Transferable renewable energy tax credits (“TTCs”) allow corporations to generate a reduction of their effective tax rate. TTCs are federal tax credits that can be bought for cash by an unrelated taxpayer instead of being used only by the company that earned them. TTCs are bought at a discount and applied by the buyer dollar-for-dollar against their federal tax liability, generating permanent cash tax savings.
TTCs are most beneficial to large corporations due to their stable, recurring federal income tax liability. TTCs provide a 5–10% effective yield when factoring discount and insurance, which makes them ideal for large corporations.
Prior to the enactment of the Inflation Reduction Act of 2022 (“IRA”), only an owner of a renewable energy project could use the resulting tax credits. The only way for third parties to access renewable energy tax credits was to enter a co-ownership tax equity structure with the project developer, which can be complex, long-term, costly, and difficult to manage.
The enactment of the IRA allows buyers to purchase TTCs directly from the sponsor/developer to offset their federal tax liability, eliminating the need for complex tax equity structures and asset financial performance risks as they are not investing true equity into the project.
TTCs generate permanent cash tax savings due to the discounted purchase price at which they are sold, resulting in an effective tax rate reduction.
Additionally, there is potential for significant cash deferral benefits and reduced quarterly estimated payments, which is discussed further ahead.
There are currently 12 transferable renewable energy tax credits:
|
Credit |
Scope |
Description |
|
§30C – Alternative Fuel Vehicle Refueling Property |
Refueling/charging stations |
Credit for installing alternative fuel refueling infrastructure such as charging stations for electric vehicles or facilities for ethanol, natural gas, hydrogen, or biodiesel, particularly in rural and low-income communities. |
|
§40A Small agri-biodiesel producer credit |
Small agri-biodiesel production |
Credit for small agri-biodiesel producers through 2026 (OBBBA extension). |
|
§45 – Renewable Electricity Production Credit |
Renewable generation |
Credit based on the amount of electricity generated from eligible renewable energy resources. |
|
§45Q – Carbon Oxide Sequestration Credit |
Carbon management |
Incentivizes the capture and secure storage of carbon dioxide, including approved commercial uses, within the United States. |
|
§45U – Zero-Emission Nuclear Power Production Credit |
Nuclear power |
Production credit for electricity generated by qualifying nuclear facilities, applicable to electricity sold after 2023. |
|
§45V – Clean Hydrogen Production Credit |
Hydrogen |
Rewards the production of hydrogen meeting clean standards at approved hydrogen production facilities. |
|
§45X – Advanced Manufacturing Production Credit |
Domestic clean tech manufacturing |
Credit for U.S. manufacturing of clean energy components, including solar and wind equipment, inverters, battery parts, and critical minerals. |
|
§45Y – Clean Electricity Production Credit |
Technology-neutral production |
Beginning in 2025, replaced the traditional production credit (§45). Available for any facility producing zero-emission electricity, regardless of technology type. |
|
§45Z – Clean Fuel Production Credit |
Transportation fuels |
Beginning in 2025, credit for U.S. production of low-carbon transportation fuels, including sustainable aviation fuel. |
|
§48 – Energy Investment Credit |
Renewable energy projects |
Credit for capital invested in renewable energy projects and infrastructure. |
|
§48C – Advanced Energy Project Credit |
Clean manufacturing facilities |
Incentivizes investment in factories that produce clean energy technology and equipment. |
|
§48E – Clean Electricity Investment Credit |
Technology-neutral investment |
Starting in 2025, replaced the traditional investment credit (§48). Credit for investment in facilities generating zero-emission electricity, regardless of technology. |
TTCs generally fall within two categories: Investment Tax Credits (“ITCs”) and Production Tax Credits (“PTCs”).
Investment tax credits (ITCs) are one-time credits based on a percentage of a project’s upfront capital investment value when the project is placed in service (“PIS”). Base credit for ITCs starts at 6% of the project’s qualified cost basis and can increase to 30% if all Prevailing Wage and Apprenticeship Rules are met. Projects can also qualify for bonus adders, which increase the percentage of the credit generated.
Production tax credits (PTCs) are ongoing metered credits generated based on the actual production and sale of qualifying products and clean energy, claimed annually over a 10-year period. Production tax credits are calculated using a rate-based formula determined by the qualifying product or energy produced and sold annually over the 10-year period. The IRS updates §45 PTC rates each year, typically in Q2, using an inflation adjustment factor published in the Federal Register. Rates are generally stable, but they are subject to revision. PTCs are subject to Prevailing Wage and Apprenticeship Rules to qualify for the full rate. Otherwise, they remain stuck at the base rate, which is only 20% of the full value.
On July 4th, 2025, Congress passed the One Big Beautiful Bill Act (“OBBBA”) which imposed significant changes to TTCs created by the IRA in 2022. OBBBA impacts TTC projects that began construction in 2025 and beyond. PIS restrictions affect projects not placed in operation and PIS by the end of 2028. Transferability is intact, but the pool of eligible projects and eligible buyers is changing as a result, diligence burdens are rising, and wind/solar supply will decay after 2027 unless grandfathered. As a result, more credits from fuels (45Z), storage, geothermal, nuclear, and 45X manufacturing are dominating the TTC market.
