First Solar’s 2023 Tax Credit Transfer Agreements

Key Facts

• First Solar entered into two separate Tax Credit Transfer Agreements (TCTAs) on December 22, 2023, to sell $500 million and up to $200 million, respectively, of 2023 Inflation Reduction Act (IRA) Advanced Manufacturing Production tax credits to Fiserv, Inc. subject to satisfaction of certain conditions.
• Under the terms of the agreements Fiserv will pay a price of $0.96 per $1 of tax credits to First Solar during the first half of 2024, inclusive of fees and commissions paid by First Solar to the placement agent.
• The deal is believed to be the first significant credit transfer of its kind in the solar manufacturing industry and was signed just eight days following issuance of notice of proposed rulemaking by the US Department of Treasury and Internal Revenue Service to implement the Section 45X credits.
• The tax credits result from the sale of photovoltaic (PV) solar modules produced in 2023 by First Solar’s operational manufacturing footprint in the United States, including its third Ohio factory, which was commissioned earlier this year.
• The company’s fully vertically integrated solar manufacturing facilities produce thin film wafers, cells, and modules in a single integrated process that sees a sheet of glass transformed into a fully functional solar panel in approximately four hours.
• As a result of its vertical integration, First Solar is eligible for Advanced Manufacturing Production tax credits allowed for the production of PV wafers, cells, and modules under Section 45X of the IRA.

FAQ

What is the Section 45X Advanced Manufacturing Production Tax Credit in the Inflation Reduction Act?

The Advanced Manufacturing Production Tax Credit (AMPTC) was established by the Inflation Reduction Act of 2022 to incentivize the production of eligible components within the United States. Eligible components include certain solar energy components, wind energy components, inverters, qualifying battery components, and applicable critical minerals. The 45X AMPTC is claimed on federal corporate income taxes. For more information, please visit the Internal Revenue Service’s website.

How are the Section 45X Advanced Manufacturing Production Tax Credit paid to a company?

The participating company can either elect to receive a direct cash payment from the US Department of Treasury for a continuous five-year period or transfer the credits to an unaffiliated third party. The direct payment option exists on a facility-by-facility basis.

When are the Section 45X Advanced Manufacturing Production Tax Credit paid to the company?

If the company elects to receive a direct payment, it will receive payment as a refund from their annual tax return. First Solar has historically filed its tax returns in the third/fourth quarters of the financial year. If transferred to a third-party, payment timing will be negotiated between the parties.

Why is First Solar electing to transfer the 2023 Section 45X Advanced Manufacturing Production Tax Credits instead of electing for direct payment?

Following the issuance of notice of proposed rulemaking by the US Department of Treasury and Internal Revenue Service to implement the Section 45X credits on December 14, we recognized the opportunity to benefit from stronger than anticipated demand for the credits and to receive cash 12 to 18 months earlier than anticipated. The timing of this transaction has a time value of money benefit to the company and strengthens our US liquidity position in support of previously announced manufacturing and R&D investments in the country. Crucially, 2023 saw the commissioning and initial ramp of our third Ohio factory and the start of work to expand the capacity of the two existing factories in the state. We believe that it is optimal to elect the continuous five-year direct payment for each of these facilities only once the expansion plan and ramps are complete and they have been operational for a full year.

Will First Solar elect to transfer the 2024 Section 45X Advanced Manufacturing Production Tax Credits instead of electing for direct payment?

First Solar expects to conduct a similar optimization analysis in 2024 and depending on capacity ramp timing, transfer rates, interest rates, and United States liquidity elect direct payment or transfer of Section 45X credits. We expect to provide additional guidance on our fourth quarter earnings call in February 2024.

What impact will the transactions have on First Solar’s 2023 earnings?

First Solar expects a pre- and post-tax impact of up to $28 million in 2023, resulting in a reduction of diluted earnings of up to $0.26 per share for the year.