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Tax Credits 101: What’s the Big Deal?

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In case you missed it, the U.S Inflation Reduction Act (IRA) has already succeeded in mobilizing both public and private spending on climate energy-related investments. That’s great news, and a big reason is the IRA's transferability clause, which allows organizations to transfer eligible federal tax credits for renewable energy, clean manufacturing, battery storage initiatives, and other green energy initiatives.

For more than a decade, corporations supported the development of renewable energy generation primarily through Power Purchase Agreements (PPAs). We saw that firsthand because no one advised on more of those transactions than Schneider Electric’s Sustainability Business — more than 20 GW of new renewable energy generation. We’re now stepping into a very similar leadership role with tax credit investment, initially with tax equity opportunities and, more recently, with tax credit transfer.

Since we’re already fielding questions from our clients on the ins and outs of tax credit transfer, we thought we’d capture some of the most common FAQs here. (And we’re taking a deeper dive into more advanced questions in our new blog series.)

Why should I care about tax credits?

Thanks to the IRA, corporates can more easily support renewable energy development and simultaneously reduce their Scope 2 emissions. Tax credits are purchased at a discount and the savings can then be used to procure RECs — which is the Scope 2 emissions reduction mechanism — but those funds can also be used toward other renewable energy opportunities or efficiency projects or even applied more generally to CapEx or OpEx.

Schneider Electric is at the forefront of developing the market for Tax Credit Investing on behalf of corporate clients. Backed by our years of experience advising clients on renewable energy decisions, we’ve pioneered tax credit investing approaches that allow corporate clients to secure tax savings while achieving sustainability goals in parallel.

Who can benefit?

  • Companies with substantial US federal tax liability 
  • Advanced companies seeking a leadership position in renewable energy and sustainability
  • Organizations looking to funnel savings into renewables projects or other creative solutions
  • Companies seeking a diversified risk profile against VPPAs/wholesale electricity/ REC market price exposure
  • Large REC buyers concerned with price volatility

Ok, I check those boxes, but what’s the real opportunity financially?

Please keep in mind REC and tax credit pricing is project dependent. But if we temporarily set aside considerations like the time value of money, tax benefits on the REC purchase, or other items, here’s an example that gets to the heart of this question:

Ok, but…Schneider Electric?

Yes, Schneider Electric, and here’s why:

  • We’re a tax credit investment pioneer with a robust pipeline of early corporate adopters, totaling over $10B in annual federal tax liability.
  • We’re the largest and most experienced renewable energy advisor in the world.
  • As a buy-side advisor, we represent our clients’ interests during the transaction.  We can influence early deal terms prior to offtake and capital structure being established.
  • We provide expert insight into evolving deal terms and pricing levels. We survey our vast network of sellers to identify projects that fit each client’s specific needs. 
  • We anticipate complexities in each transaction and we help clients navigate the entire process while we validate appropriate pricing along the way.

Have you done this before?

We’re so excited about this new mechanism, we’ve used it ourselves. Twice. Here’s our recent collaboration with Silfab Solar in May and with Engie in February.

Ok, but does anyone else think this is a big deal?

Yes. How about John Podesta, Senior Adviser to the President for Clean Energy Innovation and Implementation​?

“This announcement is exactly the kind of transformational investment that’s possible because of the transferability provision in the President’s Inflation Reduction Act.”

Surely there’s some sort of fine print.

Not really, but on April 24, the IRS announced its final regulations around tax credit transfers. Changes from the proposed regulations were minimal. Among the items confirmed is that bonus credits (associated with “adders” like energy communities and domestic content) cannot be sold separately from the “base” credits.

How can I learn more?

Maybe you have questions. Many of our clients do, and a question like, “Are tax credits a good fit for my organization?” is pretty common. Maybe you’re a seller developing a tax credit monetization strategy and you’re looking for some guidance. The Tax Credit Investment team at Schneider would love to lend a hand. Get in touch with us at TaxCreditInvestment@SE.com to get started.

Or, check out our recent webinar featuring subject matter experts Hans Royal, Senior Director, Renewable Energy & Carbon Advisory, and Emily Rose, Associate Director, Head of Renewable Energy Tax Credit Investing for a deeper dive into tax credit transfers.