Getting Credit for Renewable Energy Investments

There are a lot of options. Companies can receive tax credits for activities stemming from their own operations, which generally fall into two categories:

• Constructing and operating clean energy projects, such as solar, wind, standalone storage and carbon sequestration, to name a few; and

• Domestic manufacturing of clean energy equipment 

Additionally, corporations of all sizes are incredibly focused on purchasing tax credits via transfer under the IRA’s “transferability rules,” which allow companies to buy tax credits at a discount. Purchasing clean energy tax credits via transfer allows a much bigger universe of corporates to participate in clean energy financing and the U.S.’s decarbonization goals as it allows corporates to manage tax liabilities with a relatively simple transaction. We are seeing substantial demand for these types of transactions.

I would watch private and publicly traded energy producers with robust energy transition strategies, and companies that manufacture clean energy equipment such as solar panels, power inverters or electrolyzers for green hydrogen. 

Notably, while there are not too many renewable energy power producers that are publicly traded now, that may change in the next few years, as a result of the IRA. 

I would also watch the electric vehicles (EV) economy, whether it’s the EV manufacturers, charging-station companies or businesses that make the transmission infrastructure. The IRA paves the road for EVs to be a hypergrowth industry.

Although the IRA was passed on Democratic votes, thousands of new jobs, including manufacturing jobs, are being created in more traditionally Republican states. That leads many in the renewable energy industry to believe that regardless of the 2024 election outcome, the IRA will likely remain in place.

The U.S. has been able to attract a lot of foreign direct investment as result of the IRA. Many non-American investors, ranging from pension funds to sovereign wealth funds, are coming into the U.S. to invest in renewables. Companies and investors should watch for how other global jurisdictions respond, as many are trying to figure out how to create their own versions of the IRA, to ensure domestic green energy growth.