Episode 22: Credit Transfers & the Clean Energy Landscape
Welcome back to “Tackling Tax,” where we’ll bring you the latest on tax policy and strategies—in an easy-to-understand format. Whether you’re looking to learn more about tax bills, global tax implications, or planning insights for your business, you’re in the right place.
Listen every other week for more from our guests, which include everyone from university scholars to industry professionals to the firm’s experienced leaders.
On this episode, we’ll explore today’s clean energy landscape, with a specific focus on what it takes to sell credits and what to consider when buying them. We welcome David Burton, partner with the law firm Norton Rose Fulbright, and Richard Dovere, founder and chief executive officer of Dispatch Energy.
If you have any questions or need any assistance, please reach out to a professional at Forvis Mazars.
Transcript
IRIS LAWS
On this very special episode, we're focusing on clean energy; from the market overall to credit transfers and more. We welcome David Burton and Richard Dovere, two big players in the space, to give us their perspective on where the market is headed and how you can benefit from it. From your one stop for tax updates and analysis, I'm Iris. It's Tuesday, March 24th, and this is “Tackling Tax.”
I am so excited to be joined today by my co-host, Tyler Baity. He is with Forvis Mazars, and he is the leader of our firm's clean energy industry. He also happens to be my neighbor in the great state of North Carolina. So, welcome, neighbor.
TYLER BAITY
Thank you.
IRIS LAWS
And then, of course, I have the distinct pleasure of welcoming our two guests for today. David Burton is a partner in the New York office of Norton Rose Fulbright. He's been practicing law for 30 years and is the editor of the blog “Tax Equity News.” All of that to say, if you've heard about clean energy or been around the space at all, you have heard David Burton's name. So, we are so honored that you're here today. David, welcome.
DAVID BURTON
Thank you, pleased to be here.
IRIS LAWS
And then we have Rich. Rich is the founder and chief executive officer of Dispatch Energy, a full-service, customer-focused provider of distributed energy solutions. With over a decade of experience developing, structuring, and financing award-winning renewable power generation projects in the United States and Europe, Rich is positioning Dispatch Energy to be the leading developer and partner for distributed energy resources. So, thank you, Rich, for being here.
RICHARD DOVERE
Thanks for having me.
IRIS LAWS
All right, David, for those listening who may or may not be familiar with the clean energy industry overall, not know what opportunities might be there, let's talk about credit transfers a little bit. I know that's a big opportunity for folks. You know, let's zoom way out; what are credit transfers and what can folks have with that?
DAVID BURTON
Yeah. Credit transfers were created by the Inflation Reduction Act and they're really a game changer because before the Inflation Reduction Act, you could not buy and sell tax credits. And in fact, if somebody showed me a transaction that I thought was kind of over the line, I'd be like, that looks like just a sale of tax credits; that doesn't work.
Well, now you're actually allowed to do that. That's totally permitted now and it simplifies things a great deal. So, rather than needing complicated partnerships or a complicated lease structure, you can just buy and sell the tax credits. So, somebody who has tax credits but doesn't have tax appetite can sell them to somebody of tax appetite who doesn't have tax credits.
And they're generally trading around the low 90s. It's $0.90 on the dollar. But the quality, the indemnity, the quality of a seller, the quality of the underlying project influences that a lot. So, you can see pretty wide variances from low 90s, both higher and lower, but kind of, on average, is about $0.90 on the dollar.
IRIS LAWS
And how is that trending from maybe the past few years? Is, like, that strong? Has it gotten weaker? Like, how is the market?
DAVID BURTON
The market has grown tremendously. So, the first year this was possible was 2023. The market was about $8 billion. In 2024 it was about $24 billion. And then in 2025 about $42 billion. So, it's gone from 8 to 42 very quickly. So, it's really growing very, very fast and a lot more companies are participating as buyers of tax credits.
So, at first it was mostly the typical banks and insurance companies, a little bit of energy companies. Now we're seeing, you know, corporates, media companies, you know, retail companies, all sorts of different buyers of tax credits who wouldn't have participated before.
TYLER BAITY
So, David, I heard you talk about the Inflation Reduction Act, which was a lot of tailwinds for the industry. And then we moved to OB3, which created some accelerated deadlines for the tax credits. We've been focused a lot on solar and wind, but there are also other evolving technologies within renewable energy. And I think, Rich, you could probably speak to maybe some of those other credits, other technologies that Dispatch is pursuing that might not have the same accelerated deadlines as the solar and wind credits.
RICHARD DOVERE
Yeah. So, I actually think that the macro story about this is one that is probably a little bit less expected, but it's a story of bipartisanship. And, actually, we as a country legislatively agree more than we ultimately disagree. So, solar tax credits, wind tax credits definitely were impacted by the One Big Beautiful Bill.
