Frontier Forum: Why clean energy capital boomed in a volatile year [partner content]

This is a Frontier Forum, brought to you by Latitude Studios. If you want to understand the state of clean energy finance, you could start with the mechanics, tax equity structures, bridge loans, transfer markets, but a better way to understand how capital is flowing into the sector might be to imagine a ship in a storm and a duck treading water.

Yeah, so Steven, twenty twenty five was a stormy year for clean energy and manufacturing. If you think about the ship in the storm, there were all of these cross-cutting forces. After much anticipation and intrigue, President Trump has finally unveiled his plan for sweeping reciprocal tariffs. Tariffs were Something that came to the fore in the early part of the year tax policy was shifting. Het is de big beautiful bill. One big beautiful bill. One big beautiful bill.

over the summer there were shifting supply chains that has been a a market feature for years now and accelerated with some of the different compliance obligations. And at the back of the ship, at the tail, we also had some pretty significant wins. Currently today and the trajectory that we are on, is there enough power right now just in the existing grid?

The short answer is no. Energy demand is rising for the first time in two decades. Manufacturing is reshoring to the United States at a pretty rapid rate. Interest rates reduced over that period. And when the morning rose and the sun came over the horizon, the ship is a bit further ahead in the water than you would have anticipated.

Alfred Johnson is the CEO of Crux, which is a capital platform for the clean economy. Crux modernizes capital raising and deployment for clean and critical infrastructure. And twice a year, Crux releases a market intelligence report tracking deal flow in the space. charting how projects actually get financed, from lending to tax equity to credit transfers. And the findings for twenty twenty five showed a resilient market in a stormy year.

And the number that I would point you to there, Steven, is total cap back. in these segments, which are renewable energy, battery storage, manufacturing, minerals, clean fuels, what we generally refer to as the clean economy. increased to about a hundred and twenty billion, which was a six percent increase off of twenty twenty four.

When you account for how projects are actually financed, layering construction debt, tax equity, and credit transfers, total financing activity was over$200 billion. So the ship stayed sturdy and kept moving forward. Katie Bayes, the head of research at Crux, thinks about it a little differently. She described the market like a duck in water. If you imagine kind of the way that a duck on the water is gliding along smoothly or

looks still, but then beneath the water its feet are paddling very hard and there's a lot of activity. The busy part of the deck is more representative of the project finance industry than what you might See on the surface Meaning, if you were just watching the headlines about project cancellations, equipment bottlenecks, policy whiplash, you might have expected capital to pull back. But underneath the surface, the system was still working. The motion just wasn't always visible from the outside.

The busy work of all of our project finance professionals continued and people kept deploying capital. The durable factors, the economics, the core fundamentals. that drove project level investment were as good or better in 2025 for many projects. Than you had seen in the years past. Uh we often talk about the industry as being on a roller coaster. I like the ship in the night and the duck on the water a lot better, so You we could put the ship and the duck on a roller coaster and Exactly.

More indicatives. I'm Steven Lacey. This week we have a conversation with Alfred Johnson and Katie Bays of Crux on what really happened to Clean Energy Capital in 2025. This was recorded live as part of a Frontier Forum. We unpacked how the market absorbed tariffs, fiok rules, and policy uncertainty while still scaling new financing tools like transferability and hybrid tax equity. What does it tell us about the strength of?

A$200 billion market is roughly a third of the entire cost inflation adjusted of the interstate highway system. It is roughly a quarter. of what was invested as part of the Recovery Act, right? So these are very large markets that have matured pretty quickly.

Alfred, you talked a little bit about some of the top line numbers. Let's just dig into like what happened to total financing volumes and walk through the different categories, tax equity and transfers, uh, capex, total project finance. Okay, so Steven, a typical project will raise something like five to ten.

different kinds of capital. They'll raise development capital, construction capital, bridge loans, tax equity. They may sell tax credits, permanent capital, and they're constantly going back to the market. Some of those pieces of capital, those financings take out earlier stages of capital. And and so when I tell you that the CapEx number, so the total investment in these projects, Was 120 billion in 2025. The total financing number is actually north of 200.

Because some amount of the capital that came in later takes out earlier stage financing. And what we saw in the debt markets is that they continued to remain pretty robust as we saw these significant. demand signals coming from more need for energy and more manufacturing development. The tax credit market grew materially. So, Steven, since we first started talking about transferable tax credits after they were introduced in 2023, the market

in that first year, 2023, was about a nine billion dollar market. The market in twenty twenty five for direct transfers was a forty-two billion dollar market. So we have we've grown materially over that period of time. The market has diversified also pretty materially. So it it was originally almost all solar and wind, about seventy-six percent of the market.

was solar and wind when we first got going. It is now significantly diversified into advanced manufacturing, clean fuels, minerals, nuclear, battery storage, which is booming. as a category and making up a much larger share of the tax credit markets. And then tax equity, which is the historical way in which credits were monetized before they could be transferred, has continued to grow.

