JPMorgan says these renewable stocks will benefit most from selling clean energy tax credits

Published Thu, Jan 18 20241:13 PM EST

Renewable energy companies are poised to benefit from a burgeoning market that allows them to sell clean energy tax credits, according to JPMorgan. The Inflation Reduction Act offers generous tax credits for renewable energy projects but many companies are struggling to fully take advantage of them. The federal government aims to solve the problem by allowing companies to sell the credits for cash. While the clean energy space is expected to benefit broadly, the major renewable project developers are expected to see the biggest impact, JPMorgan analyst Mark Strouse told clients in a Thursday research note. "We believe this transfer market, once ramped, will offer a potentially cheaper and more efficient way to monetize tax credits," Strouse wrote. This could help move projects through development more quickly. Altus Power , Brookfield Renewable Partners , Enlight Renewable Energy and Ormat Technologies are best positioned to take advantage of tax credit sales because they have the largest pool of potential buyers, Strouse wrote. The IRA offers renewable companies a range of tax credits for the electricity they produce, their investments in new projects, and the components they manufacture. The problem is that the tax credits are often substantially higher than project developers actual tax bills, according to JPMorgan. Traditionally, companies have used cumbersome "tax equity" arrangements that rely on large investors, primarily JPMorgan and Bank of America, to take full advantage of the credits. Under the new system, companies can simply sell the credits they are unable to use for cash to finance projects. An estimated $6 billion to $9 billion of tax credit sales were sold in 2023, according to JPMorgan. The tax credit transfer market is expected to grow to $19 billion in 2024 and to $56 billion by 2030, according to Bloomberg New Energy Finance figures cited by JPMorgan. The market is just getting started and will likely take another six to 12 months to fully mature, according to JPMorgan. The earliest buyers of the tax credits were specialized financial groups but a larger pool of corporate customers across many industries are now showing interest, according to the investment bank. Ormat Technologies, for example, plans to use tax credit sales for its energy storage projects. The company would potentially see a $6 million reduction in tax expenses for its East Flemington energy storage project, according to JPMorgan. Omrat could see its tax benefits for such projects total $17 million in 2023 and rise to $50 million in 2024. Enlight views the tax credit sale market as a "key catalyst to unleashing construction finance" for projects, Strouse wrote. While Altus Power is still focused on tax equity arrangements, JPMorgan believes a mature market for selling credits would help the company "move projects through the development process." Brookfield has not publicly announced tax credit sales yet, but the company expects the system "to be an important factor in addressing near-term renewables growth across the industry," Strouse wrote.