There are two main factors to consider when determining credit amount. First is the limit placed on credit use by the Internal Revenue Code (“IRC”) of 75% of the current year’s tax liability. Taxpayers must forecast their liability for the year and include any other claimed general business credits (as defined by the IRC) and compute their total potential credit purchase in the current year. It is possible to carry back and carry forward credits from the current year. Second, taxpayers must consider cash position and needs along with the timing discussed in the next section to identify the appropriate credit amount target.
Credits are generated in the tax year in which either the credit generating assets are PIS, or the energy/property is produced and sold to an unrelated party. Sellers typically will want to receive proceeds from credit sales as soon as possible, while buyers will look to maximize the credit benefit by deferring payments to align with their quarterly estimated federal tax payments.
Credit type and seller characteristics play a main role in determining due diligence and risk mitigation strategies. For example, production tax credits do not carry a recapture period like investment tax credits. Additionally, certain technologies and credit portfolios require more extensive due diligence, such as credits that incorporate adders, etc. These factors may require tax insurance, transactional timing, price, and overall preference for the buyer.
Buyers must ensure that ITCs under §48 or §48E comply with IRS requirements, including that the project qualifies as either energy property (pursuant to §48) or a qualified facility or energy storage technology (pursuant to §48E), PIS date is within the correct tax year, the proper cost basis was used, and the project complies with applicable Foreign Entity of Concern (“FEOC”) restrictions. For §48E TTCs from projects starting construction on or after January 1, 2026, compliance with FEOC rules is mandatory, and if not met, investment tax credits are subject to a 10-year recapture period. By contrast, §48 credits are not subject to this provision. If the IRS determines the original credit was never validly generated, 100% disallowance applies, regardless of time elapsed.
ITCs under §48 or §48E are subject to recapture if, during any taxable year, the ITC property is disposed of or otherwise ceases to be ITC property. Recapture is subject to a 5-year compliance period, starting at 100% in year 1 and reducing 20% for every year elapsed (e.g. Sale after Year 2 → 60% of the ITC is recaptured). The main ways recapture is triggered are:
For a project to qualify under §45, it needs to generate a qualified energy product or clean energy from a qualified energy source for a period of 10 years starting on the date the project was PIS, and the energy or products generated must be sold to an unrelated party during that same taxable year.
Additionally, facilities that undergo a repower where existing projects are upgraded with new equipment may qualify as newly PIS and generate another ten years of PTCs. To qualify, the value of used property cannot exceed 20% of the facility’s total value, typically verified through a third-party appraisal.
Unlike §48 and §48E ITCs, §45 PTCs are not subject to recapture because they are tied to production. While production can be more easily quantified and verified, before purchasing PTCs, a buyer should request both a certified production report and proof of sale to an unrelated party from the seller for the appropriate production period.
Tax credit insurance protects TTC buyers against IRS disallowance, recapture, and shortfall in expected returns. While costs run 2–5% of insured value, coverage is a great option to further mitigate the complexities of a TTC transaction for corporate buyers.
An excess credit transfer occurs when the amount of TTCs delivered to a buyer exceeds either: (a) the amount of credits that were validly generated and eligible for transfer as determined by the IRS pursuant to the Internal Revenue Code, or (b) the buyer’s actual tax liability.
The IRS may determine that the credits transferred were not validly generated due to improper cost basis, non-compliance with prevailing wage/apprenticeship requirements, non-compliance with FEOC restrictions, or incorrect PIS determinations, in which case the credits are treated as if they never existed.
If transferred credits are later determined to be improperly claimed, liability attaches to the buyer, not the seller. Credits are treated as federal income tax paid by the buyer once transferred. If those credits are deemed invalid, the buyer has underpaid their federal taxes and owes the IRS those unpaid taxes, plus interest and penalties. The buyer should include contractual protections like seller representations, warranties and indemnities, and/or insurance, true-up provisions, and escrow/holdback to protect itself from excessive credit transfers.
If the buyer acquires more valid credits than can be applied against their current-year tax liability, unused credits may be carried back up to 3 years or forward up to 20 years. Purchasing more credits than can be used immediately ties up cash while postponing the tax benefit, which reduces effective yield. Excess credits carried forward must be evaluated for realizability; if future taxable income is uncertain, a valuation allowance may be required.
TTCs are sold at a discount to their face value, giving buyers a built-in savings margin. The difference between what the buyer pays (say, $0.92 per $1 of credit) and the $1 tax benefit recognized creates permanent benefit that reduces the effective tax rate.
Each TTC opportunity brings a unique set of criteria that are key drivers influencing price negotiations:
The ability to reduce estimated tax payments before paying the credits is one of the most powerful cashflow benefits of TTCs. The strategies to maximize discount and minimize upfront cashflow are determined based on the corporation’s liquidity strategy, tax profile, and risk tolerance. Below we discuss one of the most noteworthy strategies:
According to recent IRS guidance, a taxpayer may consider an eligible credit they intend to purchase when calculating their estimated tax payments. If a buyer can prove intent to purchase TTCs in Q1 for credits to be purchased later in the year, they can begin reducing estimated tax payments immediately while delaying cash payment until Q3 or Q4, freeing liquidity for other uses. Taxpayers must finalize the purchase before filing their tax return and maintain proper documentation to support their intent. Failure to do so could result in penalties.