Solar infrastructure investments are increasing their commitment to community-based solar projects

Aligned Solar Partners 6 Raised $240 Million, Attracting Institutional Investors

In a significant development for the renewable energy sector, Aligned Solar Partners 6, an infrastructure fund dedicated to community solar, has successfully raised $240 million. This fund, which is eight times larger than its predecessor, Aligned Solar Partners 5 from 2022, has attracted a diverse range of institutional investors, including pensions and endowments.

The transferable tax credit market, created in 2023 with the passing of the Inflation Reduction Act, has played a crucial role in this fundraising success. This market allows buyers and sellers to trade clean energy tax credits for cash, providing an additional revenue stream for companies like Aligned.

Aligned's solar strategy involves acquiring construction-ready distributed solar projects, ranging from 1 to 10 megawatt alternating current, and from $10 million to $30 million. The company sells tax credits from these projects in the transferable tax credit market, generating profits. For instance, a $10 million solar project could yield a tax credit of $4 million. The profit from selling tax credits can be significant, amounting to $3.5 million for a $10 million project.

Aligned's solar projects are primarily located in rural and underserved areas of the U.S., where the abundance of land reduces local opposition to siting. These projects are often found in states that are continuing the energy transition, such as Maine, New Hampshire, and California.

The profits from these projects benefit Aligned's investors in three ways: through yearly profits from operational solar plants, asset bundling and sale at the end of the fund's lifecycle, and through leveraging tax credits and the rapidly expanding transferable tax credit market. Aligned targets returns of over 20% for its investors, which is on the higher end for infrastructure funds.

Before the IRA, tax credits could only be used to offset passive income, limiting Aligned's investor base. However, the transferability of tax credits has opened up the fund to new types of investors, like pensions and endowments, contributing to Aligned raising more capital. In fact, for the first time, 95% of the investors in Aligned Solar Partners 6 are large institutional investors.

Peter Davidson, the leader of the Aligned Climate Capital, has highlighted that the transferability provision in the Inflation Reduction Act has enabled Aligned to raise a significantly bigger fund. He also emphasized that the transferability of tax credits is not a budget item and should not be part of the reconciliation language.

This successful fundraising round marks a significant step forward for Aligned and the renewable energy sector, demonstrating the potential of the transferable tax credit market to attract institutional investors and drive the growth of clean energy projects.

Solar infrastructure investments are increasing their commitment to community-based solar projects