Residential solar company Sunnova Energy expects to bring in at least another $100 million in sales from investment tax credit (ITC) transfers during fourth-quarter 2023 after selling $14.4 million in transfers to a corporate buyer in the third quarter.

The transfers, enabled by the Inflation Reduction Act (IRA), are opening up another revenue stream for renewable energy companies, including solar players facing higher interest rates.

“When the Inflation Reduction Act introduced ITC transferability, it gave us the ability to further diversify our funding sources and introduced another source of liquidity and adjusted EBITDA,” Sunnova Energy CFO Robert Lane said Oct. 26 on Sunnova’s third-quarter 2023 earnings call. “While we will continue to focus on growing our long-term recurring contracted cash flows, we have reached a stage where we can better balance our cash inflows from long-term contracted customer contracts with those from activities such as the ITC sales that can generate material cash and adjusted EBITDA in a short period of time.”

Companies that generate certain clean energy tax credits are allowed to sell their tax credits for cash to third parties. Transferability, as it’s called, became available this year with the IRA. Only eligible taxpayers are allowed to transfer certain credits, according to guidance published by the IRS. The buyer must pay cash for the credit, which is not eligible for inclusion in the taxpayer’s gross income and not allowed as a deduction to the transferee taxpayer. The tax credit can only be sold once.


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“If a tax equity fund sells the ITC credit, then you really are getting just about all the advantages. There’s very little friction,” Lane said. “And that’s the route we’ve chosen to take. So, we’re always going to generate a few tax credits directly into our balance sheet, just because maybe we have some assets that don’t fully qualify for some of our tax equity funds.”

Sunnova Energy CEO John Berger said the company was the first to complete an ITC transferability deal. And the process wasn’t easy, according to the executives, as multiple law firms are typically involved with such transactions.

“Every one of them is trying to protect their client. But not every one of them is familiar with tax equity or with the IRA. So, you end up with a lot of different folks trying to get a lot of different points in. But we had a great buyer and they had a really good counsel,” that saw what was needed to get to the finish line, Lane said. “We now have the blueprint. … It’s just one more piece of a corporate secret sauce, if you will, that we intend to continue leveraging.”

Quarterly highlights

The ITC transfer was among Sunnova’s third-quarter 2023 highlights. The solar energy producer, which is leaning more on AI and software to help lower capital needs, reported revenue increased to $198.4 million, up $49 million compared to a year earlier. The increase was attributed to more solar energy systems in service, higher revenue from the sale of inventory to its dealers and others and higher in-service revenue as direct sales of more services to existing customers rose.

The company said it added more than 37,000 customers during the third quarter, bringing its total count to about 386,000. Its total solar power generation reached 2.3 gigawatts.

“Sunnova is focused on liquidity, profitability and cash flow,” Berger said. “We continue to act on these focus areas by raising price, reducing working capital needs and reducing operating expenses.”

Analysts saw positives and negatives.

While in a note Goldman Sachs pointed out “relatively weak 3Q23 results as revenue and adj. EBITDA missed expectations, despite customer additions that were better than expected,” the firm’s analysts also noted Sunnova’s adjusted liquidity forecast. The forecast indicates no need for corporate capital in 2024, a change from last quarter’s outlook of $500 million. The drop was attributed in part to additional funding, including the BB-rated tranche for the recent Hestia transaction.

Looking ahead

Sunnova’s 2024 guidance includes between 185,000 to 195,000 customer additions and adjusted EBITDA of between $350 million and $450 million, with about $125 million in levered cash flows.

About 15% to 20% of the 2024 EBITDA are ITC sales, but that could rise depending on input from tax equity partners, Lane said.

“We believe NOVA is well positioned in terms of liquidity and profitability to achieve strong results, especially in FY24 and beyond, supported by strong returns (thanks in part to its ability to increase prices while maintaining growth), its focus on reducing operating expenses (through the use of new software and artificial intelligence) and less reliance on capital markets, particularly in this higher interest rate environment,” Evercore said in note.

Sunnova also looks to benefit from lower equipment costs next year. Berger sees troughs in pricing in the first half of 2024, with a trough for batteries and inverters in the first quarter.

Berger said investors and others are starting to look with trepidation toward the 2024 presidential election.

“One thing I’d put out there for people to ponder is it’s not going to get any better in terms of tax credits in the IRA credits as it is now,” he said.