January 5, 2024

Gary Durden Featured in Private Banker International – Private Banking Outlook in 2024

Gary Durden, Partner & Managing Director, was recently featured in Private Banker International’s “Private banking outlook in 2024: what do the experts say?” Read his contribution below.

“The scale and deployment of US clean energy has historically hinged upon tax equity incentives. 2022’s Inflation Reduction Act created several new policy additions designed to further the industry’s growth, including: new and extended tax credits for emerging and established technologies, credit adders for projects meeting certain criteria, and notably, a mechanism to transfer credits. “Transferability”, which allows project sponsors to sell generated tax credits directly to select buyers, is arguably the biggest innovation in sustainable energy project finance, and it’s an important tool for advancing the energy transition.

Tax equity supply was ~$18bn in 2022, and it’s estimated that over 50% of this supply was provided by JPMorgan, Bank of America, and Wells Fargo – the biggest “legacy banks” in the sustainable energy market. As transferability develops as a complement to traditional tax equity, these banks will likely continue to provide a consistent volume of tax equity, and they are already exploring credit purchases as well. Rather than choosing one vs the other, we believe that these legacy banks will opt for a “hybrid offering”, in which traditional tax equity is used together with the transfer of credits. This offering should allow the legacy big banks to expand their supply of tax credit investments.

Increasingly, large corporations, including many Fortune 1000 firms, global and regional banks, insurance firms, and other players, are looking to purchase clean energy tax credits. Corporates who previously were doing a few tax equity deals per year or were purchasing clean power and renewable energy credits are now exploring large transfer deals under a more comprehensive decarbonization strategy. Companies new to tax credit investing are working with advisors, aggregators, or their banking relationships to become comfortable with an investing strategy. There is a smaller learning curve for purchasing tax credits versus often-complex tax equity partnerships, allowing market participation to diversify rapidly.

Based on forecasts of technology buildout, the annual demand for tax credit capital could exceed $90bn by 2029, largely driven by emerging technologies like carbon capture as well as enhanced tax credits for solar, wind, and storage projects. This forecasted demand is almost five times the total tax equity supply in 2022. Tax capital supply will have to increase exponentially, and transferability is key to unlocking the necessary supply to bring us closer to a low-carbon world.”