The second Trump administration has taken office at a time when energy demand in the United States is rapidly increasing after a decade of stagnant growth. To meet this demand, energy developers and manufacturers must build capital-intensive projects over long periods of time, selecting from different financing tools available to them.
In the two years since their introduction, transferable tax credits have proven to be a critical tool in unlocking investment for American clean energy developers and manufacturers, boosting domestic supply chains, jobs, and business growth. Tax credits — enabled by transferability — are estimated to have already catalyzed more than $500 billion in private capital since 2022, on the basis of credit transfer deal volumes expected to reach $25 billion in 2024.
This new financing mechanism has presented a transformative growth opportunity for the U.S. solar industry, enabling clean energy developers and manufacturers to secure funding more efficiently.
More popular than direct pay
Energy project developers and manufacturers typically do not have sufficient tax liabilities to take advantage of valuable investment tax credits and production tax credits in the year in which they earn them. Transferable tax credits allow developers and manufacturers to sell their tax credits to third-party buyers, such as corporations with significant tax liabilities.
This approach widens the pool of potential capital partners, making it especially attractive to smaller developers and manufacturers who might struggle to secure traditional tax equity partnerships.
Transferability offers many advantages for energy developers and manufacturers, including:
- A new open-access market: Energy developers and manufacturers of all sizes can participate, unlike tax equity partnerships that have traditionally only been available to large companies because of the resources required to navigate complex deal structures.
- Streamlined process: Transferring tax credits often involves a simpler legal process compared to complex tax equity partnerships, and technology tools make it even easier for developers and manufacturers to understand and enter the transferable tax credit market.
- Faster access to cash: Transferability allows sellers to receive payment much sooner than through direct pay. With direct pay, credits are submitted on tax returns and processed by the government, which can take a long time. Transferring tax credits in the market provides quicker cash flow.
Direct pay is an alternative monetization option to transferability, available to manufacturers of eligible energy components and critical minerals producers. Direct pay provides developers and manufacturers with a cash refund equivalent to the value of the tax credit, eliminating the need to partner with tax equity investors. However, direct pay is primarily limited to tax-exempt entities, such as municipalities or nonprofits, restricting its applicability for most private developers.
For the solar industry, transferable tax credits represent a game-changing solution, as it opens pathways for developers and manufacturers of all sizes to thrive in a highly competitive market.
Transferable tax credits and solar manufacturing
Transferable tax credits have already created growth in American manufacturing, the domestic supply chain, and local job creation.
In May 2024, Silfab Solar, a North American leader in the design, development, and manufacture of premium solar PV modules, sold its 45X Advanced Manufacturing Production Tax Credits to Schneider Electric, which helped reduce the buyer’s tax liability while providing capital that will be used to expand Silfab’s domestic solar manufacturing capacity.
In November 2024, SolarEdge Technologies, Inc. announced it had completed its first sale of 45X Advanced Manufacturing Production Tax Credits earned by the domestic production of solar inverters. The company commented that the cash infusion will enable them to accelerate additional investments in their United States manufacturing footprint and deliver a dependable supply of U.S. produced technology to its customers.
These examples underscore the adaptability and accessibility of transferable tax credits, and showcase the market potential of credits to advance the solar industry’s growth.
Small deals
The U.S. solar market has long been dominated by large-scale projects that attract institutional investors. Smaller developers and manufacturers, often constrained by limited access to capital, face challenges in securing financing. Transferable tax credits address this disparity, while also making a wider range of diverse technologies eligible for tax credits for the first time.
When smaller project developers and manufacturers are able to secure funding, the positive impact of that investment can ripple across the community. In one instance, Balance Solar generated tax credits from four projects across the Midwest: two Habitat for Humanity buildings in Illinois, one church in Illinois, and a food bank in Missouri, all that were created to serve the local communities. Balance Solar’s previous experiences taught them that, historically, most buyers are not interested in deals less than $10M in credits. Balance Solar was matched with a buyer, and all parties efficiently and smoothly navigated the transaction process. This deal ultimately benefits worthwhile non-profits in historically low-income communities.
This benefit to local economies and our country’s ability to build robust and resilient energy infrastructure hinges on the empowerment of diverse stakeholders, from large utilities to community solar developers. By enabling smaller projects to secure funding, transferable tax credits drive diversity and resilience in the energy sector by:
- Promoting decentralized energy: Smaller projects, such as community solar farms, play a crucial role in broadening access to renewable energy.
- Encouraging innovation: With easier financing, developers can experiment with cutting-edge technologies like bifacial panels or advanced energy storage systems.
- Expanding market participation: Transferable credits lower the barrier to entry, allowing new players to contribute to the clean energy economy.
Technology’s role in increasing financing efficiency
The transferable tax equity market has gained momentum at a pace surpassing experts’ initial expectations. For any capital market to be successful, it’s essential that the market remain liquid and efficient. Technology is a critical component of supporting this rapidly growing and maturing market, delivering transparency in market insights and new industry standards, and streamlining the transaction process for sellers, buyers, and advisors.
Navigating the tax credit market can be daunting. Technology yields market intelligence that helps educate market participants, giving them peace of mind that they’re entering into a great deal. Technology platforms also play a pivotal role in connecting sellers and buyers and ensuring all parties move through the deal process smoothly and efficiently.
Energy developers and manufacturers can accelerate capital raises across all stages and sizes of project financing, by prioritizing these key things:
- Consult leading market data to plan capital raises and enter into deal negotiations with confidence.
- Drive a competitive bid process to connect with high quality buyers and maximize the value of your credits
- Leverage market platform tools, like standard agreements and due diligence checklists, to transact faster.
Looking ahead
As the U.S. accelerates its energy production, the importance of adaptable and inclusive financing mechanisms cannot be overstated. Transferable tax credits offer a flexible, market-driven solution that complements traditional financing options. By addressing the needs of smaller developers and fostering innovation, these credits are helping to fuel domestic manufacturing to meet growing energy demand.
In a rapidly evolving policy landscape, the convergence of innovative financing and technology marks a pivotal moment for the U.S. solar sector. Transferable tax credits are more than just a tool — they are a catalyst for American businesses to meet accelerated energy demand and increase resilience of the American energy grid.
Alfred Johnson is the co-founder and CEO of Crux, a capital markets technology company changing the way clean energy and manufacturing projects are financed in the U.S.
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