After striking a first-of-it’s-kind deal to buy renewable energy tax credits, Bank of America Corp. is carving out a role as broker for the incentives under a plan that gives firms tax breaks for financing clean-power projects.
The second-largest US bank has agreed to buy $580 million in tax credits from IRG Acquisition Holdings, a partnership between renewables developer Invenergy and investors Blackstone Inc. and CDPQ. IRG in turn used money from the deal to buy a portfolio of renewable energy projects from American Electric Power for $1.5 billion in enterprise value.
Bank of America plans to facilitate the sale of tax credits to taxable investors who can then use them to reduce their tax bills and make progress on their clean-energy targets. By taking on this broker role, the bank aims to rally more capital for energy transition initiatives amid a global effort to curb emissions, according to Karen Fang, the lender’s global head of sustainable finance.
“Our job is to make the transferable tax credit market behave like other capital markets for origination from sellers to distribution to end buyers,” Fang said in an interview. “The more credits that we can help project developers sell to taxable entities including oil gas companies, consumer product companies or financial services companies, the more capital we can raise for the clean energy transition. We should treat this process no differently than underwriting and distributing stocks and bonds.”
‘Strong Pipeline’
The tax-credit plan is a provision of the 2022 Inflation Reduction Act, President Joe Biden’s signature economic legislation focused on climate-change investment and health care. It allows companies that generate tax credits from renewable power to sell them on to other parties. Many clean energy companies don’t turn profits and so don’t pay taxes but still receive the tax credits, making selling them a way to monetize their value.
Bank of America has a “strong pipeline” to further support such deals including in battery storage, carbon capture and wind and solar farms, Fang said. The bank is in the process of distributing tax credits for some of those, she said. The IRA’s tax-credit plan will allow new investors to enter the market and reduce bottlenecks hampering the development and financing of new projects, according to Fang.
“The financing and capital raising phase will become faster and more cost effective over time because of this,” Fang said. “The more tax credits are put to work to help finance real decarbonization projects, the more evidence there will be that the Inflation Reduction Act is mobilizing capital.”