Tax Credit Alternatives in the Inflation Reduction Act

– Novogradac Journal of Tax Credits

Impact Investing and Community Development Partner John Dalton and Tax Partner Megan Christensen co-authored an article for Novogradac Journal of Tax Credits on the extensions and new credits included in the Inflation Reduction Act (IRA) and how its two options for monetizing credits may reshape the tax equity market for renewable energy transactions.  

In the article, Dalton and Christensen explained how the credit sale option, which allows project owners to sell credits to third-party purchasers, has the potential to simplify financing for renewable energy projects. They note, however, that the “principle drawback is that project owners will not be able to raise as much cash as they can from conventional tax equity investments.” 

The authors also explained the second method—the direct payment option—which provides an incentive for project owners that had historically not been able to benefit from investment tax credits for renewable energy projects. “The direct payment option allows tax-exempt organizations… to receive cash payments from the IRS in lieu of tax credits for projects placed in service after 2022,” they stated.  

The article concluded that each option will be attractive to developers of renewable energy facilities, but acknowledged that each “has limitations that will ensure that the industry will continue to have some appetite for conventional tax equity transactions.” 

Read the full piece here.

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