Main Benefits
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Improved Access to Capital:
- Better Access to Tax Equity Financing: Smaller developers often have limited tax liability, making it difficult to utilize tax credits directly. Transferability allows them to sell unused credits, providing access to capital that might not have been available through traditional tax equity structures.
- Enhanced Liquidity: By selling credits, developers can generate working capital to fund new projects.
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Project Viability Enhancement:
- Improved Marginal Project Feasibility: Transferability can make previously unviable projects achievable by allowing developers to monetize all generated credits, not just those they can use.
- Lower Investment Risk: By selling credits upfront, developers reduce reliance on operational cash flows to recoup investments, thus lowering risk.
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Market Competitiveness:
- Support for Smaller Developers: Transferability levels the playing field between smaller and larger developers, as both can now access tax equity financing more easily.
- More Favorable Financing Terms: Increased competition among tax equity investors improves financing rates and terms for developers.
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Simplified Processes and Reduced Costs:
- Simplified Structures: Transferable tax credits involve simpler agreement structures compared to traditional tax equity, reducing legal, due diligence, and accounting costs.
- Efficient Transactions: The process is less complex and costly for both buyers and sellers, making smaller transactions viable and attractive.
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Risk Management:
- Reduced Risk from Project Performance: Buyers of transferred credits face lower project-related risks since they do not invest directly in project equity, only in the tax credits themselves.
- Insurance and Diversification: Growing insurance coverage for tax credits and the ability to bundle smaller credits into portfolios further mitigate risks for both buyers and sellers.
Overall, transferable tax credits provide smaller developers with increased financial flexibility, reduced barriers to entry, and a more streamlined path to monetizing their projects’ tax benefits.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-are-the-main-benefits-of-transferable-tax-credits-for-smaller-developers/
