US renewable energy tax credit monetization and debt financing are expected to grow in 2026 even without firm US Treasury guidance regarding restrictions on components sourced from foreign entities of concern, according to a new report from Crux Climate Inc.
Lending to the sector is expected to total $143 billion in 2026, a 19% increase over the prior year, while tax credit monetization is anticipated to reach an estimated $70 billion, up from $63 billion in 2025, despite a lack of regulatory clarity, according to the Aug. 18 report by Crux, a clean energy financing platform.
The Treasury Department is expected to release a proposed rule explaining entity-level restrictions before the end of the year, but in the meantime, Crux's mid-year survey indicates "the market has crystallized around working definitions."
"Law firms write [prohibited foreign entity]-status opinions to enable transactions to close, substituting legal analysis for regulatory clarity," the report said. "Diligence has converged on documenting a thoughtful, risk-based process focused on where control could sit, rather than proving a negative."
Debt market participants also adapted to the regulatory ambiguity by "pricing the risks the new rules created," according to Crux.
"Debt markets absorbed the repricing without freezing," the report said. "Bridge structures that were untransactable a year ago now clear at quantifiable premiums, with lenders pricing counterparty credit quality rather than declining risk outright."
Ongoing uncertainty
During the American Council on Renewable Energy's financial conference in May, project developers expressed frustration about the absence of tax equity guidance.
A key point of contention is whether banks themselves are subject to foreign entity of concern (FEOC) restrictions.
"The uncertainty on the tax equity provider side of whether a US bank is a foreign entity or not is crazy," Cypress Creek Renewables LLC CEO Kevin Smith said. Invenergy LLC Executive Vice President and CFO Meghan Schultz also said in a later panel that the question "seems one that everybody should be able to answer."
Financing activity during the first half of 2026 reflected those considerations as FEOC "exposure became the strongest predictor of deal price, eclipsing deal size and investment-grade status of the seller," the Crux report said.
Tax credit buyers responded by "paying up for segments with structurally more limited ... exposure," like the zero-emission nuclear power generation and low-carbon transportation and aviation fuels tax credits, the report continued.
Additional clarity on ownership provisions and effective control specifically would enable more buyers to become comfortable with FEOC rules, according to Crux.
"I think what we'll see is insurance able to underwrite those risks within those transactions, broadening the pool of buyers," as well as "a slight increase in price" for both credits not subject to FEOC restrictions and newer credits, Crux research director Josh Price said in an interview.
Preferred equity emergence
For mid-sized and newer developers, preferred equity has also emerged as an alternative to the traditional tax equity market, which focuses on larger and better-capitalized projects with legacy credits.
Crux expects $7.45 billion in projected 2026 tax credits to be sold from preferred equity, compared to $3.05 billion in 2025.
"Because preferred equity doesn't require the investor to have tax capacity of its own, it can draw on a wider capital base than traditional or hybrid tax equity, closer in profile to a private credit product than a conventional tax equity investment," the report said.
Preferred equity investments, which speed up cash flow by facilitating tax credit sales to corporate third-party buyers, "would not be possible without the transfer market," Price said.
To account for sunsetting clean energy tax credits, meanwhile, power purchase agreement prices will rise by an average of $15/megawatt-hour to $20/MWh, according to Crux.
"PPA prices are set to enter uncharted territory that will almost certainly bring substantial premiums," a July LevelTen Energy Inc. report said.
S&P Global Energy Horizons agreed in a July 27 report, observing that "projects commissioning for the 2028–2030 time frame reprice sharply higher across independent system operators."
