Menu Close

What is the tax equity?

What is the tax equity?

Tax equity is a key tool for financing US renewable energy projects. The US government offers tax credits and accelerated depreciation as an inducement to build new renewable energy facilities, but few developers can use these benefits directly. Tax equity is a form of financing against the tax benefits.

Can individuals invest in tax equity?

Tax equity is considered a passive investment, with the investor banking on receiving a target internal rate of return based on current federal tax benefits. Investors might include insurance companies, corporate bodies, banks, and even wealthy individuals.

What is solar tax equity?

Solar tax equity allows a third-party investor to provide an equity investment into a solar project in exchange for a majority of the tax benefits and preferred returns on the cash flows generated by the project.

What is tax equity syndication?

Syndicated tax credit transactions require the tax credit investor to be admitted into a legal entity, such as a limited partnership or limited liability company that will either own the energy system or hold a long-term operating lease on the energy system. …

How is tax equity sized?

Tax equity is sized based on the present value of their benefits, as is debt. Equity must fund the remainder of the funding needs.

How do tax equity investments work?

Tax equity is a low-risk means of investing in solar projects using a financing approach called project finance. Tax Equity investment returns are based on a combination of cash flow from the project and federal tax benefits (tax credits and tax deductions).

Who are the tax equity investors?

A tax equity investor is passive and only gets involved in management of the asset or project in downside cases where something has gone wrong with the performance of the investment or with the asset or project. Tax equity benefits arise from two broad categories: tax deductions and tax credits.

How do tax equity deals work?

For Investors Tax equity offers an attractive after-tax return from a combination of cash yield and tax savings. The cash returns are based on stable, long-term, fixed-rate cash flows from underlying customer contracts with creditworthy off-takers of solar power.

Why do banks invest in tax equity?

Tax equity investment represents a unique opportunity for both growing your passive income and lowering your tax bill. In exchange for partnering in and helping to fund a renewable energy project—such as a solar installation—an investor in exchange receives significant savings on their taxes.