Two ways to get the same value out of a project
Before Section 6418 introduced credit transfers, tax equity partnerships were the only real way for a developer without enough tax liability to capture the value of a credit. A tax equity investor would take an ownership stake in the project, receive an allocation of the credit along with depreciation benefits and a share of cash flow, and eventually the developer would buy them out.
Transfer works differently. A buyer simply purchases the credit itself, in cash, without taking any ownership stake in the project. No partnership, no allocation rules, no depreciation benefit changing hands. Just the credit, sold once, for a discount to its face value.
On paper, transfer looks simpler. In practice, the two structures serve different purposes, and the market has started sorting itself accordingly.
What tax equity still offers that transfer doesn't
Tax equity investors don't just buy a credit. They also pick up depreciation benefits, which can be worth a substantial amount on top of the credit itself. For a project with a large depreciable basis, that combined value can exceed what a straight transfer would generate, even after accounting for the higher transaction costs and longer closing timelines that tax equity deals typically involve.
Tax equity investors also tend to bring more capital to a project overall, since they are effectively co-investing rather than just purchasing a tax attribute. For developers who need both credit monetization and additional project capital, tax equity can solve two problems in one transaction.
What transfer offers that tax equity doesn't
Transfer deals close faster and involve far simpler documentation. There's no partnership agreement, no complex allocation waterfall, no ongoing relationship between buyer and project after closing. The buyer pays, receives the credit, and the relationship ends.
That simplicity matters most for smaller deals, where the cost of structuring a full tax equity partnership would eat into too much of the value being generated. It also matters for buyers who only want tax credit exposure and have no interest in project ownership, depreciation benefits, or an ongoing partnership relationship.
How the market is actually splitting
Larger, more complex projects with significant depreciable basis are still leaning toward tax equity, or a hybrid structure that layers a transfer on top of a tax equity partnership to monetize the piece the investor doesn't want. Smaller and mid-sized deals, along with buyers who want a clean, one-time purchase, are gravitating toward straight transfer.
Neither structure has replaced the other. What's changed is that developers now have a real choice, and the structure they pick often says as much about the size and complexity of the project as it does about buyer preference.