In this market, in part because transferability allows for more capital to invest through tax equity structures, through something called hybrid tax equity. So the tax equity market. grew from about 20 billion in 2022 to about 36 billion this past year, which is a really material growth with most of it coming from hybrid transactions that allow for the subsequent sale.

Of the tax credit. So all of that combined to be a much larger market for project financing across all those different kinds of products and technologies over the course of 2025. Yeah, Katie, add a little bit more color to that. Like, what were some of the clear signals that the market was more resilient than expected? One of the, as we're doing this sort of walk down memory lane moment, one of the interesting evolutions in this market has been the way in which.

financing structures have evolved and adapted to maximize the benefits of transferability. So I think one of the You know, when we talk about a resilient market, the resiliency in this market came from flexibility and the the creativity that financing structures have been able to deploy. to return capital uh more quickly to investors, to optimize returns, to manage risk, so that a broader pool of capital is available to a wider variety of developers and sponsors.

So when we talk about kind of what has happened in this market, it is how these legacy institutions, including tax equity investors, uh, traditional project finance banks, construction lenders. Have adapted to maximize the kinds of financing opportunities that are available to developers. And so a few great examples of that, right? Like Alfred mentioned, we have these hybrid tax equity structures that have

really exploded as a principal source of tax equity in the market. We have the evolution of what are called preferred equity investment products, which generally are offered by, not exclusively, but generally by l uh investors who are not able themselves to internalize tax credits.

But it has had the effect of increasing the pool of tax monetization pathways that are available to developers. And then we also saw significant growth in the bridge lending market. And bridge bridge loans have been around for a long time, but They've generally always been available once a developer has secured a tax equity partner. Now what we see is that the bro the variety of bridge lines have broadened.

And so you can get a you can get a bridge line to a t future tax credit transfer, to uh preferred equity commitment. And all of that just means that it's there's more low-cost capital available to different

classes of project developers and technologies. You know, it's a benefit to uh some of our our less sophisticated or less advanced technologies like advanced geothermal, nuclear, uh where tax equity may not be a realistic financing vehicle, you now have all these other options available as well. W was there a divergence in who was able to access that capital? Like who were the winners in this more selective market? There are pockets of the market that have been able to become more selective.

Because there is almost an embarrassment of riches. There are so many projects in development. Many sponsors are upsizing the projects that they're building. So for instance, when we did our first report, we found I think maybe two, there perhaps two projects. that had tax credit tranches or entitled to generate a tax credit in excess of five hundred million dollars. That number is into the dozens now. So we see dozens of projects that can come to the market with

these ultra-large tax credit entitlements. And this is so you're seeing these bigger projects. Bigger projects require more more capital, uh are more likely to go to the bank market. So we see a bit of a bifurcation between The traditional kind of project finance bank capital source, which remains very cost competitive for a lot of developers. And then some of our newer or smaller developers who are accessing other forms of capital, including private credit, family offices.

uh and variety of different lenders who are able to provide capital, but but perhaps at a slightly higher cost.

You talked about the expansion of um transferability. How mature is this market now? With respect to the tax credit market in particular, we are about three years old, not quite even. And in those three years, the market has gone from being completely new with no market standards, with no documentation that could be reused across transactions with very few participants.

in it to a market that is now clearing more than forty billion dollars worth of deals per year. Another way of looking at the maturity of the market is to look at the breadth of participation. So certainly on the supply side, we have talked about how different technologies like advanced manufacturing are making up a much larger segment of the market.

The buy side of the market, which is largely US corporates that have tax liability and are investing in credits, has also grown and diversified quite a lot. So that market started with primarily the banks who had been tax equity investors prior to the creation of transferability in the first year 2023. If you're looking at the Fortune 1000. about fifty participated in the market.

