Monetizing Tax Credits in Geothermal Projects

Abstract

The purpose of this article is to introduce a new form of project finance for the geothermal industry, “tax monetization”, which has been successfully implemented by Ormat Technologies (NYSE: ORA). Tax monetization structures are a direct result of government efforts to promote development of renewable energy through tax benefits, namely Production Tax Credits (PTCs) and accelerated depreciation (MACRS). These structures allow developers to take advantage of these tax incentives without being constrained by their own tax position. This, in turn, allows developers to expand the building and operation of renewable energy plants in accordance with the government’s design. Tax monetization was successfully implemented in the wind industry, and we believe that it will also be an efficient tool to advance geothermal projects in the U.S. following Ormat’s groundbreaking transaction.