Outcome for Crux if Transferability Ceases?
TL/DR –
The Inflation Reduction Act enabled clean energy developers to sell the tax credits from their projects on an open market, leading to the growth of startups like Crux Climate, which benefitted from this new opportunity. However, there is now a proposal to get rid of transferability for all credits by 2028. Despite this, Crux’s co-founder Alfred Johnson remains optimistic and highlights that the company has diversified by launching a debt marketplace, offering tools like short-term bridge loans, construction financing, and flexible lines of credit for renewable projects.
Crux Climate Continues Thriving Despite Tax Credit Transferability Threat
The Inflation Reduction Act’s provision enabling clean energy developers to sell their project tax credits opened a fintech opportunity for a digital marketplace. Crux Climate, a successful startup, capitalized on this opportunity. However, with Congressional Republicans considering cutting tax credit transferability and the House of Representatives’ Ways and Means committee proposing eliminating all credit transferability by 2028, the question arises – what happens to Crux?
CEO Alfred Johnson reassured that despite this potential legislative change, Crux’s business remains strong. Johnson explained that Crux’s vision extends beyond being an ordinary tax credit marketplace, aiming to be a comprehensive project financing platform.
Crux unveiled a debt marketplace before announcing its Series B funding. This marketplace allows developers and manufacturers to secure short-term bridge loans, construction financing, and flexible credit lines to fund renewable projects. Johnson revealed that the market size for transferable credits is $30 billion annually, whereas project finance debt’s market size is over seven times larger, at $230 billion.
The introduction of the debt marketplace may have been timely, as it could be the first of several platform expansions. Johnson shared that Crux has plans to tap into many multibillion-dollar markets among the thousands of developers, manufacturers, investors, and corporate buyers within the U.S. energy and manufacturing project finance market. Despite being only two years old, Crux has already seen impressive financial success, becoming profitable in its second year.
Crux’s revenue for the first one-and-a-half quarters of this year is nearly ten times higher than the previous year. Since the debt marketplace’s launch, lenders have issued $1.3 billion of term sheets, with $700 million transforming into actual deals. Despite the potential tax credit transferability changes, Crux continues to operate in the tax credit market, anticipating a more favorable stance on transferability and tax credits in the final bill.
The debut of Crux’s debt marketplace witnessed a surge of developers, manufacturers, and investors. David Haber, a general partner at Andreessen Horowitz, and Clay Dumas of Lowercarbon Capital, both see Crux as a gateway into a multibillion-dollar opportunity to finance energy and advanced manufacturing through debt and other products. However, not all investors are as optimistic, with some expressing skepticism about the long-term viability of companies built around tax credit transferability.
Amid legislative changes, renewable energy developers may have to resort to complicated and costly tax equity financing, which Crux currently does not facilitate. Crux could potentially disrupt this area as well. Its website markets it as the preferred platform to source new opportunities for lending, equity, and tax credit transfers, reinforcing their commitment to “financing the future of energy.” Johnson believes that while financial transactions will never be as easy as a single click, negotiations and transactions can be significantly improved.
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