As the market for transferable tax credits takes off, participants on all sides of it seek more insight. This report unpacks the current state of the market for 2024 tax credits based upon a database of over $6.8 billion in transactions of 2024 tax credits closed in the first half of 2024, including deals reported by more than 100 market participants, Crux’s commercial deal activity, and publicly announced deals. This is a meaningful increase in the size of the data set from our 2023 Market Intelligence Report (MIR), which identified $3.5 billion of specific transactions. The Mid-Year MIR is another material step towards building liquidity and transparency into the tax credit market. Crux estimates this dataset reflects 65-75% of market activity, and is the most comprehensive tax credit transfer data set.
The 2024 clean energy tax credit market continues to grow and develop depth and liquidity. From our data, Crux projects the overall volume of transferable tax credit transactions in the first half of 2024 is between $9-11 billion. Deal volume will likely continue to accelerate through year end, ultimately reaching $20-$25 billion – exceeding prior estimates for the year. Notably, this includes credits sold out of tax equity partnerships and other joint ventures.
95% of reported deals in 1H2024 were for wind, utility-scale solar or storage, and advanced manufacturing credits. The supply of utility-scale tax credit inventory has largely been committed or already purchased. However, overall demand is growing rapidly, and buyers have become increasingly sophisticated in their approach to tax credit transactions.
If supply of highly transactable tax credit types presents a constraint in 2H2024, other tax credit categories are likely to make up a larger share of the market, particularly advanced manufacturing (45X) credits, renewable natural gas (RNG), distributed generation, and residential solar projects.
Similarly, regulatory guidance could help unlock some large credit categories, like the 45U nuclear PTC, which could release billions of dollars of new PTCs into the market. As year end approaches, some tax equity sponsors may also find themselves long or overbought credits, and sell tax credits in the second half.
Tax credit pricing in the first half of 2024 was notably strong, averaging over 95 cents for Production Tax Credits (PTC) and 92.5 cents for Investment Tax Credits (ITC), versus 94 and 92 cents, respectively, in 2023.
Average deal sizes ($55 million for ITCs and $85 million for spot PTCs) exceed the typical deal size in 2023 ($20 million and $60 million, respectively). One contributing factor: the types of commonly-transacted credits have changed.
In 2023, Crux’s data set included more biogas/renewable natural gas credits and electric vehicle (EV) charging credits, as well as a larger share of advanced manufacturing credits. As-yet unsold inventory, much of which may be smaller or derived from novel technologies, may trade at lower prices than the credits which have transacted year-to-date.
Mid-sized deals (valued between $5 and $25 million) occupy a highly liquid place in the tax credit market, but nonetheless saw lower average pricing than the market overall: 93.7 cents for PTCs and 91.8 cents for ITCs.
The use of insurance in ITC deals, though common, tends to be correlated with lower pricing compared to deals with parent indemnification, specifically for deals under $25 million.
The most probable explanation for this finding is that the deals that include parent indemnification are almost certainly backed by an investment grade seller/sponsor, and thus tend to trade at a premium price. Insured deals, by contrast, could represent a sample of projects backed by smaller and mid-sized developers or those otherwise unable to provide strong indemnities.
Competitive sales processes are increasingly common, with two-thirds of market participants engaging in some way, including through bank-led processes and platform listings. Competitive deals are 67% more likely than bilaterally-negotiated deals to achieve above-market pricing, which underscores the benefits of selling tax credits in an open market, even if the sellers have direct access to some tax credit buyers. For tax credit buyers and their advisors, a large and liquid tax credit marketplace supports deal discovery and ensures that buyers can prioritize credits meeting their needs — particularly price, timing, and creditworthiness of the seller.
Buyers, particularly those with a relatively high degree of certainty regarding their 2025 tax liabilities, could be well-served by looking seriously at 2025 tax credit supply. Doing so now ensures that they can engage with the widest range of sellers and obtain advantageous pricing.
Crux data indicates that forward commitments tend to transact at a 1-3 cent discount to 2024 tax credit deals. About 25% of 2024 reported deals included a forward component, including a full or partial purchase of future year tax credits.
The observed price discount is representative of the relative value of a forward commitment to a seller who can use the commitment to secure lower cost financing. About 40% of deals with forward commitments were used to secure financing, according to Crux’s data.
Check out our comprehensive guide on transferable tax credits for more guidance on the market, how stakeholders can take advantage of this evolving marketplace, and more.
Download the full Mid-Year Market Intelligence Report for a comprehensive analysis of the tax credit market in the first half of 2024.
Having trouble with the form above? Email us to receive a free copy of the report: news@cruxclimate.com
August 16, 2024
Two years ago, the IRA was signed into law. It kicked off a wave of new investment in clean energy and domestic manufacturing supply chains. We highlight ten important milestones that the clean energy sector has achieved since the passage of the law.
Read More
May 23, 2024
The IRS introduces a new elective safe harbor for clean energy project developers to demonstrate compliance with the domestic content bonus adder, which offers an additional 10% bonus on the value of their tax credits.
Read More
May 15, 2024
Crux interview Kirkland & Ellis' Sam Kamyans, an expert in transferable tax credit transactions, regarding the common risks and strategies tax credit buyers employ when pursuing a deal for the first time.
Read More
.jpg)
.jpg)
.jpg)
.png)
.png)