And the deadlines are accelerated associated with those tax credits and the sunsetting of those tax credits. And I'll get into for a moment, you know, in a moment, some of the policy implications of that and international relation to aspects of that. But one of the things that I think is particularly interesting is if you look at it on a holistic basis, there were tax credits in fuel cells that were going to expire at the end of 2025 that were renewed as part of the One Big Beautiful Bill.
There's tax credits in hydrogen. There's tax credits in carbon capture. There's tax credits in battery storage. And looked at holistically, we're really in this moment where there were more tax credits preserved in the One Big Beautiful Bill, which I think had a lot of media coverage as this attack on renewables, than there were technologies that were eliminated.
And so, the number of opportunities for tax credits to be generated, not just, and moving away from this concept of renewable energy, but more just energy as a whole and an all of the above type of approach, I think it's really an amazing time to be a participant in this space, because now there's a renewal of the fuel cell tax credit.
There's no sunset, particularly in sight, that is in the short-term for energy storage, geothermal, nuclear power, carbon capture, hydrogen. And it's really just an aspect of impacting solar and wind on a more accelerated basis. I personally think that will probably be overturned to a certain extent, because the reality here is this country needs the power and solar still is the fastest way to get electrons onto the grid.
But it's actually nice to think about the fact that you had this piece of legislation from the Biden administration that was supposed to be the marquee piece of legislation and all these tax credits and all these incentives, and then the media coverage around the One Big Beautiful Bill was, oh, well, it's the reversal of that, but it really wasn't.
It was to a certain extent an amendment and, in certain areas, an expansion of that. And everybody is basically agreeing that we need the power and we need to find ways of doing it better. And in the United States, when the United States wants to do something from a policy standpoint, they do it with tax credits and participating in these tax credits and buying these tax credits is, amongst other things, part of your patriotic duty to do.
TYLER BAITY
Yeah, and I guess if we take a step back, when folks hear tax credits or handouts or other things, the real genesis of this that I think everybody would agree to on a bipartisan basis, we need more energy and we likely need more energy really, really fast. So, I think all of these technologies are going to help us pursue and achieve that goal. Would you agree with that?
RICHARD DOVERE
Absolutely. And I think particularly in terms of the transferability and the tax credits that David was referring to, one of the things that is a major paradigm shift with the transferability opportunity is it's not something that is prospective, it's not an investment and hoping that it will come true. It's a receipt for something that has already happened.
These are projects that are already built. These are electrons that are already being delivered. And rather than it being, you know, as David mentioned, a complicated partnership structure or a complicated lease structure where you're taking much more of a risk around the long-term performance and maybe the construction in certain instances, the transferability credits are for, it's a receipt for something that has already happened.
And it's not, I think, the characterization of it is as a handout. It's an incentive to do something that the country needs.
TYLER BAITY
Exactly.
RICHARD DOVERE
And I often think that some of the narrative around these tax credits gets lost in the real-world application of it. If you are a corporation that has a thousand employees and you make a $50 million tax credit investment, and let's say you're buying those tax credits at $0.92, $0.93. If your average employee has a salary of $80,000 a year, that savings, which, by the way, was going to be paid to the government anyway, pays for the cost-of-living adjustment on an inflationary basis for those employees.
IRIS LAWS
That's perspective.
RICHARD DOVERE
I think that the personalization of it gets lost in these incentives and the alphabet soup of everything that goes on with these technologies and the provisions of the bill and so on. But this was money that was going to be paid to the government anyway.
So, you were not going to earn a return on it. If you want to do something that's good for your shareholders, then buy some tax credits, take the savings and distribute it up and have a nice day and a nice steak dinner, right?
TYLER BAITY
Well, and the other, the other interesting piece, and David, I’d appreciate your perspective on this, is the reality is that large financial institutions have been participating through the traditional monetization structures for years, maybe decades. And I think one important piece that the transferability provisions is it opened up the opportunity to invest for a lot of other organizations through a lot less complex structure than the typical structure.
I know, David, Norton Rose works with tax credits on a daily basis. Could you speak to maybe some of the other organizations that you've seen, other than just the highly sophisticated financial institution? I know we have a lot of insurance and other industries that are participating in tax credits through transfer transferability that couldn't previously.
DAVID BURTON
I think you make a lot of good points there, Tyler. I mean, first of all, the production tax credit was first enacted in 1992 and supported by George Bush senior, right? And then Republican Senator Grassley, currently the senior senator from Iowa, he's called the grandfather of the production tax, really the energy tax credits, not just particularly the production tax credits, right?
So, you know, when you look back, where did these things come from? Really came from the first George Bush and Senator Grassley, right? So, it has not always been a left/right, you know, Republican/Democrat thing. There, at times, has been consensus around this, like, okay, you know, we need to do this. It's important for the country, important for our energy security, important for the environment. So, it's not always been so partisan. And hopefully we get back to a time when it's less partisan than it is now.
