WEMO24-Compiled Report-Interactive compressed (002) 4154-7882-8116 v.1 - Flipbook - Page 154
As interconnection lines run across states with varying
jurisdictions, permitting between multiple state/local
government rules can block or delay infrastructure, and this is
especially the case for emerging climate technologies.
The top needs to enable clean technology growth sources
by renewable energy requires the build-out of utility-scale
infrastructure and the tremendous need for new transmission
line corridors. The Department of Energy has earmarked $2.5
billion to develop new, large-scale, interregional transmission
lines across six states, adding 3.5 GW of grid capacity—an
additional $14 billion for states, tribes, and utilities for gridenhancing technologies and upgrades. Overall, the IRA has
made clean energy investments cost-competitive, with barriers
being primarily related to siting, permitting, backlogged
interconnection queues, and supply chain constraints.
Navigating the state/local jurisdictions can often be challenging.
States, independently, are also taking lead to ensure their
communities are resilient and connected. States like California
and New York are leading the charge by investing into their
transmission systems and enhancing regulatory processes to
meet the accelerated demand.
As the IRA accelerates clean energy projects, leveraging tax
credits offers significant benefits for both sellers and buyers.
However, it is crucial to navigate the associated risks effectively
to ensure sustainable growth and compliance.
ENERGY IN
THE REGIONS
Simplified Transactions: Compared to previous tax equity
investments, transactions involving tax credits are straightforward
and do not involve complex accounting. This simplicity requires
performing thorough due diligence on the tax credit itself to
ensure compliance and validity.
These risks are associated with the sales and purchase of these
tax credits and can take different forms like compliance risk,
financial risk, project performance risk, etc.
What are some of the risks we
are seeing?
Benefits of Purchasing a Tax Credit
for a Buyer:
Identified Risks When Purchasing Tax Credits:
Tax credits offer significant value to issuers by providing crucial
capital for low-carbon projects and improving cash flow, which
helps secure financing. Buyers of these credits also benefit from:
Financial Savings: The primary benefit of purchasing a tax credit
is the potential to receive a discount on the purchase price
relative to the value of the credit. For example, buying a credit
at 95 cents for a dollar's worth of credit results in a savings of
five cents for every dollar. These credits can be utilized against
quarterly estimated tax payments. Buyers need to understand
these mechanics before they can recognize the financial benefit.
Support for Sustainable Technologies: Purchasing tax credits
can also support investments in clean or low-carbon technologies,
aligning with a company’s sustainability goals.
1. Disallowance and Recapture Risks:
• There is a risk that the IRS could invalidate claimed tax credits.
• For example, for investment tax credits that are subject to
recapture, if the credited property ceases to operate within
the recapture period, the IRS may reclaim those credits.
2. Creditworthiness of the Counterparty:
• Typically, the seller indemnifies the buyer for any losses,
penalties, and interest associated with these tax credits.
• However, a significant risk arises if the seller lacks the financial
stability to fulfill their indemnity obligations.
3. Audit Compliance:
• While audit compliance does not inherently pose a risk, it can
create an administrative burden. The buyer is subject to audit,
but it is the seller who must provide the documentation to
substantiate the tax credits.
• Generally, the buyer’s strategy is to shift financial risk to the
seller through the indemnity agreement.
WEMO 2024
Near Term Obstacles Still Remain but
States See the Need
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