How the Big Beautiful Bill will affect transferable Renewable Energy Tax Credits: What’s changed & what hasn’t

John Carson: [00:00:00] received a number of questions in regard to the federal tax credits, what's available, but more than anything, how does the Big Beautiful Bill, affect the things? So what we wanna do is just walk through from a seller standpoint, a buyer standpoint. What's changed, what's not, and a lot of a number of groups are looking at other portions of the bill . What we're looking at is how does this affect really buyers and sellers, more specifically buyers and when does it affect them?

I'm John Carson, founder of Armagh Capital. We've got Alan Bradley. He's our renewable energy tax attorney from Bradley, Aaron and Bolton Cumming. We have Nate Bell on the line. Nate has a background in solar development and we have Peter Rourk. Peter has a lot of experience in tax credits and tax credit investments over the years, and he's our managing director of sales.

So just a little bit of background. Everybody's aware of the Inflation Reduction Act that was signed by the administration, the prior administration [00:01:00] in August of '22. And what this did is not only did it expand the technologies that earned credits, but it also allowed those credits to be transferred much like a Georgia film credit and much like a other states historic credit .

A straight transfer of the credit without having a buying or syndicating a partnership interest. This is the, a list of the energy credits that are being impacted that are able to be transferred as a tax credit for '24 and most of 'em for '25 as well. The rules for transferability, very similar to other areas of transferable credits.

A one-time transfer allowed credits are paid for in cash, no bartering and a discount. What's different here is that, and we'll cover it a little bit later, but the discount achieved is not taxable for federal taxation, and there is a penalty if excess credits are transferred or claimed. And we go into how we mitigate that for the benefit [00:02:00] of taxpayers with due diligence.

So the Big Beautiful Bill passed, what, four weeks ago. One was three weeks ago, and was signed. This created a number of changes for renewable energy tax credits, including the production tax credit and the investment tax credit. I think we're gonna, we're gonna go into a fair amount of the changes and how they impact your clients, how they impact you, how they impact your companies. But most of the changes are focused on the sellers, and it's something that the buyers need to be cognizant of in regard to supply and further any risk litigants in your due diligence work.

And so that's why we wanted to have this conversation today. And by the way, if there are questions along the way happy to take those rather than have questions all wait at the end . This is a slide in regard to buyers. Peter, do you wanna talk to this?

Peter Rourk: I'm glad to John. Yeah, the Big, Beautiful Bill certainly changed a bunch with regards to the transferable renewable energy tax credit. But here are the things that have stayed the [00:03:00] same, and I'll just walk you through these. Eligible taxpayers that can use these credits would be widely held C Corps. Public Corps is what I would call those.

Closely held C Corps and individual taxpayers, there's always a question around what can an individual take advantage of here? And it's really tailored to the passive income that would be, the example I always give is rental income is a good example. But there are things like royalties and dividends and interest that also would apply here.

So family offices could take advantage of these tax credits if they had the right type of taxpayer. So that's who's eligible then with regards to transferring, the credit needs to be purchased before the seller files an annual tax return each year. There's just of the seller and the buyer, there's a registration process for us, and there's none of that's changed.

John Carson: So the point I'm making Is all of that still is the same today and how the usage of the tax credit is. A hundred percent of individuals passive tax liability can be [00:04:00] used. 75% of a corporate entity tax liability is available. The carryback is three years carry forward '20. And then with regards to sort of the CPA work the CPA or tax advisor needs to attach the 3800 form 8582, and then have the transfer election statement with the annual tax return for the buyer.

There are, however, a number of changes that are affecting the seller's tax credits, which technologies, whether it be solar, wind that affect the creation of the credits and for what time periods placed in service.

Nate, are you on, are you able to talk to that?

Nate Bell: I am John. Good morning everyone. Just the most of the changes in the Big Beautiful Bill do affect sellers and some of those will indirectly affect buyers in future years. Solar and wind projects are [00:05:00] the most affected, and generally they must be placed in service by the end of 2027, but there are exceptions for projects that begin construction prior to July 4th, 2026. Those projects retain the original, the completion dates that were originally required into the law. So some of those could extend all the way through 2032. The eligibility rules there are complicated and I am spending a fair amount of time working with project developers to make sure that projects we're working with will meet those timelines.

The, good news is Armagh Capital does quite a number of energy storage projects and we are continuing to pursue more of those because energy storage, if it's paired with wind or solar it remains ITC eligible through 2032, even though the main facility won't be. The bill extended eligibility for several other technologies.