RICHARD DOVERE
I do think it is relevant to look at, on a map, where you see the largest amount of investment and development of solar and wind projects, right? So, David mentioned Senator Grassley from Iowa. There's a huge amount of wind investment and development in Iowa and the Midwest, more broadly. You have the largest, now it is, I think, the largest solar market in the country, not the largest solar market outside of this state or the largest solar market outside of California. The largest solar market is Texas.
TYLER BAITY
Yeah.
RICHARD DOVERE
And you're seeing huge amounts of development in Georgia, in Virginia, and just across the South. And that's just in the power-generating projects which benefit from these tax credits.
But there's also, as part of the Inflation Reduction Act, the tax credits that were preserved, the 45X manufacturing tax credits, which is tens of thousands of new jobs, creating a domestic supply chain, which I think is relevant to the attack on solar and wind, which unfortunately is not as domestically produced, in these states which, not that I think it should matter, but they vote red.
And I think that aspect of, you know, what David is saying is, I think there was a moment where, it was political and then it was starting to get less political, and then it was meaningfully politicized. But you're already hearing legislative rumblings that the changes that were made in the One Big, Beautiful Bill could be potentially reversed, or there would be some sort of relief that came with it just because it is not, this is not a partisan issue. This is a “we need power” issue.
TYLER BAITY
And the interesting piece is, to build solar you need land. Most of the land is in the red states. That's where most of the investments are going right now.
RICHARD DOVERE
Yeah.
DAVID BURTON
The challenge of that, and that's very true, is you also need transmission.
TYLER BAITY
Yeah.
DAVID BURTON
And, really, a lot of the high cost of power in this country is really a political problem with transmission. I mean, it's really the fact that to build a transmission line, you got to get approval from every utility it goes through, every state, every county, every municipality.
And you inevitably find some grandmother who, you know, objects and she's out there protesting. It's like, oh, if grannies against this, you know, must be bad. Let's not build this transmission line from the middle of the country to the coast that would allow us put all this renewable power in the middle of the country but get it to the coast where we need it. And if we could solve that problem, that would be huge. And there are bills pending to streamline permitting. But they haven't passed yet. And there's actually opposition on both ends of the political spectrum to those reforms.
IRIS LAWS
So, we've talked a little bit about maybe some of the credits that were preserved with OB3, right? And some of the other technologies that are out there and available for people, for transfers or otherwise, to take advantage of. You know, I'm curious, I've seen you talk about, write about before, things like the Clean Fuel Tax Credit or carbon capture.
DAVID BURTON
Yeah.
IRIS LAWS
I find those particularly interesting, especially with some new guidance that's coming out. All of that good stuff. You want to speak a little bit to those?
DAVID BURTON
Sure. I'd be pleased to. So, yes, there is a clean fuel credit and it's 45Z. And it's called Sustainable Aviation Fuel, but it's not limited to aviation. And it's generally made from agricultural products, you know, corn and other agricultural products. Obviously states like Iowa are central to that.
And, you know, we just got helpful guidance from the IRS that clarified some issues that were holding deals back a little bit. So, that's great. There's also Carbon Capture. It's 45Q and that's capturing carbon from either an energy generation process or a manufacturing process and then either using it for enhanced oil recovery.
So, injecting it into the ground for fracking, or sequestering it permanently, or using it as a product, using it in something else that would otherwise be made and is an economic product. So, there's a very large tax credit for that. There's been some deals done around carbon capture. It's still relatively small versus the other technologies, but it's growing.
And it's important. Obviously, you're seeing a lot of that in Texas, but other parts of the country as well. So, carbon capture is important. Also, nuclear qualifies. So, nuclear can qualify under the tech-neutral, so-called tech-neutral credits. So, the 45Y from a tech-neutral production tax credit or 48E for the tech-neutral investment tax credit because there's no emissions with nuclear.
There's also a nuclear credit for existing plants. So, you could have a plant that was built in the 70s or 80s and that can qualify for a tax credit but that has a phaseout. So, if the plant, Congress was concerned, since the plants were already built and they were, you know, kind of old and cold, that they didn't want it to kind of be too rich.
So, Congress said, look, if your pretax profit’s too high, we're going to phase this out. And we have seen actually a lot of the nuclear plant owners have their tax credit phased out for the existing projects because they've signed new PPAs of hyperscalers like Microsoft, Amazon, etc. And now they have more pretax profit and then those credits get phased out.
But you can get a nuclear credit for new build nuclear as well, without regard to the phaseout for the income level. So, there's all sorts of types of technologies. And if you, you know, have, you know, political views that favor one type of technology or another, we can probably find you a tax credit that fits. So, really, everybody should be participating in the tax credit market.
