ImpactAlpha, April 18 – Evergrow raised $7 million to help build out a platform for buying and selling tax credits for climate projects. The San Francisco-based company is one of a handful of startups capitalizing on an unsung provision of the U.S. Inflation Reduction Act that allows developers for the first time to sell their tax credits.
The Act showered hundreds of billions of dollars of incentives on developers of community solar, wind power, battery storage, electric vehicle charging infrastructure and other green infrastructure, mostly in the form of tax credits. To make sure the credits could be widely used, it allowed for the “transferability” of credits, a move that was welcomed by smaller developers, nonprofits and local governments that don’t have taxable income to offset. Previously, they would have had to find investors and enter into complex ownership arrangements to monetize the credits (a process known as “tax equity”).
“Project developers are the people who are literally going to go build new solar, new wind, new carbon capture,” Evergrow’s James Richards told ImpactAlpha. “These people are heroes, but only the biggest of them have an easy time raising money.” He started Evergrow to “simplify that process for them and make it so that capital is no barrier to funding any project that helps with finance climate change.”
The company’s Series A round was led by First Round Capital, XYZ Venture Capital, and Congruent Ventures, and follows a $7 million seed round in late 2021. Evergrow vets and curates the projects on its site and connects them with family offices, corporations and other potential buyers. It has $150 million worth of clean energy projects on the site that are expected to come online this year. (Tax credits are not generated until projects are completed).
“We are already seeing the IRA unlock appetite among new investors, which is what it was designed to do,” says Richards.
Making a market
Others are also targeting the opportunity. Crux Climate launched last week with $4.6 million in funding from Lowercarbon Capital and other investors for a tax credit trading platform. New York-based Basis Climate raised an undisclosed amount earlier this year. Reunion Infrastructure, another startup developing a marketplace for tax credits, is backed by Segue Sustainable Infrastructure.
The transferability clause could spawn a whole new market for tax credits, and eventually enable investors to extend loans against the credits. In the meantime it’s already speeding IRA projects, said Rob Day of Spring Lane Capital, a green infrastructure investor and operator. The new marketplaces could help unlock capital, particularly in low-income areas, which are eligible for bigger tax savings.
Day is seeing some project developers take an even simpler route: transferring the tax credits to their customers as part of the purchase price. “It’s a shorter putt,” he says.