Energy Evolution, Episode 4

On this episode of Weaver: Beyond the Numbers, Energy Evolution, our hosts share updates in the green energy space.

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Detailed Description of Weaver’s Energy Evolution, Episode 4

00:00:00
Leanne: Hi everyone. Welcome to the latest installment of our Energy Evolution vlog series. If you have followed the Motor Fuels Tax Minute, or some of our other Weaver vlogs and blogs recently, you’ll see that we talk a little bit about the new things happening with the Inflation Reduction Act. We’ve spoken for a minute or two about the 45Z credits and some of the credit stacking, but there’s some new information that’s out there, and we wanted to provide a more general update on that today.

My colleague, Dawn, is across all of this. And so, Dawn, what are the key things that our listeners, our clients and our colleagues all need to know as we enter, or end, I guess, the first half of this year, and as we rapidly approach some of these that are not in place coming into effect?

00:00:47
Dawn: No, it’s super exciting in the green energy space. So, thanks a lot, Leanne. Really looking forward to this update.

One of the biggest things that our team has discussed is this new ability to transfer credits, which was supposed to replace these very complex, what are known as partnership equity structures. What we’re finding, however, is for the larger utility-scale projects, they’re still absolutely going with the partnership flip structure for some of the smaller production facilities. However, they are certainly looking at transferring credits. So, within the past week, the service finalized their regulations on transferability. Some of the key things that parties were asking for were denied. So, if we could just kind of quickly go over those key things that parties were asking for in comments that the service said are outside of the scope of the legislation.

First and foremost, the idea to allow wealthy taxpayers, individuals, to participate in credit buying, was again not allowed. They went with the historical position that for individuals getting these credits, they have to have passive income to offset. Passive income is incredibly narrow. So, by and large, wealthy individuals cannot buy these credits and use them.

The next thing that was asked for that was denied was they wanted to be able to carve off some of the adders. As we know, this new Inflation Reduction Act has a completely different credit structure. You get a 5X multiple for what is known as prevailing wage and apprenticeship, which we have talked about previously. And then you get these adder bonuses, one for domestic content and one for energy community. Commenters wanted to say ‘no, no, no, you’re not transferring that adder bonus that relates to domestic content or energy community,’ because quite frankly, that’s where a lot of risk is. The reason that matters is, again, the proposed regulations that are now final continue to say that the transferee, the person that bought your credit, assumes all the risk of the credit being valid. So, of course people don’t want the risky parts of the credit. Again, cannot split it out. Whatever the credit is, you buy a percentage of everything. If you buy all the credit, you buy all the risk. So, what we’ve been seeing is a ton of insurance policies surrounding these credits because they’re being transferred, and the transferee takes on the risk.

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