Home Private Equity Private equity warms to renewables projects following Inflation Reduction Act

Private equity warms to renewables projects following Inflation Reduction Act


The Inflation Reduction Act has several investment components and among them is an opening for private equity to play a larger role in funding renewables projects.

Why it matters: Longer-term tax incentives for domestic production and manufacturing written into the law sweeten the project-financing economics when it comes to private equity investors.

State of play: Existing tax incentives for renewables are short-term and tend to favor heavy polluters seeking to bring clean-tech investments onto their balance sheets to write off losses.

  • The longer-term incentives in the Inflation Reduction Act create more PE-friendly economics with better predictability, Dave Locascio, a partner at energy firm Hogan Lovells, tells Axios.
  • The Act, as currently written, extends the carbon sequestration credit and ups the credit amount to $85 per metric ton for sequestered carbon and $60 per metric ton for the beneficial use of captured carbon emissions

Zoom in: If the incentives stick, so-called “green hydrogen” and sustainable fuels could be two other appealing PE targets, Locascio says.

  • Both are capital-intensive projects that haven’t yet been proven at larger scale, and require more time to effectively evaluate ROI.
  • That’s been off-putting for PE investors needing to cash out, but more attractive to companies that can write off the investments until the returns are realized.

The bottom line: After a summer of uncertainty, major renewables projects may have a clear path forward with PE in the wake of the Inflation Reduction Act.

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