Where is my tax credit?

Everybody has their obsessions, and one of mine is clean solutions deployment and how to make it smoother. And especially when it comes to smaller asset sizes (under 10MEUR).

Over the weekend I found myself digging into the rabbit hole of Inflation Reduction Act (IRA) that was introduced in the US in 2022. I wanted to understand what all the fuss was about.

If you think of project funding, you typically have an equity and debt component. When it comes to tax credits like IRA, the equity in those projects becomes of value.

Most project developers cannot take advantage of the tax credit themselves. But there are many corporates and investment companies that are looking for opportunities where they could take advantage of this tax credit.

Ta-daa, let me introduce to you: tax credit financing! The tax credit financing brings the needed equity for the project and in return the investor gets the IRA required tax credits to be utilised in a whole separate business.

What this means is that smaller project developers, and for example those energy ventures that are trying to find project equity for their new, higher-risk project, suddenly have access to similar type of project equity financing that is typically available only for the large projects. And if the tax credit is bought by a corporate with ESG goals is just icing on the cake, they get both the tax benefit AND the ESG benefit.

And we are not talking small money here: 391 billion dollars. That's a whole lot of project equity right there.

We don't have a federal EU-level tax-structure, so we cannot simply copycat the structure in the European market. But boy would I like to see something similar in place driving small size energy projects in Europe.