In just two years, the market for transferable clean energy tax credits has grown from virtually nonexistent to over $30B in size - arguably one of the most impressive market creations in recent history. The catalyst for this rapid transformation was the Inflation Reduction Act (IRA), which introduced tax credit "transferability". At its core, transferability aimed to simplify the monetization of tax credits for clean energy projects, offering an efficient alternative to previously dominant, yet complex and costly, tax equity.

However, despite early enthusiasm around the IRA’s potential, “smaller” credits (in particular those under $20M) didn’t gain immediate traction. Larger corporate buyers remained cautious, viewing these smaller credits as carrying disproportionate administrative effort and heightened risk. Meanwhile, mid-sized corporate buyers took time to educate themselves on the opportunity before engaging.

Yet, over the past several months, this perception has dramatically shifted. Market maturity, new entrants, technological advancements, growing buyer sophistication, and deeper liquidity have transformed “smaller” tax credits from niche into core components of strategic corporate tax management. 

So what exactly has changed, and why should companies care?

How the Landscape Has Evolved

Before the IRA rewrote the rules of the playing field, the primary mechanism to monetize tax credits was through a process called tax equity. Due to its complexity and cost, however, only the largest clean energy projects were able to access it. This meant that for the majority of “smaller” projects - what is broadly known as “distributed generation” or “DG” (think commercial & industrial (C&I) or community solar assets) - the juice was just not worth the squeeze, limiting access for “smaller” project developers to tap into this opportunity.

Then along came the IRA and with it “transferability”, a brand new mechanism that allowed the sale or transfer of a tax credit between two parties without the complexity and headache of tax equity. In theory, these new rules promised to simplify tax credit monetization and unlock an entire segment of the market - small & mid-sized projects - that had previously been shut out.

A Growing Focus on Smaller Credits

Despite the excitement around the IRA, its promised benefits did not play out overnight. The market initially exhibited inertia, held back by long-standing beliefs that smaller tax credits carried a greater administrative burden and higher perceived risk. However, as familiarity with the IRA’s new transferability rules has grown and market infrastructure has matured, these outdated perceptions have begun to fade. Several key factors are now accelerating this shift and reinforcing the attractiveness of smaller credits:

• Growing liquidity: Not only has demand for clean energy tax credits increased within the Fortune 500 group, it’s expanded significantly beyond this segment with mid-cap companies, large multinational corporations with mid-sized tax liabilities, and other private and public entities entering the market. More eyeballs has resulted in more attention being paid to smaller projects.
• Perception of risk is evolving: There’s a subtle and often overlooked difference between the perception of risk and the true intrinsic risk. As the market continues to mature, buyers are becoming better at underwriting the actual risks of smaller credits, spoiler: they are much less risky than the general perception - more on that below.
• Technological innovations: Advances in technology, namely AI, can significantly reduce the friction associated with due diligence and deal execution. Technology can now bear the brunt of the necessary heavy-lifting associated with a comprehensive project diligence process (ensuring tax credits are valid and legitimate), reserving expensive attorney and CPA fees only for the final review stages of a transaction.
• Policy intent playing out: We already know that one of the IRA’s core intents was to make tax credit monetization accessible to all, so it shouldn’t be a surprise to see it beginning to play out - it just needed some time! 

Three Most Common Use Cases, Who is Benefiting?

Over the past few months, we’ve observed three common buyer profiles looking to engage in smaller tax credit purchases:

1. New entrants: We can categorise new entrants into two key buckets: 
   
   1. Large corporations with limited previous experience looking to “dip their toes into the market” with a smaller initial tax credit purchase.
   2. Small/mid-cap corporations with $5-50M in tax liabilities looking for similar sized tax credits.  
2. Excess capacity utilization: We’ve also seen buyers with excess tax appetite look to smaller credits as a “top-up”. For example, Acme Inc. has a tax credit appetite of $210M and has already engaged in a $200M tax credit purchase, so is in the market for a smaller $10M project. 
3. Intentional tax diversification strategy: In some cases, we have seen buyers adopt an even more intentional strategy - purchasing a variety of tax credits (size, type, technology) in order to optimize their average credit pricing and diversify risk profile. For example, Acme Inc. purchases a total of $270M at a blended price of 93.6 cents.
   
   1. $200M project at 94 cents → $12M in savings
   2. $50M bundle at 93 cents → $3.5M in savings
   3. $20M bundle at 91.5 cents → $1.7M in savings

Scalable, Efficient, and Low-Risk Transactions

An important question many buyers have is whether smaller tax credits inherently carry more risk than larger ones. The short answer is: not necessarily - and here’s why:

1. Fewer compliance requirements: Projects under 1MW are exempt from certain regulatory requirements, most notably prevailing wage and apprenticeship (PWA) rules. Given that compliance with these regulations is often a primary source of audit and recapture risk, smaller projects inherently face fewer potential pitfalls.
2. Simpler project financing structures: Small and mid-sized projects, particularly those in the C&I or DG space, often benefit from simpler and more streamlined financing structures. Unlike large, bespoke utility-scale projects, which often involve complex financial structures, smaller projects generally require less intricate arrangements which translates directly into fewer potential failure points from a project performance and execution standpoint.
3. Risk diversification: Oftentimes, smaller credits will be bundled together to create larger portfolios so that they match a buyer’s minimum appetite. For example, a portfolio totalling $10M composed of 10x smaller $1M credits. Since the risk of recapture remains low across projects of all sizes, a portfolio of tax credits reduces the risk through diversification so that “not all eggs are in one basket”.
4. Insurance protection: A robust insurance market has evolved significantly, providing comprehensive recapture insurance for tax credits of all sizes - including smaller credits, which were historically excluded due to cost-prohibitive minimum insurance premiums. Today, each insured tax credit dollar holds equal protection, regardless of the project's size.

Given the manageable risk profile, the next logical question is whether smaller credits are worth the effort. Is there significant additional administrative burden associated with smaller projects or bundles of smaller credits?

The reality is that the administrative workload need not scale linearly with the number of projects, especially when properly structured into a portfolio:

• Standardized diligence process: Due to their simpler and uniform nature, smaller projects benefit from more standardized diligence processes. General diligence checks (such as cost segregation studies, developer credentials & financials, etc.) can often be conducted at a portfolio or aggregate level, significantly streamlining the process.
• Efficiency with scale: With most diligence items applicable across multiple projects within a portfolio, the incremental work per additional project becomes minimal. This ensures that the time, effort, and cost associated with evaluating a portfolio of projects remain manageable.
• Specialized platforms: Platforms like Concentro further simplify the process, handling comprehensive diligence, providing standardized legal documentation (such as Term Sheets and Tax Credit Transfer Agreements), and arranging full insurance coverage. For the buyer and their counsel, this integrated service translates into a seamless, straightforward experience, regardless of how many credits are being considered.

In short, “smaller” tax credit transactions, especially when aggregated into portfolios and managed by experienced providers, can offer a compelling balance of manageable risk, streamlined administrative effort, and valuable financial benefits.

The Bottom Line

Ultimately, the rise of smaller tax credits isn’t just about the increase in liquidity for smaller developers, it’s about smarter and more strategic tax management that we see playing out at the corporate level. We’ve seen an explosion in the number and types of companies looking to buy tax credits, and we only expect that to grow further as the market continues to mature. Smaller tax credits, previously shunned, are quickly becoming a core part of the tax credit transfer playbook - providing companies with an additional source of high quality, vetted and insured clean energy tax credits.

‍