'First-of-a-kind' $1.5bn US wind power deal in bag thanks to IRA green law

A three-company partnership led by Invenergy has closed acquisition of American Electric Power’s 1.37GW unregulated, contracted renewables portfolio for $1.5bn, a transaction involving the first-of-its-kind wind tax credit transfer made possible by the 2022 US climate law.

Bank of America (BoA) purchased the production tax credits (PTCs) at a discount to their tax savings from Invenergy, a unit of Blackstone, and Caisse de dépôt et placement du Québec (CDPQ), which comprise a partnership called IRG Acquisition Holdings.

With the Bank of America funding, IRG was able to raise debt from a consortium of European and North American banks and complete the deal for 14 projects in 11 states comprising 1.2GW of wind capacity and 165MW of solar.

“This represents the first announced large scale transferability transaction to close since the passing of the Inflation Reduction Act (IRA),” said Karen Fang, global head of sustainable finance at Bank of America.

She noted the deal creates a “financeable transferability product that will be used to scale the growth of renewable energy, energy transition, and its associated supply chain development.”

Until now, to monetise the PTCs or investment tax credits (ITCs) used mainly for offshore wind and solar projects, developers without sufficient taxable income had to raise tax equity.

It is an expensive, time-consuming process in a $19bn market with limited numbers of potential buyers, with the biggest players BoA and JP Morgan Chase comprising about 50% of deal volume.

PTCs are worth $27.50/MWh for electricity sent to the grid during an eligible project’s first decade of operation, while the ITC is a one-time payment after a facility is placed in service. The base rate 6% of capital investment with the full rate 30%, and another 20% in adders possible if additional criteria are met.

The White House believes transferability will enable clean energy companies to raise cash and financing and bring more non-traditional players into the fast-growing market that are looking to reduce their tax bills.

Even though President Joe Biden signed the IRA one year ago, the market for transferability of credits has been slow to take off. The Department of Treasury did not propose rules for selling credits until June with final guidance expected in the months ahead.