We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is Tax Equity?

Geri Terzo
By Geri Terzo
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Federal governments have extended tax credits to promote the proliferation of renewable energy, including solar, geothermal, which harnesses heat from the earth, and wind power. The U.S. is no exception, and this government has provided financial incentives for investors and renewable energy developers to further the industry, especially as traditional oil and gas prices become prohibitive. Tax equity is a strategy that investors can use to provide capital to alternative energy projects. This type of incentive program has its challenges, however, and any roadblocks to this financing threaten to slow the pace of alternative energy further.

Investment banks have fueled much of the growth of solar and wind power. Part of the incentive for investing is the growth potential for the nascent industry, but government tax credits also play a role in this business. The U.S. government has earmarked funds for renewable energy market participants, but those benefits are not always cut and dried.

In order to qualify for some of the financial benefits tied to investing in wind and solar power generation, investors need to generate profits that exceed a certain threshold. This is because, instead of a direct break, the tax credit is offered as a means to counter the investor's anticipated tax liability, a process known as tax equity. Given that renewable energy distribution in the U.S. remains in its early stages, developers do not typically earn enough profits to qualify for the tax equity.

Wind power and solar energy projects are extremely costly endeavors. Typically, developers do not have enough capital to complete these large-scale projects without the help of tax equity. Subsequently, the renewable energy industry is largely dependent on the policies set forth by the federal government and also the profitability at investment banks. In the event that investors do not remain eligible for tax equity benefits, whether profits falter or for some other reason, there is less incentive for these institutions to finance renewable energy projects. When the state of the tax equity market is in question, so too is the future of alternative energy production.

Federal policies surrounding tax equity continue to take shape through changing economic cycles. Renewable energy developers have pushed for allowances tied to tax credits that would keep the flow of financing from stalling. For instance, market participants have been known to request reimbursements for tax credits that were not used and permission to trade credits among parties.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.