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04/17/2024
Five transferability market price drivers
The transferability market is still in its early stages, but some trends are taking shape.
The transferability market is still taking shape. Last year approximately $4 billion to $9 billion of transfer deals were executed, according to Norton Rose Fulbight’s 2024 Outlook. The main question we receive is, ‘What is the average price per credit for these transactions?’ The answer is: it depends; however, there are a few price drivers.
Deal size
There are other factors to consider, however, the bigger the transaction, then generally the higher the credit price trends. Deals that produce under $10,000,000 in credits could be priced under $0.90, whereas larger transactions that produce $25,000,000 or more of credits could be above $0.90.
Credit type
The type of credit is also a driver; whether you have the investment tax credit (ITC) or the production tax credit (PTC). With the ITC, pricing will reflect recapture risk. With the PTC, there is no recapture risk, which is reflected in the price. Also, PTC are generated from larger transactions, which would typically command a higher price.
Technology
Technology will have a significant impact on pricing. Solar and wind are considered tried and true assets, but newer assets such as storage and hydrogen are lesser known, and investors require more education. Thus, the pricing on transactions with nascent technology will reflect the technology risk associated with newer technologies. Traditional tax equity investors are more cautious to invest in newer technology because of the technology risk.
Due diligence
Due diligence is shaping the transferability market. The market is anticipating there will be less and simpler due diligence in a transfer versus traditional tax equity transaction. However, due diligence is evolving to address the new aspects of the Inflation Reduction Act and to accommodate new investors. While there is currently no standard for due diligence, the industry is hopeful a standard amount and process will evolve as the industry matures.
Market players
Lastly, who is participating and the players in the market are also shaping the market right now:
- Traditional tax credit equity is digging into this market and is creating structures to take advantage of this marketplace.
- Traditional syndicators make up the next tier or middle market. They are also very prevalent in this space and are bringing in new entrants.
- Online platforms are also active in this space although their role is a bit uncertain at this point.
Looking ahead
This marketplace is growing because of the Inflation Reduction Act and selling credits is administratively less burdensome than forming tax equity partnerships. We expect to see new participants enter this marketplace.
Subject matter expertise
Stephanie Caragher
CPA, Partner, Project Finance & Consulting
Sasibeh Beyene
CPA, Partner
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This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.