I'm not gonna read through [00:06:00] the slide in detail, but most all of that the protected technologies are extended through 2032 to the end of 2033. there are some phase rule, phase down rules applying after that. One of the big changes is that the bill actually created a new ITC subsidy for certain qualified fuel cells and certain forms of natural gas generation.

And interestingly enough, it removed the prevailing wage and apprenticeship and emissions qualifications for those. So what we have is actually a big new category of ITC that is now available and it's quite large. So we feel very good that there'll be a pretty good supply of those ITCs available in the coming years.

30C tax credits, which are for EV charging installations basically if those projects are not completed by July 4th, 2026, they are not eligible for credits. We do have [00:07:00] a number in pipeline that will be completed prior to that, and typically we offer those at a pretty nice discount. So if you have buyers that are interested for projects completed before July 4th, 2026, those are a great deal.

45X: This administration Definitely has made it clear they don't like wind. And the bill reflects that it is most everything associated with manufacturing wind components. It goes away. Mostly PTCs there that are affected. Hydrogen production credit is narrowed, but is still available. And we'd love to discuss some of the available credits that we have in pipeline there with you.

One of the benefits, although there are a few to those of us who work around this industry is that the Act does create a technical issue that was in the original Inflation Reduction Act where the domestic content thresholds were not clearly established.

And this bill does clearly establish what those are [00:08:00] and gives us a consistent and solid framework to work with for any projects that began after June 16th of this year. There are additional changes that affect both buyers and sellers, and I think John's gonna take that on the next slide.

John Carson: Thanks Nate. I would say two things that affect both buyers and sellers that you can see on the slide there. One is the what's going on in with regard to the bill. It basically puts a sunset in regard to when construction must start for these projects and when they must be placed in service and because that has been accelerated what we see happening with a lot of our developers, our clients that are looking to sell credits. The projects aren't necessarily going away. Some are, but a lot of projects that are planned in future years out, years, like '26, '27, even further in '28 . Those are more likely to be pulled into '25 calendar year, '26 [00:09:00] year, and become tax year credits potentially for those years, or possibly '27, say a project pulled into calendar year '26 and start construction before July 4th of 26, and they complete it first quarter of '27.

What we see is basically a a pulling forward of the project. And we think that's gonna create a pretty abundant supply of these credits. But obviously at some point it's gonna taper off. Now that particularly applies to solar and wind. There are some other projects that we're working on such as like Nate made Nate mentioned in regard to energy storage, hydrogen, geothermal- those projects are gonna be staying around a little bit longer and present opportunities for your clients. The other thing, and we just wanted to cover this and I'm glad Alan Bradley is on, but it's in regard to the FEOC or the Foreign Entity of Concern restrictions. What this does, it's a new provision within the code, and what it does is [00:10:00] prevents the earning or a awarding of tax credits or the claiming of such credits by a transferee from projects that have substantial equipment or financing, or I should say control from countries of concern and those countries as identified are China, Iran, North Korea, or Russia. This takes effect for '26 tax year, so this is not going to affect as we read it, it's not gonna affect 2024 tax year credits. It really doesn't affect 2025 tax credits that have already been earned for place and service or for projects that have begun construction by December of '25.

What it's gonna impact is credits, basically that start construction after that date and earn for '26 tax year or later. And I know there's the many of you have asked about in regard to the executive order, we're watching the Treasury to, to see what rules and regulations they issue in regard to the FEOC restrictions.

But [00:11:00] as of now, as how the the Big Beautiful Bill or the reconciliation bill is written there's no concern to '24 credits, '25 credits as long as construction begins on or before December of' 25. Alan, did you wanna comment any further in regard to the EO or, and specifically the FEOC restrictions?

Alan: Just echoing Nate's comments that mainly this is on the FEOC restrictions are on the supply side. So you've mentioned, John, that certainly the restrictions do not have any impact on the '24 and '25 credits. So this executive order certainly places things at risk for suppliers because there's certainly going to be some movement in the goalpost, for example, the definition of the safe harbor, the 5% rule or beginning of construction. But again, that mainly [00:12:00] is on the supplier side, not the buyer side.

Nate Bell: John, if I could just follow up on that because I think it's a really important point for all of our buyers. This would not affect the majority, in fact, virtually all of 2026 tax year credits because most of projects are going to be safe harbored. Now it is important that a buyer have good documentation that Safe Harbor was met. And it's one of the reasons why we at Armagh are so insistent upon a third party report that clearly validates all of the documentation associated with that. We take, real clear steps to make sure that the credits that we're offering have in fact been third party validated.

