Greenprint Capital

Hybrid Tax Equity represents a financial structuring approach that merges traditional tax equity investment with the direct monetization of tax credits, a model gaining traction due to the transferability provisions introduced by the Inflation Reduction Act (IRA).

This structure allows project developers to partner with tax equity investors, who provide upfront capital in exchange for tax benefits (like ITC or PTC) and a share of project cash flows. Concurrently, the model incorporates the direct sale of certain tax credits to unrelated taxpayers for cash, as permitted under IRA Section 6418. This dual approach offers enhanced flexibility, enabling financial arrangements to be tailored to specific cash flow requirements, risk management profiles, and return objectives.

The primary clients for these structures are project developers, particularly those who are cash-constrained and can benefit from early-stage liquidity generated by credit sales. The model also appeals to a broad range of investors, from corporations with significant tax liabilities seeking to offset them, to lower-risk investors focused purely on purchasing tax credits. Financial institutions with large corporate networks are key players, facilitating these transactions by connecting developers with a liquid market of potential tax credit buyers.

While offering significant benefits, the model involves complex structuring and negotiation among multiple stakeholders, including developers, tax equity investors, credit buyers, and lenders. In limited cases for tax-exempt entities, a direct pay option for tax credits is also available.

Keywords: Hybrid Tax Equity, tax credit transferability, Inflation Reduction Act, project financing, Investment Tax Credit, Production Tax Credit, tax credit monetization, direct pay, energy finance, corporate tax