Highlights from Crux Quarterly Market Update: 1Q 2024

Market highlights

In January, we released our inaugural Market Intelligence Report (MIR), covering more than $3.5 billion in transactions. In it, we estimated the market for 2023 credits was $7-9 billion. Since then, the market has continued to accelerate and we anticipate tax credit transfer volumes in 2024 may significantly exceed last year.

Demand for as-yet unsold 2023 tax credits in the first quarter of this year has been extremely strong. As a reminder, companies can continue to transact in tax credits through their tax filing deadline. To date, nearly 80% of 2023 tax credits on Crux have received at least one non-binding bid and many have received more than one.

Buyers are taking stock of their 2024 tax appetite, and commercial interest in 2024 tax credits is also accelerating. In the first quarter, buyers on Crux placed over $1.5 billion in bids. Many buyers are responding to competitive pressure by pulling forward tax credit purchases and planning quarterly tax credit purchases to drive up the internal rate of return on credit purchases.

Supply of tax credits is growing rapidly and is associated with a wide range of technology types. On Crux alone, we now have $8.8 billion of credits available for sale. New credit categories took effect in 2024, including for hydrogen production tax credits (45V), carbon capture credits (45Q), and nuclear production tax credits (45U). At the end of March, the DOE and the IRS announced $4 billion in 48C tax credits for over 100 projects across 35 states to accelerate domestic clean energy manufacturing and reduce greenhouse gas emissions at industrial facilities.

A mix of policy drivers impacted demand in Q1. The US Treasury Department has continued to issue guidance regarding clean energy tax credits, which provides greater market confidence in tax credit transactions broadly. Many buyers closely watched the prospect of the Section 174 R&D tax credit extension rise — and subsequently fall — in Congress. Uncertainty around the R&D credit led some buyers to delay planned tax credit deals for a few weeks, but, as likelihood of passage has dimmed, many are now returning to the market.

Project finance adaptations are improving access to clean energy tax credits and maximizing their value. Lenders are evolving rapidly to maximize the value of energy tax credits and pull their value forward to facilitate financing and working capital needs for projects. Investment structures are evolving specifically around transferability. 2024 has seen the emergence of more advanced bridge lending strategies and joint venture (JV) structures designed to enable a step-up in basis to fair market value for ITC projects.

As anticipated, pricing for clean energy tax credits is trending slightly down from the fourth quarter 2023, but remains strong across most credit categories. Many price dynamics observed in last year’s market are still applicable — larger deals tend to price higher, seller credit quality can improve relative credit pricing, and credits from newly eligible technologies tend to price at a discount.

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