RICHARD DOVERE
And I think one of the things that's important about particularly the role of the IRS. The role of the IRS is to provide guidance, but it cannot decide whether or not it wants to take these tax credits away. So, you're not necessarily subject to a concern on, oh, if there's an administration change, suddenly that's going to mean that the tax credits are going to go away in the next administration.
These are embedded within the laws and the IRS provides clarity and guidance as an administrative agency, not at the directive to be able to to just eliminate the tax credits as a whole.
IRIS LAWS
An incredibly important point, right? Because I think a lot of times our clients, we're talking to them about transfers and things like that, and they just view it as kind of risky just because of the amount of change happening in the industry, right? And I think that's an incredibly well said point of addressing that risk. So, you know, you're very close to all of this, not just solar, different types of property as we've talked about that are eligible for some of this stuff.
Practically speaking, what are some of the things, as a developer, that you're having to deal with, whether it be dealing with your contractors or, you know, thinking about where you're sourcing your different technologies? You know, the Inflation Reduction Act put in place some kickers that I'm sure you're trying to take advantage of, whether that be prevailing wage, whether that be domestic content. And then you couple that with what’s sort of coming out of OB3 with the new foreign entity of concern rules or the FEOC rules, and you've got a lot to worry about, right? You know, from a practical perspective, how are you dealing with all of that?
RICHARD DOVERE
That's why you need to be at a table with good lawyers and good accountants and good advisors. I mean, look, it's not easy, right? We're building infrastructure. And the importance of doing it in a compliant way is one part of it. But I also think that just as a, you know, as a patriotic American citizen, the importance of doing it in a way that is within the spirit of what these tax credits were really meant to help enable, is extraordinarily important.
So, you talked about some of the, you call them kickers, but I mean, some of the multipliers and the adders there, right? The first one is really just about prevailing wage and, you know, ensuring that the labor costs associated with doing this are done in a compliant way and that you're using qualified labor, you're paying them fairly, this was something that was part of the Inflation Reduction Act and some of the new ways in which the tax credits were calculated.
And that's really just about making sure that you're documenting everything very, very carefully and keeping receipts for what you do. And that's, to David's point about making sure that you're working with a qualified owner or sponsor or developer of these projects, you want to work with somebody who has experience and understands how to do the bookkeeping, how to keep the receipts in the right way.
And that's, you know, that's really essential. The aspects on the FEOC is really, I would say, a little bit more difficult of a terrain, but it's an extraordinarily important problem to address, which is the fact that really up until the last two or three years, something like 88% of the supply chain for solar came from China.
And that's just not tenable. You can't have a world where you have tax incentives from the American taxpayer being just pushed out to create manufacturing profits abroad. And I think that there was an adder that was meant to help mitigate some of the costs of a more expensive manufacturing that existed domestically in order to utilize components manufactured in the U.S.
But what you're seeing is incentives working, right? You're ultimately seeing that with the 45X tax credits to inspire manufacturing and the domestic content adders as well, you are seeing a meaningful increase in the U.S.-based supply chain and manufacturing capabilities. So, that's a policy well done. And that's really what, you know, when you look at a lot of the policies that are implemented, you don't necessarily see, you know, that type of result.
I think it's just a reality that a huge portion of the raw materials still come either from or are processed in China. But that's going to change over the next four to five years, meaningfully. And I think that it's unpleasant and it's expensive and it's a little bit bumpy, but it was essential policy making in order to ensure that the investments that we're making in our infrastructure in the United States are really there to benefit the United States.
TYLER BAITY
Yeah, well said. It's interesting, I think, you know, one of the hot topics right now is energy demand, right? I think we've heard we're in an energy race right now globally. Maybe one of the most important energy races, folks have said, since the Cold War. Rich, what is your perspective on that as far as energy demand, where it's going?
And, David, we've talked about hyperscalers, we've talked about AI, what does that look like? What do you expect, Rich, from a technology perspective, to help us achieve that goal and where do you foresee energy demand in the solution over the next five years?
RICHARD DOVERE
Yeah. So, in terms of being able to meet the energy demands, I mean, it's sort of being able to meet the food demands and it's being able to meet, you know, any other requirement for the quality of life that we would otherwise expect. I don't think anybody who would be listening to this or anybody who's a citizen of the United States is comfortable being resigned to the fact that China will beat us in this and will have a greater level of energy resources and that we should be capped from that, right?
I don't think that, you know, to use David's example on the, you know, the transmission issues and the policy issues associated with that, it is so meaningful and so important that we build right now. The United States went through a huge amount of obviously postwar industrial growth. And we really just haven't had such a need for a total refresh of infrastructure. And not only refresh but additional build of infrastructure since that time.
