Analysis of the Week: Developers Tap $12bn of Tax Equity Commitments Since the Start of 2023, Driven by Transferability Provisions Under the IRA

updated on 25 June 2024

European Utilities ENGIE, Iberdrola and Orsted signed $500mn+ Deals, While US-based PE-backed Players SB Energy, Plus Power and Arevon are Following Suit

ENGIE Closed a $1bn Tax Equity Deal for 1.3 GW of Solar and Onshore Wind Projects in Feb'24, Estimating an ROI of 8 - 12% Within 5 - 7 Years

The company has surpassed $3.4bn in commitments since 2020, and maintains a bullish outlook on this segment. This approach is also echoed in Orsted's strategy, which recently signed a $580mn deal for 900 MW of solar and storage projects, and expects tax equity to account for ~15% of its US capital stack through 2030. Meanwhile, Arevon, backed by private equity and developing $2bn of projects qualifying for ~$500mn in tax credits, sees higher interest rates as a market headwind. Gains in deal closure timelines are also incentivizing developers. Advisor Norton Rose Fulbright, who has closed 14 deals so far and has 20 more in the pipeline, stated in Jan'24: "The new deals typically take three to eight weeks to complete, down from four months, for tax equity."

While JP Morgan, BofA Continue to Dominate the Investor Pool, PE Firms Such as Foss & Co and Greenprint Have Recently Stepped Up Activity

Foss & Co, with $8bn deployed in tax equity investments and $1.5bn in tax credits under management, has closed nearly 10 deals since the start of 2023. The firm acknowledges that traditional investors such as JP Morgan and BofA will continue dominating, but highlighted that the IRA created opportunities for PE firms to factor expected tax credit sales into their clean-energy deals, helping to recoup some of the invested capital faster. Meanwhile in Oct'23, Greenprint Capital and AB CarVal partnered to unlock access to $2.5bn of capital. The move increases Greenprint's capacity to transact with its current suite of corporate customers and bring additional clients to market, who are seeking tax mitigation strategies through the acquisition of renewable energy tax credits

The above analysis is proprietary to Enerdatics’ energy analytics team, based on the current understanding of the available data. The information is subject to change and should not be taken to constitute professional advice or a recommendation.

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