The Hidden Engine of Clean Energy: How Tax Equity Is Powering the Next Era of Renewables
A Quiet Force Behind the Energy Transition
When conversations around clean energy finance arise, tax equity rarely leads the headlines. But for those building and backing renewable infrastructure in the U.S., it’s one of the most critical,and complex, tools in the capital stack.
Once a niche strategy dominated by banks and specialist investors, tax equity is undergoing a transformation. New legislation, shifting deal structures, and emerging investor classes are reshaping how capital flows into clean energy projects.
To better understand this evolving landscape, we sat down with Neil Winward, CEO at Dakota Ridge Capital and a seasoned expert in tax equity structuring. Drawing on decades of experience and a front-row seat to the post-IRA boom, Neil helped us unpack what tax equity is, how it’s changing, and why now may be the most important time yet for investors to pay attention.
“We service clients worldwide, as long as there are U.S. taxes to be paid.”
What Is Tax Equity, Really?
At first glance, tax equity may seem like a niche corner of finance In reality, it’s a form of industrial policy, one that has quietly shaped the growth of clean energy in the U.S.
Instead of offering direct subsidies, the federal government uses the tax code to incentivize investment in strategically important sectors. In the case of renewables, this means redirecting a portion of tax revenue, through credits and depreciation, to projects that advance public policy goals.
But these incentives only benefit investors with sizable U.S. tax liabilities. Most developers don’t qualify, as Neil Winward explains, “The developers want the value of the tax credits, but they don’t have the tax appetite to use them. So they bring in investors, often banks, who do.”
Banks and large corporations became central to this ecosystem not just because they have the tax capacity, but because they also possess the financial sophistication and risk underwriting skills required to navigate project-level complexity. Over time, they helped standardize a set of structures that could deliver tax benefits while minimizing exposure.
Despite being called “tax equity,” these investments often behave more like debt. “A lot of effort goes into making these deals look and feel like equity from a tax perspective,” says Winward. “But economically, they occupy a preferred, often senior, position in the capital stack.”
In this way, tax equity operates at the intersection of public policy and private markets, aligning government priorities with investor incentives, while quietly funding the infrastructure needed for a lower-carbon future.
Anatomy of a Deal, and Where Misconceptions Arise
How These Deals Actually Work
Two of the most common frameworks, sale-leaseback and partnership flip, offer different ways to allocate tax benefits and returns.
In a sale-leaseback, the developer sells the project to a tax equity investor and leases it back, letting the investor claim tax benefits while the developer keeps operating control. But the required buyback at fair market value can be expensive once the tax perks run out.
To avoid that, many opt for a partnership flip: the investor enters as a partner from the start, receiving most of the tax and cash benefits (say 99%) until hitting a target return. Then the economics “flip” back to the developer, offering a cleaner handoff without a costly repurchase.
Yet both structures are governed by IRS rules, case law, and complex documentation. Legal costs are high. Financial models must reflect detailed assumptions. And every deal must be tailored to both tax and operational realities. “They’re complex because they have to be,” says Neil Winward. “Every party has to walk a fine line between maximizing economic outcomes and staying compliant with the tax code.”
The IRA brought a major shift with its introduction of transferable tax credits. These credits, like the Investment Tax Credit (ITC) or Production Tax Credit (PTC), can now be sold directly to third parties, uncoupling the benefit from project ownership. That change unlocked a new set of participants: corporate tax departments who want to reduce their tax burden without getting involved in energy project due diligence.
“Transfers made it simple,” Winward explains. “Corporate buyers didn’t need to understand the project or the risks, they just wanted the credit, and they could buy the credit packaged with tax insurance.”
This structural flexibility helped double the tax equity market in 2024, from around $20 billion to $40 billion. But it also led to misunderstandings about what’s being gained, and what’s being left on the table.
Why Simpler Isn’t Always Better
Transferability has undeniably lowered the barrier to entry, but it has also created confusion about what investors and developers are actually giving up in pursuit of simplicity.
One of the biggest blind spots is depreciation. Unlike tax credits, depreciation benefits, especially through accelerated schedules, cannot be transferred. They remain with the project owner or equity partner. That means if a developer opts for a straight credit transfer, they must either find another way to monetize the depreciation or accept that benefit will go unused.
“There’s a tradeoff,” Winward explains. “You can transfer the credit easily, but the depreciation stays where it is. That affects the overall return profile.”
Another misconception is that simpler means better. While transferring a credit may appear efficient, it often delivers incomplete economics compared to a well-structured equity partnership. Tax equity deals are deliberately complex because they’re engineered to extract every available benefit,credits, depreciation, and long-term cash flow.
Finally, many newer market entrants underestimate the opportunity side of complexity. Yes, deals are difficult to close. Yes, they require expert guidance. But the rewards, enhanced IRRs, larger capital stacks, repeatable frameworks, can far outweigh the friction.
As Winward puts it, “You can choose simple, but it won’t be complete.”
The New Playbook: Flexibility, Blended Capital, and Expanding Access
Rather than replacing traditional tax equity, the transferability option has become a flexibility lever. Sophisticated players are now blending strategies, holding depreciation and cash flows while selling credits to corporate buyers. This frees up tax capacity, allowing them to do more deals with developers.
New entrants are also changing the game. Private credit funds, which previously couldn’t participate due to lack of tax appetite, are now entering transactions by contributing preferred equity and transferring credits externally. “They’re able to be part of the stack in a way that was never possible before,” says Winward.
Developers, too, are getting more strategic. By using arm’s-length appraisals to revalue completed projects when transferring them into partnerships, they can increase the eligible basis for tax credit calculations,boosting returns without added risk.
Innovation isn’t just in structure. It’s also in where tax equity is being deployed:
Policy, Persistence, and the Path Forward
No conversation about tax equity is complete without acknowledging the political crosswinds. While the Inflation Reduction Act expanded the market and introduced new flexibility, recent proposals signal potential rollbacks—sunsetting credits, tightening transfer windows, and shifting priorities.
“There’s always tension in industrial policy,” says Neil Winward. “Tax incentives create jobs, but they also cost money. And depending on who’s holding the legislative pen, priorities shift.”
Despite that, the outlook remains resilient. “These programs aren’t going away,” Winward notes. “They may be restructured or trimmed, but energy will remain a national priority.”
For investors, the question is no longer whether tax equity will persist, it’s whether they’re ready to engage with it strategically. With rising demand, a maturing credit transfer market, and increasingly flexible structures, tax equity is poised to become a more mainstream portfolio sleeve.
Still, it’s not a space to enter lightly. “There’s a lot more detail behind the headlines,” Winward emphasizes. “But I love helping people find their way through what appears to be a complex maze of constraints, to get to where they need to be.”
“The U.S. Government Pays Well For Clean Energy”
Neil Winward, Founder and CEO
For those ready to navigate that maze, Neil and the team at Dakota Ridge Capital are an ideal starting point. They’ve guided institutional and emerging players through smart, compliant, and high-impact transactions, and they’re open to helping others do the same. For more information, you can visit www.dakotaridgecapital.com.
If you’d like to learn more about the IRA, we invite you to download their free guide here.
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