Post-Election Update: Navigating Renewable Energy Tax Credits in 2024 and Beyond

Post-Election Update: Navigating Renewable Energy Tax Credits in 2024 and Beyond

With the 2024 elections resulting in a Republican sweep of the White House and both chambers of Congress, the renewable energy tax credit landscape faces potential shifts that demand proactive strategies from investors. Building upon our August 2024 analysis, this update highlights the key policy trends shaping the investment environment and offers actionable recommendations for tax equity investors and buyers of transferable tax credits.

While uncertainty is a hallmark of post-election transitions, it also presents opportunities. By anticipating policy developments and adapting investment strategies accordingly, stakeholders can secure value in the evolving renewable energy market.

 

Key Post-Election Policy Predictions

  1. Accelerated ITC/PTC Phase-Down

Republican leaders have signaled a focus on reducing federal spending, which could accelerate the phase-down of the Investment Tax Credit (ITC) and Production Tax Credit (PTC). Current discussions suggest the phase-down may begin as early as 2025 or 2026, creating urgency for developers and tax equity investors to close deals while credits remain fully available.

  1. Domestic Content Requirements

Strengthening domestic manufacturing is a core Republican objective, likely leading to more stringent domestic content requirements for ITC/PTC eligibility. Projects dependent on imported components may face compliance hurdles, emphasizing the importance of aligning with U.S.-based supply chains.

  1. Preservation of Certain Credits

Credits that support domestic production, such as the 45X advanced manufacturing credit, are expected to retain bipartisan support. However, new limitations related to foreign entities of concern (FEOC) could restrict their applicability, necessitating careful assessment of qualifying projects.

  1. Transferability and Direct Pay

While transferable tax credits introduced by the Inflation Reduction Act (IRA) are anticipated to remain, eligibility criteria, particularly for domestic content, may be tightened. This underscores the need for meticulous due diligence in credit transactions.

  1. Rollback of Electric Vehicle (EV) Tax Credits

The Trump transition team has expressed intentions to eliminate the $7,500 tax credit for electric vehicle purchases, a key component of the Biden administration’s climate policy. This could signal a broader repeal of EV related tax credits, including the EV charging infrastructure tax credit.

  1. Challenges to Offshore Wind Development

Major renewable energy companies have raised concerns about the future of the U.S. offshore wind sector under the new administration. We expect the new administration may halt leasing for new offshore wind projects, and could delay current project timelines.

 

Strategic Recommendations for Tax Equity Investors and Buyers of Transferable Credits

  1. Expedite Investments Before Potential Phase-Downs

Investors should prioritize projects that began construction in 2024 to maximize benefits from current credit levels. New tech-neutral ITCs and PTCs applicable to projects starting in 2025 may face greater restrictions. Early action ensures access to higher credit values and reduces exposure to future policy shifts.

  1. Align with Domestic Manufacturing Trends

Stricter domestic content rules will reward partnerships with developers leveraging U.S.-based supply chains. Foss & Company is actively engaging with sponsors who demonstrate robust domestic manufacturing capabilities to safeguard credit eligibility and mitigate compliance risks.

  1. Capitalize on Strategic Investment Opportunities

The availability of ITCs and PTCs is expected to remain robust over the next 6 months. Investors should:

  • Monitor Pricing Trends: Current market hesitancy to forecast tax liabilities beyond 2025 creates potential buying opportunities for well-structured investments.
    • Lock In Long-Term Credit Supplies: Securing projects generating 10-year strips of tax credits, such as wind PTCs, offers stability in a volatile policy environment.
  1. Diversify Credit Portfolios

To hedge against policy risks, investors should:

  • Consider Bipartisan Sectors: Investments in carbon capture, hydropower, and biofuels may align with priorities less likely to face reductions.
  • Target Emerging Areas: Advanced domestic manufacturing and other sectors poised for growth under Republican policies can provide attractive opportunities.
  • Utilize Tax Insurance: Tax insurance with change-in-law coverage will become increasingly important, especially for transferable credit transactions.
  1. Conduct Scenario Planning

Given the potential for both partial and full changes to the IRA, investors should prepare for a range of outcomes:

  • Best Case: Full retention of existing incentives, with possible extensions.
  • Worst Case: Significant rollbacks, particularly for technologies perceived as less aligned with Republican priorities (e.g., clean hydrogen).
  • Tax Rate Change: Anticipate the impact of corporate tax rate changes on investment returns, such as reduced depreciation benefits and altered exit tax liabilities. Foss & Company can provide this scenario modeling.

 

Outlook for Renewable Energy Tax Credits

Opportunities Amid Uncertainty

The renewable energy sector remains an attractive investment avenue despite short-term policy challenges. The global decarbonization drive and technological advancements continue to bolster long-term demand. Leveraging expertise in structuring and investment selection, such as that offered by Foss & Company, can help investors navigate these transitions effectively.

Long-Term Resilience

While the near-term policy environment may fluctuate, the broader trajectory of renewable energy remains promising. Innovations that lower costs and improve efficiency will enhance the sector’s appeal, ensuring its central role in addressing global energy challenges.

Conclusion

The 2024 election results have set the stage for significant changes in renewable energy tax credit policy. For tax equity investors and buyers of transferable credits, a strategic, proactive approach is essential. By focusing on compliance, diversification, and diligence, stakeholders can navigate uncertainties and seize emerging opportunities.

At Foss & Company, we are committed to guiding investors through the complexities of renewable energy tax credits. Contact us today to discuss how we can help you refine your investment strategy and achieve your goals in this dynamic landscape.