Tax Equity Investing
Tax equity investing is a financial strategy that involves external investors providing capital to projects in exchange for the allocation of tax benefits, often used in renewable energy
Tax equity investing is a financial strategy commonly used in the renewable energy industry, primarily in the United States. It involves the allocation of tax benefits, such as tax credits and depreciation, from a project or business to external investors in exchange for capital. This arrangement is typically used to finance projects that have significant upfront capital costs and substantial tax incentives, such as solar and wind energy projects.
- Here's how tax equity investing generally works:
- Project Development: A company or developer initiates a project that is eligible for various tax incentives, such as the Investment Tax Credit (ITC) for renewable energy projects.
- External Investor Involvement: Since the project developer may not have sufficient taxable income to fully benefit from these tax incentives, they seek external investors, often HNW individuals, large financial institutions, or corporations with substantial tax liabilities, to provide funding. These investors are known as tax equity investors.
- Allocation of Tax Benefits: In the tax equity investment arrangement, the tax equity investor contributes capital to the project in exchange for the right to claim up to 99% of the project's tax benefits. These benefits could include tax credits, depreciation deductions, or other tax-related advantages.
- Profit Sharing: The tax equity investor and the project developer typically negotiate the terms of profit-sharing and how tax benefits will be allocated. The specific arrangement can vary widely but is often structured as a partnership or a special-purpose entity.
- Investment Period: Tax equity investors typically maintain their investment in the project for a set period, often around five years, to capture the tax benefits.
- Exit Strategy: After the agreed-upon investment period, the tax equity investor may exit the project, and the project developer often regains full control of the tax benefits.
Tax equity investing is a win-win situation: the project developer gains access to much-needed capital to fund their project, while the tax equity investor benefits from valuable tax incentives, which can reduce their overall tax liability. It's a complex financial arrangement that requires legal and financial expertise to structure properly, and it plays a crucial role in promoting investment in renewable energy and other development projects with societal or environmental benefits.
Efficient Taxation
Our structured finance vehicles allows persons or corporations with tax liability to invest instead of paying taxes.
Renewable Project Funding
By bringing our tax equity investors to sponsors, developers receive capital to take a project to completion.
Long Term Partnerships
We're investing for the long term. We are committed to see projects to completion by being the financial partner that drives success.
Contact
If you are a project sponsor seeking to monetize, or a tax equity investor looking for projects, please email us.