Why Canapi is Backing Crux

October 10, 2023

For centuries, financial institutions have provided the critical infrastructure needed to maintain our global economy. In their unique ability to bring together supply and demand, banks have created the marketplaces that enable the efficient allocation of resources. At the start of modern banking in the 12th century, these marketplaces enabled grain production. Today, one of the newest marketplaces seeks to enable renewable energy production.    

The passage of the Inflation Reduction Act (IRA) – which supplies nearly $400 billion in federal funding to renewable energy delivered via a combination of tax incentives, grants, and loan guarantees – has enormously expanded the number of and parameters around renewable energy tax credits. And critically, thanks to transferability, financial institutions, other corporates, and even individuals can now purchase renewable energy tax credits directly from developers.  

A new tax equity opportunity

The IRA has opened a new market for banks previously left out of the $20 billion per year tax equity market. As a form of project finance, tax equity allows investors – historically large banks and insurance companies – to provide an investment to jumpstart an energy project. In return, the investor receives annual equity yields across the deal lifetime and dollar-for-dollar federal tax credits associated with the project.  

Previously, two banks – J.P. Morgan and Bank of America – accounted for the majority of tax equity supply side given the complications and costs associated with an esoteric process. The IRA, however, has made it newly possible for smaller financial institutions – even those without renewable energy underwriting expertise — to participate as buyers of credits or brokers of tax credit deals in a market that is projected to grow to $90 billion in coming years.  

By purchasing tax credits directly from buyers, financial institutions can offset their tax burden to the tune of $0.80 to $0.95 on the dollar. In addition, these purchases can reduce financed emissions, which is increasingly top of mind considering pending regulation around ESG reporting.  

On the other hand, as a broker facilitating the sale of tax credits, banks develop a new business line akin to underwriting and selling stocks and bonds. For example, Bank of America recently agreed to purchase $580 million worth of tax credits from IRG Acquisition Holdings, who will subsequently use these proceeds to buy a $1.5 billion portfolio of renewable energy projects from American Electric Power. As more investors enter the market, banks will increasingly find demand for these credits, helping to power the energy transition while generating returns.  

Crux – an efficient finance solution for banks

Taking full advantage of these opportunities, however, will require help. Already, banks are looking for new financing structures combining tax credits with other capital, or scaling their tax credit syndication capabilities. Small teams are looking for ways to serve demand without increasing headcount, or address developer clients looking to borrow against future tax credits. As guidance around the legislation emerges, banks are looking to cohesively manage IRA compliance.

We believe Crux is the perfect partner to provide this assistance to banks and are thrilled to announce our investment in Crux as our first climate tech position in our funds. Crux, the ecosystem for banks, syndicators, buyers, and developers to transact and manage transferable tax credits, is poised to help unlock billions of dollars in opportunity. With Crux, banks can scale syndication, efficiently onboard corporate clients, and allow them to purchase credits. Crux can drive cross-sell, deepening client relationships while offering other financial products across teams.

Crux offers a white-labeled portal that brings together developers, buyers, and advisors, allowing financial institutions to tap into a burgeoning network and balance tax credit supply and demand, thus maximizing revenue. Through Crux’s branded environment, banks can bring buyers into a portal that aggregates all relevant credit opportunities, facilitating price discovery both for single assets and portfolio processes. Crux also standardizes and streamlines how corporate buyers progress through transactions, creating a hub for diligence, coordination, and closing.

While the IRA has spurred an influx of companies seeking to capitalize on the moment, we believe that the Crux team possesses a unique advantage to win. Not only have co-founders Alfred Johnson and Allen Kramer previously founded and exited a marketplace company together, but Alfred maintains unique ties to the legislative arena and developer ecosystem. Alfred previously served as Deputy Chief of Staff to Janet Yellen at the US Treasury Department and was formerly a Senior Advisor for financial markets -- where he worked on the financial crisis response and Recovery Act. Alfred was also an advisor to banks and official institutions at BlackRock. He and Allen are also joined by Rob Parker who brings more than 20 years of energy and finance experience to his role as Chief Commercial Officer. We have no doubt in this team's ability to unlock this massive and impactful opportunity.

At Canapi, we pride ourselves on supporting visionary leaders with the capacity to bring meaningful change to the financial ecosystem. The IRA presents a canvas for creative financial institutions to both access a new asset class while supporting renewable energy goals. At this intersection of profit and purpose, we see Crux playing a pivotal role. We’re honored to be partnering with Alfred, Allen, and the entire Crux team as they help banks to offer efficient finance for the energy transition.  

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