Post-IRA Opportunities for Private Equity Investment

Key Takeaways | Post-IRA Opportunities for Private Equity Investment

Overview




Partners Carl Fleming, Philip Tingle and Edward Zaelke were joined by special guest Shawn Cumberland, managing partner at EnCap Energy Transition, for an engaging discussion that explored the Inflation Reduction Act of 2022’s (IRA) impact on private equity firms and companies seeking investments, as well as the challenges and opportunities presented in the energy transition sector.

Key takeaways included:

  • The IRA has separated players into two camps: those who are actively participating and those who are waiting on the sidelines. We have seen some “guidance paralysis” in the market where deals have generally been structured in a way where the commercial terms come with the caveat of “subject to IRS guidance.” However, we have also led several players who are taking advantage of being a “first mover” and employing creative solutions and structures to keep their deals moving forward, especially in trying to address step-up or transferability risks.
  • Generally, even without the full guidance from the IRS, it’s expected that market participants will continue to move forward in structuring deals and the standard for markets will normalize over time—and this process has already begun. As more IRS guidance becomes available, more stakeholders will be pulled from the sidelines.
  • For tax credit transfer deals, the market is already seeing some deals being made on a smaller scale. While some larger transactions are waiting for additional IRS guidance, we have seen some household names enter the picture for large transactions as of late. We expect those transactions to be executed this quarter.
  • Certain transfers may require greater certainty and will take time. For example, carryback credit transfer deals are not expected to be executed until the fourth quarter of 2023.
  • Growth in the renewable energy sector is not being constrained by capital but as the IRA has expanded areas of energy that can be subject to tax credits, some market participants will need time to become more comfortable with other areas of the energy industry, such as hydrogen, carbon capture, etc.
  • As the renewable energy sector continues to grow with the IRA, we may see an increase in interest in investing in the manufacturing space. However, this will also take time for current market participants in the tax equity sector to get comfortable with.

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