Power Banks: Do Tax Equity Investors Add Value to Renewable Power Projects?

Abstract

Tax equity investors in renewable power projects, generally large banks, have deep investment experience but little technological expertise. Do they add value commensurate with the premium that they charge? In 405 U.S. solar and wind projects from 2007-2021, tax equity investors are associated with higher quality projects for measures that affect tax equity's returns. Projects take 2 months less time to complete and produce 9% closer to capacity than the average project, but wind plants have lower revenue per megawatt produced. These benefits are absent after tax equity investors' contractual holding period and also in likely tax equity investments that instead opted for U.S. government grants during a 2007-2013 financial crisis program. These results suggest that tax equity investors have, beyond selection ability, a useful monitoring role to play in the development of renewable power.

Keywords: renewable power, infrastructure, tax credits

JEL Classification: G38, G21, G32