John Carson: Thank you, Nate. Yeah, and there's, just to reiterate there's three things we always have to transact a credit. One is, like we said, a CPA or gonna be a cost verification [00:13:00] report of some sort, usually done by an independent consultant, counting the cost in regard to what is qualified cost, and then what is the credit qualification percentages at 30%, 40%, 50%, whatever. Second, we need property insurance on the installation just to protect the taxpayer in the event of any type of recapture. And third, we always ask for indemnification or a guarantee. And what came up yesterday is in regard to tax credit insurance, and I think we'll cover that as well.

Tax credit insurance, I think, is gonna be offered on more of these credits in the post Big Beautiful Bill world, and that's something that we have obviously a number of resources to, to to provide those.

Some key points for buyers. Not a lot has changed here. Peter. Do you mind covering this real quick?

Peter Rourk: Oh, gladly. And to, to the prior points about, vetting these credits, there's a couple of things as a buyer you should be thinking about. And the first would be due diligence. And excuse me, as we move forward with these [00:14:00] credits with some change in the environment, I think it's important that people, document the projects.

Basically verify the developer and then confirmation of qualified tax credits. And these are the things we were just talking about. We will have these documents, these third party audits, we'll have data rooms for you, Dropboxes, whatever. But it's a, it's gonna be a key part of the purchasing process as we move forward.

And I just and I just wanna stress that we take this very seriously and we would love to talk more about the due diligence than just buying and selling of tax credits. So something to take note of.

Purchase terms regarding buyers: credits can be purchased 100% in cash. NRA market value is pretty straightforward.

Buyers and sellers cannot be related. Again, pretty straightforward. Production tax credits are gonna be bought on a year to year basis, and the ITCs investment tax credits are allowed to be purchased upfront. Then, as everyone probably [00:15:00] knows, but I'll restate the tax credits can only have a single transfer and they cannot be resold.

Most importantly for buyers is that there's some benefit, there's some benefits here. And the biggest one is the spread that you get between what you pay for the credit and what you're able to claim on your tax return. So that's not a taxable event for the buyer. It's also not a taxable event for the seller who's receiving cash for the tax credits that they've sold.

And then the last point here is the cash amounts that are paid are not, are not deductible to the taxpayer, which is pretty straightforward.

John Carson: In our career, in our careers, we've sold a number of credits. Myself, film credit, a lot of low income housing tax credits, and many times that spread that you earn, let's say you pay 90 cents for a credit for a.

Credit that many times that is taxable on your individual's tax return or a corporate tax return. But instead with these federal renewable energy credits, there is no tax on that spread. So if you buy the the [00:16:00] credits that say 90 cents and it's a hundred thousand credits, that $10,000 is a permanent non-taxable gain, which is quite powerful.

Dale: Got one quick question, John.

Hey Dale, have you seen, have y'all seen any movement on the discount? It like post the signing of the bill? Has it contracted?

John Carson: Yes, we have actually we're we're seeing a number of sellers that are impacted Dale, by two things. One is there's, I'm sorry. I'll say anything.

I'm sorry. Okay. We're seeing and I'd like to know what Peter thinks on this, but we're seeing two things. One is more and more people sellers are looking to just go ahead and sell credits because they, not because the credits are in question, but because they wanna safe harbor new projects for 2025.

Okay. And the second thing is the Big Beautiful Bill , the reconciliation bill, whatever you wanna call it, has put some questions out there. And that's what the reason why we've had this webinar to answer some of those questions. But [00:17:00] that's created some market changes as well.

Yeah, to answer your question specifically, yes, we've seen some downward pressure on pricing on credits. I'd say anywhere from three to five. Honestly, as far as the purchase I will probably send out my federal credits and you're gonna, there's gonna be some, pretty nice spreads for all of these vetted and credits for '24 tax year.

I, I've not seen it move substantially yet for '25, but that could, I, I believe that's coming. Peter, I don't know what your take is, but I think there's just gonna be downward pressure on because of the supply of credits as well as on the buy side.

Peter Rourk: I agree with the downward pressure. I don't think it's gonna be severe, but I think it's gonna be, the buyers are gonna probably get a little better pricing.

I do think there's a need to mention that quality's gonna matter significantly next year. Quality of projects, quality of institutional investors, anyone who's bought these credits, [00:18:00] and I'm really probably speaking of institutional investors at this point that have bought these credits in the past couple of years, have really accelerated some of their purchasing because they wanna they know the process, they know the developers, and they're just looking to get the credits that they need since there's a 20 year carry forward.

