Webinar Recap: Banyan Infrastructure Hosts Webinar on De-risking Tax Credits
“De-Risking Tax Credits to Maximize Returns" Webinar Recap
On November 29th, Banyan Infrastructure hosted “De-Risking Tax Credits to Maximize Returns”, a webinar that broke down tax credits, compliance, and the state of the project finance market.
Moderated by Alyssa Spagnolo, Growth and GTM at Banyan Infrastructure, the webinar featured discussion questions about tax credit requirements and how companies are ensuring they meet them, what challenges lenders and developers are facing in compliance, and what kinds of tools they are using to de-risk their operations and maximize their returns.
Tax credit guidance is still murky but it’s not stopping diverse transactions
Since the passage of the landmark Inflation Reduction Act, the renewable energy tax credit market has seen an explosion in growth. However, guidance on rules and eligibility has been slow, resulting in a lack of clarity for companies looking to participate. We were excited to hear that despite this ambiguity, deals are still happening and it’s not stopping transactions.
With market clarity steadily improving, transactions continue to happen, and thanks to the diversification on both sides of these transactions, we heard the appetite for small to medium-sized deals has increased.
When asked about the state of the market and its diversification, Allen Kramer said: “We’re seeing much more diversity of credits than we anticipated. We obviously anticipated solar, wind, and storage… but we’re seeing a ton of advanced manufacturing, EV charging infrastructure, and biogas.”
The market is starting to see participation beyond Fortune 500 companies, with smaller-scale operations executing lower-cost transactions, enabling the growth of the small and mid-market.
Because of this, we can expect the market to continue to expand downward, opening opportunities for smaller lenders and buyers to participate in the tax credit market.
Avoid holding up deals with preparedness
Because of uncertainties in the tax credit market and its guidelines, compliance has become challenging for participants on either side of the deal. This introduces the risk of audit, and possibly losing out on tax credit market participation. When this uncertainty is multiplied across deals, portfolios, and stakeholders, the risk becomes immense.
Janice Tran brought some accounting perspective to the conversation, reminding us that “an IRS audit can really hold your company back, and obviously these credits rely on you passing these audits, so there’s a lot of risk there if it’s not done right.”
In order to avoid that, participants should have their documents organized and prepared for auditing as far as 5 years back. Especially as we think about prevailing wage and apprenticeship which needs to include 5 years of data for fair wages paid and the appropriate % of the project completed by apprenticeships. This is an immense level of documentation that the industry isn’t used to, and companies need to be able to prove they took all the steps to appropriately staff their projects and worked with contractors who did the same. Having a high level of preparedness makes compliance and risk management easier, and presents a sense of security and reliability to investors to attract financing.
We’re all in this together, but we can’t do it without software
As we all navigate the new tax equity waters and are in the midst of completing our first transactions under the new IRA guidelines, there’s a huge need to lean on one another and share learnings. We discuss how it’s important to adopt best practices in collaborating with one another, and develop the right level of connectivity between counterparties and service providers (like lawyers, advisors, accountants, insurance providers, etc) who are assisting in the transaction.
Because uncertainty multiplies as it spreads across projects, portfolios, and participants, market players need robust and reliable tools to keep documents and deal data organized. From pay stubs to deal returns, project finance software can help participants stay in compliance with tax credit requirements, and stay accountable to investors.
Additionally, software enables dealmakers to move beyond the “appearance of readiness” by maintaining document hygiene from the start and ensuring tax credit qualification. We discussed how the difference between the “appearance of readiness” and actual deal readiness is what is holding up many deals, and with the sustainable infrastructure ecosystem developing as rapidly as it is, this disconnect needs to be remedied as quickly as possible. Developers, EPCs, and lenders alike can benefit greatly from ensuring tax credit qualification and compliance early on with the help of software.
By maintaining good document hygiene and organization, tracking risk with software, and working collaboratively with experts, service providers and counterparties, we can accelerate the growth of our market together.
Access the full webinar recording here for the full discussion on “De-Risking Tax Credits to Maximize Returns.”