In October 2024, a milestone event occurred on the land of the Navajo and Hopi peoples in the southwestern United States. Navajo Power Home is a local supplier of solar energy for off grid homes on Navajo reservations. It has partnered with Basis Climate to complete one of the smallest tax credit transfers to date, providing $355000 in ITC to 100 households on Navajo and Hopi lands. This type of tax credit sales is not prominent and unknown to many people, and it proves the democratization and progressiveness of the new tax transferability regulations. Independent transactions of this scale were previously impossible in traditional tax fairness, but more importantly, without tax transferability, this often overlooked and marginalized community will not be able to realize the benefits of clean and affordable energy.

Traditional tax equity structure
It has been in existence since the IRS issued the Income Procedure 2007-65 in 2007. Although this tax equity partnership has undergone many adjustments over the years, its mechanism remains largely unchanged. Initiators often lack sufficient tax capacity to fully utilize these tax credits, but they can obtain upfront capital and avoid seeking additional debt or equity financing. Investors reduce their tax obligations through tax credits and accelerated depreciation deductions for projects, and meet the growing public demand for clean energy credit for ESG goals.

Tax fairness has always been at the core of most developers' financing strategies, typically covering around 40% of the cost of solar projects. Considering legal fees, accountants, engineers, and compliance and due diligence for contracts and data rooms, the initial cost of establishing a tax equity partnership starts at $100000 and can easily rise to millions of dollars. These costs and complexities will make any financing arrangements for small projects and developers financially unfeasible. The result is that only mature large developers and enterprises have limited space to participate. In 2023, the average tax equity transaction is about $100 million, and the tax equity market is about $23 billion, with domestic banks accounting for over 80% of investors. JPMorgan Chase and Bank of America, the two largest investors, hold over 50% of the entire tax equity market. The lack of accessibility on both the supply and demand sides of tax fairness is a problem that tax transferability aims to address.

Democratization through Transferability and Solar Energy
The new tax transferability regulation in IRA (Article 6418) greatly improves the monetization of small developers and the convenience for small investors to purchase these tax credits. By directly selling or "transferring" tax credits on the open market, buyers can purchase these tax credits at a discount of around 10%, while sellers can obtain the required capital in advance and avoid the complexity and costs of tax equity partnerships. Compared to a typical tax equity transaction of $100 million, over 80% of transferable transactions in 2023 have amounts below $50 million.