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There is a “missing middle” in the market for renewable energy that won’t be missing for much longer.
The U.S. Treasury Department on Wednesday announced new guidance, authorized under the Inflation Reduction Act, that will enable the development of a range of renewable energy projects that previously had been too onerous from a tax perspective to tackle.
It also allows cities and nonprofits, which have no tax liabilities, to receive direct payments when investing in a range of climate-friendly technologies. The changes could pave the way for hundreds of billions of dollars worth of investment in the coming decade.
The guidance around direct payments would allow tax-exempt organizations to put rooftop solar panels on schools, churches and temples. Electric school buses, already an attractive purchase for many districts, will be that much more attainable. And rural electric cooperatives will finally be on the same footing as investor-owned utilities.
But perhaps the bigger news is the guidance around transferability of tax credits. Previously, to make the most of the tax credits available to them, renewable energy project developers had to create complex and expensive tax equity deals.
A solar project, for example, might be eligible for 30% to 50% of its total cost in tax credits. Utility scale projects routinely cost $100 million to $200 million, meaning that up to $50 million to $100 million in tax credits would be available.
“The numbers get very large, very quickly in infrastructure,” said Andy Moon, co-founder and CEO of Reunion, a renewable energy tax credit marketplace. “As a result, most companies just don’t have the tax liability to absorb those credits.”
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