41. Solar Tax Equity: A Safe Investment to Build Institutional Resilience

Our partners at Transform Energy lay module racking for a 337 kW ground mount project in Lodi, California.

With the recent news of the collapse of Silicon Valley Bank (SVB), financial institutions across the country are witnessing the adverse impact of risky investment decisions in certain market cycles. While the situation around SVB is unique, it’s clear that diverse and low-risk investment products offer much-needed portfolio stability in times of market fluctuations. Solar tax equity can help institutions reduce investment risk and increase their respective bottom line.

Why Solar Tax Equity is a Safe Bet

Investing in solar tax equity products allows entities to invest directly in Sunwealth’s portfolio of impactful community-based solar projects in exchange for government-backed tax benefits, preferred annual distributions, and a cash buyout at the end of the 5.5-year investment term targeting a double-digit after-tax IRR. Sunwealth’s tax equity investors represent a senior portion of the capital stack for Sunwealth’s equity contribution – meaning tax equity returns are the first to be paid. Think of solar as a non-cyclical asset class (i.e., Consumer Staples, Health Care, and Utilities). These returns are uncorrelated with changes to interest rates and the general economic environment, meaning its largely shielded from industry or market disruptions. Bank regulators have also approved tax equity finance transactions – see what the Office of the Comptroller of the Currency has to say.

The benefits of solar tax equity include:

  • Rapid return of capital via a dollar-for-dollar reduction in federal taxes through the 30% Investment Tax Credit (ITC), with opportunities to capture an even higher ITC with new adders

  • Accelerated depreciation deductions for the majority of the cost of the solar assets, allowing investors to keep funds that would otherwise go to the IRS

  • Double-digit after-tax returns from tax savings and cash yields

  • Low-risk, predictable returns based on tax benefits and stable, fixed-rate cash flows from long-term contracts with credit-worthy off-takers

  • Scalable structure, providing effective tax planning opportunities to banks and corporations with regular taxable income 

A programmatic approach to investing in tax equity can increase your institution’s level of risk mitigation. The recent passage of the Inflation Reduction Act also creates greater opportunities for banks and financial institutions to capitalize on investing in solar and maximize impact.

Partnering with Sunwealth 

At Sunwealth, we know first-hand the importance of leveraging community-centered investments to drive prosperity and sustainability. Our projects seek to develop solar for communities, specifically low-income communities and communities of color, so that they can engage in an inclusive clean energy economy and reap the benefits of solar.

Our partnerships with 500+ investors, including eight community banks, enable us to finance and develop solar projects that provide energy savings, green jobs, and emissions reductions to communities and impactful organizations across the country.

Investing in solar tax equity offers institutions an opportunity to deploy capital in a way that contributes to sustainability/ESG strategies and complements a balanced, stable portfolio that generates significant environmental and economic impact. Sunwealth is ready to forge new partnerships with entities across the U.S. and continue delivering for our communities, investors, and the planet.

Interested in learning more about Sunwealth?

 

Darreck Mitchell

Darreck is Vice President, Director of Capital Markets at Sunwealth. He has over a decade of experience in financial services, sales management, and asset management distribution. When he’s not helping investors put their money to work, he can be found spending time with his wife and two young daughters.


 

Omar Blayton

Omar is Chief Financial Officer at Sunwealth and a leader in innovative finance models for investments and solar developments that prioritize justice, equity, and inclusion. Before joining Sunwealth, he was the Managing Director of Project Finance at Innova Energy Partners, and Vice President of Structured Finance at Greenskies Renewable Energy, a leading commercial and industrial solar developer.

 
Jon Abe