Deal Star began as a listing tool for renewable energy tax credits through our broker network. Developers would list their available credits, and our brokers would connect them with potential buyers. In working closely with our customers, we discovered a need for a more comprehensive solution, which led us to evolve into a full-scale origination platform that addresses the fundamental challenges in tax credit transactions.
In our analysis of the market, we found that current tax credit marketplaces operate more like "billboard" than a true exchange. This approach, we learned from our customers, fails to address transaction complexities. Because buyers assume liability for credit validity, this makes thorough due diligence essential rather than optional. Without comprehensive documentation and verification, buyers cannot accurately assess risk or determine fair pricing.
Our customers weren't primarily struggling to find deals or buyers. Their core challenges involved the overwhelming complexity of creating, reviewing, and transferring tax credits.
Unlike true marketplaces where fungible commodities can be exchanged based on standardized specifications, tax credits vary markedly in quality even with identical equipment types. Two 5MW solar projects may have entirely different risk profiles based on documentation, compliance status, and verification quality. Because of the lack of standardization, prices can and do vary wildly for similar credits.
We found that successfully transfering tax credits require extensive documentation across numerous regulatory categories. With edits and changes, each transaction becomes a significant work effort for both buyer and seller.
Some processes and documents require specific validation against an evolving regulatory standards with excrutiating detail, creating substantial administrative burdens. Prevailing Wage reviews often fall into this category.
Tax credits require extensive documentation spanning physical construction evidence, permits, legal requirements, control transfer, and grid synchronization. Each category contains multiple document types with specific IRS requirements, creating substantial organizational challenges for project developers.
Projects must satisfy requirements from the IRS, Treasury, DOE, DOL, and EPA. Now with the BBB changes, guidance continues to evolve, creating ongoing compliance challenges for even the most sophisticated developers.
The substantial recapture risk in tax credit transactions necessitates thorough verification. In our experience, this process relies heavily on specialized (read: expensive) attorneys rather than streamlined underwriting procedures. Many transactions require tax credit insurance, adding significant costs and underwriting burden. These verification expenses significantly impact overall economics, especially for smaller transactions.
Our work in the industry has demonstrated that scaling manual verification processes presents significant challenges. The tax credit market under the new BBB changes is still a very large and liquid market, which will make current manual approaches increasingly difficult to maintain. Many times, smaller transactions struggle to accrete enough tax savings to justify high verification costs. Based on our experience, only systematic automation and verification can address these challenges at scale.
As the tax credit market has evolved, many large companies already create and consume their own credits without the need for transfer. Some credits qualify for direct pay (such as 45Q or claims by non-profits), eliminating the need to find buyers. Major accounting and tax consulting firms operate internal marketplaces by connecting their existing clients, limiting the need for external exchanges.
Tax credits have so far resisted the standardization that traditional exchanges require.
Based on feedback from our customers, we developed Deal Star's tax credit origination system to:
Through our industry experience, we've recognized that tax credit transactions parallel commercial loans in complexity.
We've observed that commercial lending has developed sophisticated origination systems to address these challenges. Our analysis suggests tax credits require a similar approach focused on their unique characteristics.
Our experience in the market has convinced us that the future of tax credit transactions requires systems designed specifically for origination, not just listing. Deal Star transforms complex compliance and verification processes into manageable workflows, providing value for developers, investors, and brokers throughout the transaction lifecycle. By addressing the fundamental challenges in tax credit transactions, we enable market participants to focus on what matters: accelerating renewable energy development through efficient tax credit monetization.
See how Deal Star's origination platform approach transforms tax credit transactions from complex manual processes into streamlined, compliant, and scalable operations.
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