People that have never done it. Are probably a little more wary and I think that wariness in the marketplace is putting some downward pressure, both at the developer level and the investor clearly is looking to get a little bit of a price concession. So I hope that answers your question, Dale.

Nate Bell: If I could just piggyback on that since I deal with the sellers on a daily basis.

What John touched on I think is a temporary thing, but I do think we'll see it the balance of this calendar year. And that is or at least until probably November sometime. And that's just the number of these developers looking to safe harbor projects and really aggressively pursuing cash.

And there, right now, I would say if [00:19:00] you're a buyer or you have a client that's a buyer and you're considering credits, a cash offer right now can get you a discount. Bring those to John or Peter. And if You've got a client that's looking to buy credits make an offer because I can take that back to my sellers right now and they are aggressively seeking cash and will make deals bottom line.

I don't know that will persist after the first of the year. I don't think it will because they're seeking to Safe Harbor,

John Carson: Dale. We do a fair amount of due diligence upfront before we even bring these credits. What I would say is the sooner people act the better because a lot of the better quality credits are gonna be taken up, and we're just not gonna offer credits with questionable due diligence.

On that a good segue into the risk in regard to these projects, there's basically two types of risks. We've talked about this in the past. One is on recapture, where you have an ITC if the solar [00:20:00] installation or whatever, renewable energy installation, the property has to stay in place for five years.

If it doesn't, they could have a recapture event. That's why we ask for property insurance to make sure the Treasury allows, usually allows people to have a make hole provision. For example, if a hurricane went through, or a storm went through at the beginning of year four of a five year recapture period, usually, developers just go in and repair the panels that were affected and then and get it back online in a very reasonable amount of time. The other kind of risk is disallowance, and that's when there's inflated costs or disallowed costs, and that's why we always insist on a due diligence slash cost segregation report.

If you've done tax credits works and on the state side you might have heard this be referred to as a CPA comfort letter or something along those lines. We always ask for these three items, a report property insurance, and like I said before, an indemnification to the purchaser. And obviously there's other due diligence [00:21:00] documents as well.

Fiat compliance engineering reports entity information, pw price, prevailing wage and apprenticeship information all the above.

I was just gonna say the benefits just to summarize is a cash direct cash savings on federal taxes that's not taxable on the against the face value. Second there's obviously sustainability in regard to purchasing tax credits and renewable energy investments.

And third, just about all of our developers are more than agreeable for the use of project summary level project information, photographs and other media within annual reports, social media, and so forth. They like being being, having that kind of exposure . So with that's pretty much what we wanted to talk about today.

Alan, have I have I forgotten anything? Alan Bradley?

Alan: John, I think the you made a comment about insurance being more important [00:22:00] post of the Big Beautiful Bill, and one thing that was amended specifically with respect to solar and wind is the accuracy related penalty. And that may lead to more insurance for the several wind projects.

John Carson: True. And on that note we, like I said, I just wanna reiterate, we have connections to a number of specifically firms that offer tax credit insurance or can underwrite insurance on the tax credits themselves. And again, that's over and above the property insurance on the solar installation or the wind or geothermal installation.

And I think we're gonna see more of that just for buyer piece of mind in regard to buying these credits. So just I think I covered it already, but a summary. It's a net tax savings opportunity for clients. There's cash savings, [00:23:00] sustainability, recognition, and what I'm just, very many of you know that I was in KPMG on the due diligence side for years.

I'm just all about the documentation as I know Peter is, as I know Nate is. And that's how we mitigate risk on the front end on these projects. So with that, please feel free to reach out to us. This meeting is gonna be available via recording on our website as well as these slides. And the below is our on the screen our contact information and we're happy to be a resource.

Tracy has any other questions or Alan, any other parting thoughts?

I think we covered well, John, all the questions. Johns just chime in. Honestly,

I don't hear any other questions? I don't see anything in the chat. Nate, any other final thoughts in regard to supply or anything like that?

John, I just encourage everyone I do think we have [00:24:00] a relatively short bargain period available while these developers are seeking cash to Safe Harbor and take advantage of that if you can. Great. Peter, final thoughts? Yeah, no, I would just echo pretty much the sentiment that we're excited to maybe work with folks regarding these tax credits and.

Our door is always open, so happy to answer questions attend meetings, talk to your clients, whatever works best for you. Sounds great. Yep. Alright. Thanks everybody for joining and thank you. Have a great day. Same. Thank you. I appreciate it. Thank you.