The U.S. Inflation Reduction Act’s tax credit transferability provision played a pivotal role in securing funding for a solar+storage project in California, demonstrating its effectiveness in supporting clean energy projects.
Financing for the Vikings project,one of the first solar peaker installations in the United States, was completed using a combination of debt financing and tax credit transfer, Arevon Energy said in a release. “Arevon secured a commitment with J.P. Morgan to purchase US$191 million of investment tax credits (ITCs) and production tax credits (PTCs), among the nation’s first transactions announced to date that leverage the IRA’s transferability provision.”
An additional $338 million debt facility was financed by MUFG, BNP Paribas, Sumitomo Mitsui Banking Corporation, and First Citizens Bank, which acted as coordinating lead arrangers. National Bank of Canada also participated as a lender, Arevon said.
“ITC and PTC tax credit transferability is a major step forward for the energy transition, post-IRA, and we are excited to be able to leverage it on the Vikings financing structure,” said Daniel Murphy, project finance director at Arevon.
Arevon’s Vikings power plant in Imperial County will combine 157 megawatts of solar with 150 megawatts/600 megawatt-hours of battery energy storage. The plant will be able to direct enough energy to the grid during peak periods to power up to 50,000 homes. The company purchased the Vikings energy farm in 2021, and construction on the solar+storage plant is under way, with commercial operations expected to begin in the third quarter of 2024.
The IRA’s transferability provision allows project owners to hand over tax credits to profitable shareholders. Whereas financiers in the past have only been able to claim the tax credits by becoming co-owners of the projects they invest in, transferability allows them to buy those credits on an open market. This helps facilitate clean energy investments by making the process less complicated and expensive, and could help unleash “a torrent of new project funding worth billions,” writes Canary Media.
The Vikings deal is among the first to use the transferability provision for a solar or storage project of this scale, reports Energy Storage News. Clean energy finance company Evergrow previously used tax credit transferability for a smaller solar installation in Connecticut.
Guidance for tax credit transferability through the IRA was released by the U.S. Department of the Treasury last June. Though tax credits have been used to support clean energy policy for decades, the new provision became necessary to accommodate the sheer volume of tax credit opportunities offered by the IRA.
