What is §6418? How transferable tax credits work.

The problem it solved

Before the Inflation Reduction Act, clean energy tax credits could only be used by the entity that generated them or transferred through complex tax equity partnerships. Tax equity partnerships require institutional investors with large federal tax liability -- typically banks and insurance companies -- willing to invest in clean energy projects in exchange for the tax benefits. These structures are expensive to arrange, time-consuming to document, and effectively unavailable to smaller or mid-size projects.

Section 6418, enacted as part of the IRA in 2022, created a simpler alternative: direct credit transfer. A project developer who generates clean energy tax credits can now sell those credits to any qualified buyer for cash, without a tax equity partnership, without a complex fund structure, and without the buyer needing any involvement in the underlying project.

Which credits are transferable

Section 6418 applies to a defined list of clean energy credits, including those most relevant to Meridian Pi projects:

• §45V -- Clean hydrogen production tax credit
• §48E -- Clean electricity investment tax credit
• §48C -- Advanced energy project credit
• §45Q -- Carbon oxide sequestration credit
• Several other production and investment credits created or expanded by the IRA

How a transfer works

The transfer process follows a defined sequence. The project is placed in service and begins generating credits based on actual production, investment, or capture activity. Qualified tax counsel calculates the credit amounts and prepares the documentation required for transfer. The developer identifies a qualified transferee -- a corporation or other entity with federal tax liability that can use the credits on its own tax return. The parties execute a transfer agreement, the transferee pays cash consideration to the developer, and the transferee claims the credits on its federal tax return.

Transferred credits typically sell at 90-97 cents on the dollar. The discount reflects the transferee's cost of diligence, recapture risk, and the administrative burden of claiming the credits. Recapture insurance from specialty carriers (Marsh, Aon, Lockton, or similar) is typically obtained to protect the transferee against credit recapture risk.

What the transferee receives

The transferee receives the right to claim the purchased credits on its federal tax return, reducing its federal tax liability dollar for dollar. A corporation that purchases $10 million of §45V credits at 95 cents on the dollar pays $9.5 million and reduces its federal tax liability by $10 million -- a $500,000 net benefit before accounting for transaction costs.

How Meridian Pi uses §6418

Meridian Pi structures the §6418 transfer as a standard component of project financing on applicable projects. Credits generated by §45V hydrogen production, §48E solar and fuel cell investment, §48C advanced energy components, and §45Q carbon capture are identified during the architecture phase, sized as part of the project pro forma, and transferred to qualifying buyers at or following placed-in-service. Transfer proceeds flow into the project capital structure, improving economics for both the developer and the offtaker.

Meridian Pi coordinates qualified tax counsel with established §48E and §6418 practice on all structured financings. Offtakers do not need tax appetite to benefit from the project's credit stack -- the credits transfer to third-party buyers and the cash flows into the project.

Important disclaimers

Credit transferability, transfer pricing, recapture risk, and applicable IRS guidance are subject to change. This page is informational and does not constitute tax or legal advice. All credit structuring should be coordinated with qualified tax counsel before any reliance on specific figures or structures.