So, the opportunity is profound. The infrastructure capital needs are profound. And the tax credits enable private sector capital to be involved in these markets. So, you're seeing the greatest level of, we're not even only the greatest level of energy demand growth, but the first time really energy demand has gone up since the internet era, when everybody was starting to get a personal computer in their home and cell phones and everything else.
And for a long time that increase in energy demand was somewhat offset through energy efficiency and more efficient technologies. Now, there's not a level of energy efficiency that we can employ that is going to get us anywhere close to being able to meet the energy demands that are going to result.
TYLER BAITY
You made an interesting point. Have you seen the data about how much install capacity China is doing right now with solar?
RICHARD DOVERE
Yeah.
TYLER BAITY
Are they climate conscious, or is there an ulterior motive for why they're doing that?
RICHARD DOVERE
No, I, look, I think they're, you don't pay for the energy cost from the sun. So, while it has less of an emissions impact, absolutely, you are effectively insulated from so much of the impact on energy markets. And, you know, you see, while it's not directly correlated, but you see, obviously, with the impact of the war, with the war in Iran and the price of oil, price of energy generally, if you are able to eliminate your input fuel cost because you're having it from the sun, then that's an amazing level of economic certainty that you can apply to a national balance sheet.
So, I think there's a certain aspect of making sure that obviously we have enough power and the cost of that power. Right now, the scarcity of it is playing out in a supply-and-demand way which is the cost of power is going up. While I'm not a big fan of referencing how legislative bills are named because there's obviously a lot of political connotation with that.
But the tax credits in the Inflation Reduction Act were active in reducing the inflation associated with energy costs. And these tax credits are a way of being able to help subsidize those energy costs for end consumers, for corporations, for data center providers, yes. But ultimately, these are all essential parts of an American economy and an American prosperity that has to maintain.
So, the tax credits are there as a policy mechanism, to not only encourage the new construction and the new build, but also the levels at which they are prescribed help save people money in those energy costs. And once you get rid of those energy tax credits, it's, you know, the money's going to have to come from somewhere. And that's going to usually translate into higher energy costs.
IRIS LAWS
So, right, that's going to be my next question for you, David, is when do these energy tax credits phase out and what do you see happening when that happens?
DAVID BURTON
Well, that's a good question. They all have different phaseout dates. If you don't, for wind and solar, if you don't start construction, which is a tax-defined term and doesn't quite mean what it sounds like. If you don't start construction by the end, sorry, by July 4th, 2026, and if your project's not complete by the end of 2027, then the wind and solar tax credits phase out.
Other tax credits have a much longer runway, and each one's a little bit different with various variables but some of them are much longer. Storage is much longer. Geothermal heat pumps, something we haven't touched on, have a very long runway. That is, the Department of Energy has determined that geothermal heat pumps are the most efficient way to provide HVAC services to buildings, homes, and commercial buildings.
And that's basically, most of the system is underground in your backyard and it takes advantage of the differences between air temperature and ground temperature. And in the summer creates cool air for air conditioning. And in the winter, warm air for heat. And that has a very long runway. And was actually, there was actually a fix made in the One Big Beautiful Bill, OB3, that made it easier to do transactions involving geothermal heat pumps.
So, not everything in the One Big Beautiful Bill was negative and anti-clean energy. There were actually some things; fuel cells also benefited. So, the runway varies by type of technology and type of credit. And what happens next?
I mean, you know, first of all, you know, I first got into energy tax credits in 2007 and people would say to me, why are you doing energy tax credits? They’re going to go away in a year and a half, right? So, now it's 2026, 19 years later and they haven't gone away and they've actually gotten bigger, right?
So, you know, who knows what's going to happen. Maybe they all do, you know, maybe they all do end. Maybe they do sunset. We just don't know. Maybe they get extended. I think a lot of it depends on the economy, on elections, you know, political views. So, it's a very fluid situation.
But, you know, if the tax credits go away, as I think, you know, both Rich and Tyler touched on, what we're going to see is higher energy prices, right? Because people aren't going to be like, well, I'm not going to do that AI search, right? Or I'm not going to, you know, build a factory, you know, in North Carolina, that needs electricity or, you know, I'm not going to build a data center.
There's still going to be this increasing demand for energy, and it's not going to be subsidized through the tax code if they go away and electricity prices will have to go up. So, consumers will be paying more. So that, you know, that's what's going to happen. But I don't see the demand in this country going down. You know, hopefully we come up with even, you know, better new technologies that help us solve these problems and, you know, make it all more efficient and affordable.
But, you know, there is research going on to do that. But right now we have these various technologies that we need to use them in the most optimized manner that we can.
