Investing in a Sustainable Future: Uniting Tax Equity, RECs and Corporate Savings

Did you know the key to a sustainable future lies within Renewable Energy Credits (RECs), corporate savings and tax equity investments? The dynamic synergy between these three showcase how corporations can strategically leverage tax equity to not only address their tax liabilities but also advance their commitment to sustainability.  

What are Renewable Energy Credits? 

With the federal government taking strong action on climate change, corporations are analyzing their carbon footprint and realizing that investing in Renewable Energy Credit (RECs) agreements and tax equity transactions can lead to being more environmentally responsible while helping improve their bottom line. Now, not all renewable energy sources come strictly from energy systems like solar panels or wind turbines. RECs are created as long as one megawatt-hour (MWh) of electricity is generated from a renewable energy source and delivered to an electric grid. Once it’s generated, corporate customers are able to purchase RECs, therefore allowing the use of renewable energy without installing renewable energy systems. 

How do Tax Equity Investments Tie In?  

Tax equity investments help fund viable renewable energy projects by enticing investors with a combination of tax savings and cash returns. As for developers, it provides a way to get new projects off the ground. Tax credits are government subsidies for projects like renewable energy, but many developers lack the tax liability to fully use them. That’s where tax credit investments come in. Companies with large tax liabilities can invest and receive tax credits, depreciation benefits and cash flows. RECs bolster the renewable energy market and are a cost-effective, environmentally friendly and decentralized method of carbon reduction.  

What Role Do RECs Play in the Tax Equity Market? 

RECs and REC markets play a key role in driving new renewable energy deployment and projects by guaranteeing an income stream for new projects. However, there are two different types of RECs that need to be considered. Compliance RECs are purchased as part of a wholesale purchase power agreement (PPA) to comply with Renewable Portfolio Standard (RPS) regulations. Voluntary RECs are for individuals interested in reducing their carbon footprint and can buy electricity from renewable energy generators. What does this mean for investors and developers? Developers are able to utilize RECs and avoid the transfer market, making it easy to monetize the depreciation. RECs can provide increased project revenue, which could in turn stimulate increased project development. As for tax equity investors, they are able to invest a portion of the cash needed to develop a renewable project. The project cash flows then can be used to source RECs that’ll reduce the investor’s greenhouse gas emissions.  

So, why are RECs so important? They allow organizations to choose cleaner sources of energy and reduce their carbon footprint while having the flexibility to support renewable energy even if it’s not being generated by oneself. Tax equity is important because it helps fund important renewables projects, enticing investors with an attractive combination of tax savings and cash returns. Foss & Company has a network of credit rated investors who are ready to participate in project finance transactions. According to our Vice President of Renewable Energy Project Finance, Spencer Tweed, by looking into the oncoming years of corporate goals, it’s important to start engaging in the market and figuring out how many RECs are available and what investors are needing.  

Since 1983, Foss & Company has been a leader in the tax equity space, having deployed over $8 billion in tax equity on behalf of our institutional investor partners. This tax equity has helped in the development of battery energy storage systems, solar fields, wind generation and much more across the US on sustainable projects. We have been active in the renewable market for nearly four decades and have a deep understanding of what goes into the transactions. Investors who come to Foss & Company can be confident that they are dealing with an experienced sponsor and high-quality projects.  

Join us as we navigate the path to a greener and financially sound future, where businesses thrive by powering progress. To learn more about how RECs, tax equity and corporate savings can lead to a sustainable future, listen to our podcast today:  https://bit.ly/47qrG7o