That number is now 250, right? So it is becoming a very standard way in which companies are managing their tax liability and their cash position. And I think we're going to continue to see that. Grow as the market continues to grow on the supply side, being pulled by these big themes in energy demand and manufacturing. It's exactly right. And it's also important to acknowledge that this all of the progress that has been made in

driving evolution and standardization and maturity in this market, there is so much more room to run. And for those, particularly the tax credit buyers, the investors in tax credit, Equity or tax credit uh monetization tools, there is so much. scale that can be achieved across the corporate landscape, which we've really only begun to

explore and and some of our data findings are really showing that yes, we've seen this huge increase in corporate participation in this market. And those those entities that are purchasing tax credits. are saving money on their taxes. I mean, they're purchasing tax credits at a discount. And in general, what we find is that that translates to a reduction in their effective tax rate of roughly 3%, which is, I mean, if you have a hundred million dollars.

in tax liability that you're paying every year, the effective equivalent that that savings is worth about twelve million dollars to you. So it's not nothing and it just it does generate and liberate some significant, meaningful cash for the taxpayer. So those benefits are being better understood by many participants in the market. And now the challenge becomes how do I continue to scale this?

this strategy so that I can utilize these tax benefits over the medium term and do so with a minimal hit or a minimal uh amount of time commitment. on the part of the the buyer. So I think that there's a lot of room left to go there, but but certainly we see the benefits and I think people are beginning to respond to that materially.

Steven, your question has another angle that can be taken, which is the development of the market as a capital market. And if we get nerdy about that for a second, when you look at The development of new markets, they almost always start with no market standards and undeveloped supply and demand.

And then as supply and demand start to grow and more transactions happen, there start to emerge standards. And one of the big pieces there is documentation. So if you look at, for example, the derivatives market.

and its emergence. At first it had no standard documentation. And then there was a movement by the International Swaps and Derivatives Association to create something called the ISDA, which is a common form that is now used to underlie trillions of dollars of derivatives transactions and has made that market significantly more efficient. And and you basically see that in any capital market that reaches scale.

As I mentioned at the beginning of this market, if you'd seen one set of transaction documents, you'd seen one set of transaction documents. There was no commonality across the forms. And this is one of the things that We've been working really hard on. So we partnered with ACP and a number of their closest members to identify.

Opportunities to standardize the forms and produced a market standard form that is now used within Crux transactions more than 50% of the time and natively part of the platform that allows for people to get more efficiency. in these transactions. And if you go back, Stephen, to the five to ten different kinds of capital.

that a project raises, those are really expensive. Every time the project goes to market, it is having to pay significant fees to intermediation, to legal, to tax, to specialty consultants. the project finance industry around those segments is super overworked. And there are not enough people that know how to do these deals. And so there's just a need across the board for substantially more efficiency in these markets. And we see that as we start to get to 40 billion plus.

and nearing three years of volume and time, there's been real benefits and movement that has been made in making these transactions significantly more efficient.

Take a step back and to use the uh metaphor that we started this conversation with, if w let's look at the storms above the surface of the water a bit more. We we talked about constantly shifting tariffs, uh fiok compliance rules, shifting tax policy in the later half of the year. Um were these forces How much were they slowing deals down, or how much were they just changing how deals were structured? How did this show up in the data?

Yeah, that's a good question. I mean, we d we absolutely saw that investment almost across the board was front-loaded into the first half of 2025. And so that's a reflection of the desire in many ways by developers to achieve certain safe harbor milestones so that they essentially insulate themselves against

an aspect of, typically not all of, but some aspect of uh those future compliance requirements. So we saw we certainly saw plenty of that. There was a desire, I think, by many of the uh offshore wind developers in particular to sort of raise capital early, build a durable uh insulation against any kinds of headwinds that they would face and

Obviously that industry has faced headwinds, but that there has been a ability to sustain through some of those challenges. So obviously you see this strategic behavior by a lot of project developers. But we have also heard, and I think we shared in the experience that the fourth quarter was an extraordinarily busy quarter. So the market did front load a lot of investment activity. And once the storm cleared, as it were, the market also was able to recover quickly.

And I think in the context of foreign entity of concern, that is kind of one of those ongoing factors that we are going to continue to wrestle with over the course of the next few years. Um, but the market is generally good and investors are good at at handling complexity um and within the context of foreignity of concern, you have a number of complex

factors, but they are very situation specific or fact specific. And our research has shown that in All of the cases where a developer is able to sort of um address the uncertainties, address the fiak risks, do you have? problematic ownership. Do you have a prohibited foreign entity in your in your capital stack? Do you have lots of contracts with those kinds of counterparties? You know, are you purchasing all of your equipment from from facilities that are from from manufacturers that are

on the uh Department of Defense's watch list. Like there are these fact-specific questions. If you can answer them, then the availability of capital is still very robust. And so I think what we'll continue to see is we'll get better at answering those questions, better at dealing with some of the blurred edges around gray the gray areas, if you will. But then over time, you know, the fact that you can get to a a yes. uh will become broader set of facts for the industry.

