers remain active in the market for 2025 tax credit and beyond
In the tax credit transfer space, we continue to see a heavy dose of activity that is, in fact, ramping up, particularly from buyers wanting to lock in 2024 and 2025 tax credits before any potential changes.
The team at Reunion remains highly optimistic about a clean energy future and stand ready to support all existing and new customers.
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Drawing on over $10B of verified transactions, our report takes a deep dive on the Section 48 investment tax credit, Section 45 production tax credit, and Section 45X advanced manufacturing production credit. We also examine emerging market trends and deal dynamics.
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