IRIS LAWS
So, you're talking about prices, right? Energy prices. And I'm trying to think what other things play into that, right, Rich? And some of that has to be the costs of the technology itself. You know, we've talked a lot on this podcast about the impact of tariffs, and you've talked about China already. How do you see, sort of, this move to domestic manufacturing impacting the price of energy, just based on how costly it is to develop some of these projects?
RICHARD DOVERE
Well, I think that the, there's a cost to it, but there's an American progress benefit. And so, ultimately the build out of the domestic supply chain I think is an essential aspect of what needed to happen. And, you know, COVID, I think, exposed a big vulnerability as a country, when basically everything was shut down from a trade standpoint and, you know, the mad dash to be able to get goods and services. The build out of domestic manufacturing is important for the next American century.
And so, I think what you're going to ultimately see is, yes, energy prices are going to go up. These technologies, some of them are going to be more expensive than others. But, also it's the appropriate application of these technologies. To David's point, you know, maybe there will be something else on the horizon that is going to change the paradigm.
But that's not today, and it's not five years from now necessarily. And even if it is today, the ability to get that to market is going to take us another 10 years. So, these are the technologies that, if you wanted to look at it as a bridge fuel, if you wanted to look at renewables as a bridge fuel to nuclear, if you wanted to look at renewables as a bridge fuel to gas development, we still need that bridge.
And, the government is telling us that we want you to build it in order to enable the progress and the capabilities that we need in order to compete in this next century. And we can sort of argue about which one is better or which one is worse, but it doesn't matter, because ultimately all of them are going to end up being part of the equation.
DAVID BURTON
And Rich makes a good point about, you know, a bridge fuel. If you were to say, okay, I really believe in natural gas, right? And I'm a fossil fuel, you know, believer and that's what I want. I want natural gas to create my power, right? So, I'm going to build natural gas power plants. It's five years to get a natural gas turbine.
So, if you go to GE or Siemens and say, okay, I want to place my order right now, I'll write you a big check. How long?
TYLER BAITY
See you in 2031.
DAVID BURTON
Yeah. It’s at least five years, right? So, we cannot, you know, natural gas is part of the solution. It's important part of the solution. It is not the solution. It's not just a question of, well, let's stop worrying about global warming and just, you know, use natural gas. We can't build the turbines quick enough to do that.
So, even if you put aside global warming, we're still using, you know, renewables.
RICHARD DOVERE
And we can't build the turbines because we've let our domestic manufacturing capabilities atrophy. So, there are ancillary benefits to having a trained workforce. I mean, you've seen this in statements even, I think, from Tim Cook from Apple when he was talking about, you know, the perception that manufacturing in China was a low-cost endeavor.
It's not actually a low-cost endeavor, but they have, now, a full ecosystem around training and personnel and infrastructure that can enable the manufacturing of the iPhone; industrial engineers, mechanical engineers. And the United States doesn't have this. We let that go. And there is such a deep importance, even if it's going to be a little inefficient at times for us as a country, to be investing in this domestic manufacturing capability for all the reasons we know about and all the reasons we don't know about that I think are very important.
TYLER BAITY
I think one thing that resonates with me is we don't have the opportunity or the time to argue about it. We have to keep building while we're continuing to research. Maybe there is a newer technology; we don’t have the ability to wait five years or we're going to get lost.
RICHARD DOVERE
Yeah.
TYLER BAITY
And we're going to get way behind.
IRIS LAWS
So, we've talked a little bit about market. We've talked about different technologies, touched on a little bit of tax stuff. So, to my tax brethren at the table, I do want to talk a little bit, circle back to the tax credit transfers. You know, for those listening today, who is really selling this? And who can benefit from it? I think a little bit of a perspective on both of those sides of things could be helpful.
DAVID BURTON
Yeah. So, for reasons that date back to the early 1980s, it's very difficult for individuals to use these tax credits. So, and that includes individuals acting through partnerships and acting through S-corps. So, it's difficult. So, basically the, you know, appropriate buyer is pretty much a C-corporation. And so, it's profitable C-corporations.
Now, most public companies are C-corporations. A lot of public companies are profitable, but also some privately held C-corps. So, you know, it's the Fortune 500, but it's also, you know, other, privately held C-corps that are not, you know, well known, you know, brand names, but that also can benefit from these.
So, you know, that is really, you know, that is really the target buyer: a profitable C-corp. And then it's just a very easy sales pitch of, you know, you got to write this check anyway. You can either, you know, write it for 90 cents on the dollar or you can write it for 100 cents on the dollar. Which check would you rather write? And most people’d say, I'll take $0.90, please, right?
So, we're seeing a lot of new entrants who were not participants in the complicated, you know, tax equity market. But they do want to buy tax credits. The accounting is very simple. I don't have to be a project finance expert.