If we take a look at the undercurrents now, so like let's go back below the water and talk about some of the structural forces that were mentioned earlier that are pulling the market forward. What is that? slow down and then very rapid pickup in the market. Tell us about the industry's ability to kind of navigate. change and uncertainty. And um, you know, how powerful are the macro forces in this electricity supercycle that we're in the middle of, Alfred?

Yeah. So I I think to answer that question, you have to go back and you have to look at the way that the market has evolved over a period of years and and what has been driving that. And if you go back to the early twenty tens, we have seen a categorical explosion. in solar. It is much more widely used across the market. The number of gigawatts that have been deployed is truly impressive.

And similarly, if you look at manufacturing of related components to the solar, wind, and battery supply chains, there was not much investment in the US prior to 2020. And then with twenty twenty and COVID and the realization that we need more supply chain continuity and resilience here in the United States, you started to see more. And then you really started to see a lot more as the IRA was passed and more subsidy was extended into the battery supply chain.

in particular. And what that has driven is a huge amount of manufacturing investment that has happened over the period. So all of those were the factors that were propelling the market going into this stormy year. Now in twenty twenty five You also had increasing demand for energy. I've said that a few times, but let's pull it apart, right? Part of that is the data centers that have gotten so much attention and are growing quite rapidly, are are rapacious and their need.

for power, but part of it is everything else. It's electrified transportation, it's more heating and cooling. And all of that is pulling electrification and the need for more electricity in the market that's pushing up. Prices, that's a demand signal for people to build more infrastructure. Similarly, over that period, if you look at batteries, which have just grown at such a rapid pace. I think the growth in terms of deployed gigawatts from 24 to 25 was about a 72% improvement or growth rate.

That has also been powered by batteries getting much better in what they can do and much cheaper relative to the energy that they produce. So that is leading to. substantial investment that is coming at just the right time as we need to supply more stable power into demand like the data center.

And so all of that was was really pushing the market. The other kinds of dynamics that were present in twenty twenty five that were leading to more infrastructure investment are the normal things that lead to infrastructure investment, like interest rates that dropped by Three quarters of a point over the course of twenty twenty five. So even in the face of all of these challenges.

changing tax law, tariffs, everything else, you had these really big structural factors that started a long time ago and then continued over the course of 2025 for those reasons. Katie, how powerful are those macro factors, you know, heading into this year? I think it's an it's an enormous tailwind for this industry. And what I think about, I reflect back on the 15 plus years that I've spent working in energy and finance and

Every challenge that has been put in front of this industry, it has met. And I think about how 10 years ago, you know, the lowest cost source of power was not a renewable source.

And now it is. And I think about how now the challenge is you have to meet baseload. You've got to you cannot just deliver a cheap electron. You've also gotta be reliable. And that's where the storage industry has stepped up and really delivered. And you know, m at a micro level it was you gotta be a four hour you need to be able to deliver a four hour battery and

we step up and deliver. And then you need to be able to deliver long duration energy storage. And we're starting to see manufacturers of those facilities step up and deliver. And you have to navigate geopolitical headwinds. And I mean it couldn't it's hard to contemplate. I don't wanna say it couldn't be a messier geopolitical environment, but it would be challenging to imagine a noisier geopolitical environment and

This is a reliable, stable, secure source of American energy that is stepping up and delivering. So I really think that. The tailwind behind the industry, that and when I say the industry, I I do mean, you know, not only solar, wind, and storage, but also geothermal, nuclear, the manufacturing supply chain, the clean fuel supply chain that relies upon American agricultural products.

All of those parts of the American energy complex make good economic, strategic, and geopolitical sense. And because of that, that is where capital will continue to go. And it's not to knock any other source of energy that there are other very important sources of energy in the American energy complex. But this is a space where there is so much trajectory and room for growth. And we know that the capital market.

sees that and responds to that. And so we're very optimistic about what twenty twenty six is going to hold for this industry because you have softened, I think, some of the headwinds and the policy uncertainty. And now you get to kind of benefit from those core fundamental economic drivers that aren't going anywhere. And where I think on over time we only see better and better business models coming into the market.

Just yesterday the tech executives were at the White House signing a ratepayer protection pledge, promising to fund their own power, pay for grid uh upgrades, and you know, they're doing most of that stuff already, but I I think it's a Clear sign from the federal government that they want to encourage

a lot more on site development for data centers and clearly that will benefit a lot of clean advanced energy sources along with, you know, you know, gas, et cetera. You know, there's also a question of whether Congress will um engage in permitting reform. Just what kind of tailwinds do you see potentially coming out of this current moment?

