US tax credit market diversifies in Q3, but wind, solar, storage still dominate

The US closed between $7 billion and $7.5 billion in tax credit deals in the third quarter of 2024, according to an Oct. 21 report from Crux Climate Inc., a tax credit marketplace platform.

Year to date, deal volume is estimated at approximately $16 billion to $18.5 billion, said Crux, which operates a platform for buyers and sellers of transferable tax credits. While traditional technologies such as wind, solar and energy storage continued to dominate this space, newer credits like advanced manufacturing and nuclear energy played a larger role this quarter than they did previously.

"Overall, the ability to transfer tax credits has revolutionized financing for clean energy projects, enabling sustained growth in the clean energy and manufacturing sectors," the report said.

Technologies and tax credits

The combined market share of wind, solar and storage decreased to 47% in the third quarter from 83% in the first half of the year, Crux found.

In the third quarter, solar investment tax credits (ITCs) made up 21% of the market, a decrease from 40% in the first half. Wind tax credits declined the most, to 2% in the third quarter from 20% in the first half. Storage comprised 9% of the market and solar plus storage comprised 15% in the third quarter.

Meanwhile, Section 45X advanced manufacturing production tax credits (PTCs) made up 38% of the market in the third quarter, up from 12% in the first half. Section 45U nuclear PTCs made up 5% in the third quarter, the report said.

Solar ITCs accounted for the largest portion of the tax credit market, comprising about 35% to 40% of tax credit supply in 2024. Solar credit pricing has improved from quarter to quarter, but the most notable changes are for smaller credits. Pricing tends to be capped at about 94 cents to 94.5 cents.

The report noted that insurance is a common component of solar ITC deals, with about 90% of solar deals having some form of insurance. Insurance usually covered "the risk of recapture, the ITC basis, eligibility (including for any bonuses), and the project's fair market value assessment if applicable," Crux said in the report.

Utility-scale solar ITCs, which are usually larger, higher priced and uninsured, will be limited toward the end of the year, according to the report. While solar ITC deals will remain active, the credits will primarily come from smaller, distributed generation projects; residential, commercial and industrial projects; or community solar projects.

Storage projects are typically priced slightly higher in the transfer market than solar — a trend that continued in the third quarter. However, "storage projects have been quicker to embrace transferability as a quick and transparent way to monetize tax credits," the report said. As a result, a higher proportion of utility-scale storage projects are in the transfer market compared with solar deals.

The market for tax credits can also become competitive. The report found that by the third quarter, about 80% of credits listed by developers for the most liquid technologies — wind, solar, storage, Section 45X, Section 45U and some RNG credits — received bids within a week of being listed. PTC transactions tend to transact quickly, with about 66% of deals closing within six weeks of an accepted bid.

Buyer interest in forward commitments for 2025 tax credits increased during the third quarter, with 36% of bids including a forward component, up from 15% in the second quarter and 11% in the first quarter, Crux said.