I don't even have to know a whole lot about tax law. I can just, you know, sign up, sign a contract, you know, buy these tax credits. And it's pretty easy. In terms of the sellers, the sellers are typically not; the sellers, sort of by definition, are the owners of renewable energy projects who do not have appetite for tax credits for whatever reasons.
We're also seeing some structured tax equity partnerships with a tax equity partner saying, you know, I agreed these credits would be allocated to me, but let's go sell them. I'd rather get the cash. Let's go sell them. And for whatever reason, they're opting to do that. So, we see that as well. And there's all sorts of brokers out there.
There's online brokers. You have sort of an eBay-type of arrangement. You can go online and see, you know, what the prices are, what's available. There are banks that offer, you know, tax credit transfer services, there’s professional services firms. So, you know, there's a number of different avenues to buy them. And it's a pretty liquid, relatively efficient market, but there’s still space for new entrants.
If you're paying tax as a C-corp, you really should be buying tax credits. You're almost doing a disfavor to your shareholders not to.
TYLER BAITY
David, could you maybe talk broadly about the ITC and a one-time versus a PTC deal and a ten-year, and then the ability to kind of change what you're transferring year-over-year with the PTC, particularly maybe from a seller's perspective and a buyer's perspective?
IRIS LAWS
ITC being investment tax credit, PTC being production tax credit.
DAVID BURTON
Yeah. So, the ITC is typically a 30% credit, but with the adders I think it theoretically could get up to 70%. I think we've seen one deal that was 70%. So, don't go putting 70% into your models. 30% is a much safer way to approach it. And it's upfront, you get the credit when you place the project in service. Basically, when it becomes operational, you get the credit that year against your taxes.
There is a five-year recapture period, so if you sell the project, the project suffers a casualty and it burns down or tornado hits or whatever, you have to pay it back. That almost never happens, but if you do sell a project that would trigger a recapture as well. Although there are creative ways to work around that. We can help you with that if you want to do it. So, that's the investment tax credit upfront.
The production tax credit is typically 10 years, although carbon capture is 12 years. And it's a smaller amount each year but for more years, for 10 or 12 years and you get it each year. We see some deals whereby we, you know, we call it a forward sale, and the buyer agrees to buy all 10 or 12 years of the credit. That's relatively rare.
Typically, buyers want a little bit of a discount, a penny or two, maybe three, of a discount for committing to buy let’s say 10 years of credits versus one year. But you can also sell those credits one year at a time, and most of the deals we see with the production tax credits for multiyear credits, they're being sold one year at a time.
So, you know, you sell it, you know, first year to Company X. Then in the second year you say, Company X, do you want it? Company X says, oh, we're not profitable this year. Maybe you go to Company Y. Company Y buys it. So, it is pretty flexible. Obviously, sellers would like the comfort of knowing that's all locked in. But that's tough to do. It comes at a little bit of a price. You're going to pay a couple pennies lower price to lock it in.
TYLER BAITY
And no recapture on PTC?
DAVID BURTON
That is correct. There's no recapture on PTC. So, the credit doesn't exist until the electricity is generated. And if the next day, you know, the project burns down, you don't have to pay it back. You get to keep it. The only exception to that is carbon capture. If you release the carbon, if it gets out of the ground, then there is recapture, but that we've never heard of that happening. And hopefully the engineers have systems in place to avoid that.
IRIS LAWS
So, for those who maybe have never been involved in this and they're like, I'm a C-corp, I have taxable income. I want to try this. You know, we mentioned a little bit, Rich, of like, there might be some perception of risk here, but I've heard of insurance. Is that still prevalent in the space? Is that a possibility for those that might be intimidated but want to go down this road?
RICHARD DOVERE
Yeah. I think, you know, like any other good product where they perceive low amounts of risk, the insurance industry has come with their cavalry to sell products. So, and they don't do it because they're in the business of taking disproportionately high risk. They do it because they like taking low risks and getting paid premiums for it.
So, that has, I think, a little bit of a message embedded within that. And so, you know, using, you know, your example, right? You know, I'm a C-corp and I want to be involved in this. I think one of the things that's interesting, to add on a little bit to what David was saying is, if you're, we're filming this on March 15th, right? So, most people are making their estimated payments April 15th, and maybe they didn't have full visibility into their tax liability picture, you know, in the fourth quarter. But as a corporation, you're able to buy tax credits from that were minted in 2025 and apply them to, you know, the discount effectively to your tax estimates as well as to your tax bill ultimately when you file.
So, you actually have a lot more flexibility, the ability to apply these tax credits. That's number one. But number two, I think they're also two, you know, I come from a policy background, so I like thinking about the spirit and what people were thinking when when looking at designing some of these programs.