So look, electricity prices are just rising, right? Like by every factor, they're rising. And that changes the political dynamics, that that changes the economic dynamics. And I'm looking Right now at front month futures for crude oil, which are up eight and a half percent.

You know, as you start to see geopolitical and global market dynamics and energy play through, that will have all sorts of cascading impacts onto what projects make sense in the United States, what kind of power looks better and worse.

based on the dynamics of price. And and so I think all of that will play out quite dynamically in an election year as as people are getting their heads around what the ways that we can respond to diminishing affordability, an increasing need for power, an increasing need for domestic supply chain. are. And I think there's a lot of really common sense things that could be done around that. Right. There are some real constraints in the system around things like transformers.

Where, regardless of what kind of energy you may prefer as the source, we need more domestic transformers and we need an industry to produce them. So I think that there's increasingly bipartisan activity around things like that. I think the macro economy will drive some amount of additional investment against these themes of reshoring and investing in domestic infrastructure.

Fossil fuels or conventional fuels are a hedge on reliability, ultimately, that they provide reliability benefits to a system that has become more reliant on uh intermittent sources of electricity. But clean energy systems or renewables are a hedge on geopolitics because they provide a source of electrons that are not

tethered to global markets in any way, right? So the oil market's global market, natural gas markets increasingly becoming exposed to the global market, which has has been heavily disrupted. Um and then power is not. Power is a domestic market. And so the only real source of electricity that is insulated against those global macro factors is

is renewables. So I think you can kind of see across an efficient portfolio as the market globally becomes more noisy and and unpredictable, the premium for that domestic s head. on that instability is is greater.

Yeah, and and I think a common refrain that some might make in response to Katie's point, which I think is right, is well you have to look at the supply chains, right? Like where does this stuff actually come from? Where do the panels come from? Where do the critical minerals come from? And I think that

argument also refers back to this need for more domestic infrastructure, right? Because it if we have domestic production of the components and we have domestic critical mineral supply chains, then you are also less reliant. on foreign sources. And we're in a moment where that feels relevant and essential again across the political spectrum in a way that we haven't seen, I think, in a very long time.

Well as we come to the close, I wanna get your Uh thoughts on storylines for twenty twenty six we should be paying attention to. You can break it down by like category of market participant or just general storylines that we should all be keeping our eyes on. Katie? Oh I love this. So I think my my kind of piggybacking off what uh Alfred just said is I think make energy bipartisan again, that most of what we need in the energy complex is just more capacity. We need

to open the door to greater investment, greater domestic investment. We need to create a stable, reliable policy infrastructure so that capital markets can operate as efficiently and cost effectively as we know that they can. And then we just need to deploy that infrastructure in the United States. So, you know, we do see the the science of life that actually energy is not nearly as partisan at the local level as people wanna maybe make it out to be.

And ultimately, I think that's that's the kind of environment that we're really going to be living in in 2026 and beyond is a a true all of the above. you know, bring them bring your electrons, bring your molecules. Like let's just make the grid as res as resilient, as affordable, and as uh abundant as we can.

Absolutely. Pole after poll shows that it is a deeply bipartisan. And there's a thin layer of politics on top of it sometime, but it's very clear that it is, you know, clean energy and energy diversification is a very bipartisan thing. Alfred, want to finish up? Yeah, it's The twin of that. So manufacturing investment has exploded. If you look at the the development and deployment of solar supply chain, battery supply chain in the United States, it's dramatically different.

than it was four or five years ago. And that's all cumulative, right? The more that we build here, the more that we manufacture. that flows through into a much deeper and more resilient supply chain for all of the things that we need. And I think that is a theme that is truly bipartisan and something that we will continue to see a lot more of. Absolutely. Alfred Johnson is the CEO of Crux. Thank you so much. Always great to chat with you. Steven. Good to be here.

And Katie Bays is the director of research at Crux. Thanks, Katie. Thank you, Stephen. Again, this conversation was recorded live as part of our Frontier Forum series. And we've got some news. Latitude Studios and Crux are working on a new show called Critical Capital. It'll cover everything at the intersection of energy, finance, policy, and tech. It is hosted by Crux CEO Alfred Johnson.

And he will go deep with the people deploying capital, shaping policy, and laying the foundation of the modern economy. Stay tuned for more news on that front. We're really enjoying putting together that show. And if you want to go deeper into the mechanics on tax credit pricing, safe harbor strategies, evolving deal structures, You can watch the full frontier forum at latitudemedia dot com slash events.

Definitely check that one out because there's a lot more to the conversation. And we will also link to the full Crux Market Intelligence report, which breaks down the data behind everything you heard today. Thanks so much for listening.