Axios Pro Exclusive Content

Climate bill opens up private equity lane

Aug 4, 2022
Illustration of a stack of cash with three windmills on top of it.

Illustration: Victoria Ellis/Axios

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.

Go deeper