Inverted Leases and Tax-Equity Structures: When They Still Make Sense to Finance Renewable Energy

When using inverted leases, the renewable energy company assigns customer agreements to a tax equity investor who collects the customer revenue and pays most of it to the renewable company as rent. The energy company passes the investment tax credit to the tax equity investor but keeps the depreciation. The energy company takes the asset back when the lease is terminated. Inverted leases provide several advantages, including lower exit costs and no basis reduction. However, they also have some downsides, including a potentially higher tax structure risk and complexity comparative to newer transferability and hybrid structures.

Attendees will gain practical insight into the mechanics of the inverted lease, key decision points for structuring, and the updated market considerations given the rise of tax credit transferability and hybrid structures. Our panel will discuss when an inverted lease remains a viable tool, particularly for ITC-only projects, the advantages and trade-offs compared to partnership flips and credit transfers, and the risk allocations and documentation pitfalls that counsel must navigate to protect clients.

Listen as our panel of experienced tax equity and project finance attorneys walks you through current best practices and strategic guidance for advising in this specialized area.