NextEra Energy Inc. has a new source of capital funding for its renewable energy projects: tax credit transfers made possible by the Inflation Reduction Act.

The Florida-based company says it is already seeing strong demand for its tax credits, having entered agreements to sell more than $300 million of tax credits in 2023. That amount is expected to rise to between approximately $1.6 billion to $1.8 billion in 2026, NextEra Energy CFO Kirk Crews said Oct. 24 on the company’s third-quarter 2023 earnings call with analysts.

“This dynamic has reduced NextEra Energy’s capital recycling needs, including those previously met via sales to NextEra Energy Partners, which has historically averaged roughly $1 billion of annual cash proceeds,” Crews said.

Transferability allows companies that generate certain clean energy tax credits to sell their tax credits for cash to third-parties. Only eligible taxpayers are allowed to transfer certain credits, according to guidance published by the IRS. It must be paid in cash, is not eligible for inclusion in the taxpayer’s gross income and is not allowed as a deduction to the transferee taxpayer.

NextEra’s tax credit transferability is included in cash flow from operations, executives said. Information presented during the company’s third-quarter earnings call show cash flow from operations, including tax credit transferability, is expected to fund about 50% of NextEra Energy’s 2024-2026 funding plan of about $35 billion to $45 billion.

“The demand is extremely robust for tax credit transfers,” NextEra Energy CEO John Ketchum said, adding the company is already working on 2024 transfers. “One of the things that really helps NextEra in the tax transfer market is the fact that we have a strong balance sheet, we have an A-minus rating from the parent and we’re able to underwrite the credit.”

He called underwriting capability important given the competition, which includes small developers.

“If you go to the top 50 taxpayers, they’ve never heard of these companies. They don’t know who they are. They don’t really know what they do,” Ketchum said. “They know NextEra, and we can provide an indemnity behind the tax credit that we transfer. … And we get the preferred pricing because of it, and so I feel great about where things stand in terms of our tax credit transfer program.”

NextEra considers itself an “ideal seller of credits.” The company said a tax credit transfer of $1 billion, for example, could lead to $6.5 billion in equity content created.

Rebecca Kujawa, president and CEO of NextEra Energy Resources, said tax credit transferability complements the business and benefits commercial and industrial customers that buy renewable energy.

“Some of the customers that are most active in the market in procuring renewable energy are also the one that are most interested in buying tax credits from us,” Kujawa said. “I think they really like the value proposition, certainly in the economics. … We see a really deep market, a lot of interest and really a lot of cross-selling opportunities across the portfolio.”

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