It is an upfront tax credit. So, you get it barring, you know to use David's example, a material casualty where the project burns down. But typically, you'd have insurance that would be able to cover that situation in terms of the damages there, but it's very rare anyway. But you're not taking risk on whether or not the solar panel produces. You're not taking risk on whether the battery works, or works, you know, exactly to the model. You're getting a tax credit. You're not taking risk on whether or not anybody's going to pay the bill. You, on the PPA, you are really focused on making sure that it's structured properly upfront and you don't have that that long-term risk about the technology or the project or anything else.
And I think that's a big message that the policy is sending to people who participate here. They want people to come in and they want people to be ultimately relieved of some of the other concerns that if you're not a sophisticated project finance group or project developer, you know, you don't have to have that in order to participate.
And then going back to something I said earlier where these tax credits are a receipt for something done. Not something that needs to happen. And that, also from a spirit of the law standpoint, I think is really communicating about trying to bring more people to participate, that they're not taking technology risk in the same way. They're not taking payment risk in the same way, and they're not taking a risk on execution.
They're really benefiting from the fact that this is something that's already done. So, I think, and, you know, the ability to work with, you know, to work with advisors to make sure it's done right, to work with project developers, you can work with a sponsor directly.
You can work through one of the marketplaces. But these are, it's a great product. And it's something that, you know, to David's term, you know, you're sort of doing a disservice to your shareholders if you don't participate.
TYLER BAITY
Yeah. David, I know we've talked about this offline, but how many projects typically are getting tax credit recapture insurance? It's more often than not. And I think that resonates to Iris's point and, Rich, your point too. There's a product out there for that.
DAVID BURTON
Yeah. So, I was just thinking I think I did my first tax credit insurance deal in 2012. And there were one, maybe two brokers. I think there's now over a dozen brokers. You know, there's tax credit insurance conferences, whole conferences.
TYLER BAITY
I’m thinking a lot of them are sponsors at InfoCast, right?
RICHARD DOVERE
If you want to buy tax credits and you want a free dinner, just ask any of the insurance brokers what they know about tax credits and you will automatically get that.
IRIS LAWS
Yeah.
DAVID BURTON
So, it is a robust, active market and it is picking up and it's becoming more and more common. Because to the buyers of these tax credits, usually the thing that's most important to them is the quality of indemnity. You know, if something does go wrong, you know, what's making me whole? And if you're a big, publicly-traded energy company, you can give an indemnity from your parent, and that's great. If you're not a big, publicly traded energy company, your indemnity may not give them so much comfort.
So, you’ve got to buy insurance. And if you don’t buy insurance then the price kind of falls off the table, right? Then you’re really kind of bottom feeding and, you know, it’s going to be a much lower price. So, because of the focus on the quality of the indemnity, insurance is very important for companies that don’t have a big balance sheet who want to sell tax credits.
TYLER BAITY
And when we talked about the price it was trading, most of those were baked in with tax credit recapture insurance and I believe the developers paying for that. Is that right?
DAVID BURTON
Yeah, the seller/developer almost always pays for the tax credit insurance. Yeah.
TYLER BAITY
So, again if I'm a buyer, I'm not even paying for it, and I can get this product?
DAVID BURTON
Correct. Yeah. You just have to pick your, you know, just pick your deals but have insurance or a creditworthy indemnitor on the other side, one or the other. It's pretty typical.
TYLER BAITY
So, if I'm paying tax I need to be participating in tax credits.
DAVID BURTON
If you're a C-corp. You know, if you're, you know, if you're a dentist, a bank that’s, yeah, it's a different story.
TYLER BAITY
And we can help them convert to a C-corp.
IRIS LAWS
So, it sounds like that's your area.
TYLER BAITY
Yeah. There we go.
IRIS LAWS
I want to ask the same wrap-up question to the both of you. You know, for our listeners, if you had one sort of nugget that you wanted them to come away with from this conversation, what would that be?
DAVID BURTON
I would say you would rather pay 90 cents than 100 cents on the dollar for your taxes. So, if you're a C-Corp, you should be getting into the tax credit transfer market.
RICHARD DOVERE
And I would say that you should think about what that savings means, ultimately, on a real-world basis. More than just, okay, well, it's saving 10 cents on the dollar. What could that mean for my ability to make an investment in my business? What could it mean from a shareholder standpoint? What could it mean for creating value for employees? And don't let the technical aspects of all this get lost in terms of all the real-world benefits that it really can create.
IRIS LAWS
Absolutely. Well, this has been enlightening. Thank you so much for joining us, truly. We hope to cross paths again. Maybe we'll have you back on if you'll let us. But thank you for being here.
DAVID BURTON
Thank you.
RICHARD DOVERE
Thank you.
DAVID BURTON
It was fun.
IRIS LAWS
And that's our show. Thanks for joining. Be sure to follow and subscribe for more of “Tackling Tax.” Until next time.
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