Gradient Boosting and SHAP-Based Analysis of Flip IRR Determinants in Residential Solar Tax Equity Transactions Under Section 48E Policy Uncertainty

Abstract

The partnership flip structure remains the dominant mechanism for monetizing federal investment tax credits in U.S. residential solar photovoltaic financing, yet the pricing of the flip internal rate of return and the determination of ITC transfer discount rates have historically depended on bilateral negotiation rather than systematic quantitative benchmarks. This paper presents a data-driven framework applying gradient boosting regression and SHAP-based interpretability analysis to a curated dataset of 87 residential solar portfolio-level tax equity transactions completed between 2018 and 2024, in which each transaction represents an aggregated investment fund comprising hundreds to thousands of individual rooftop installations structured through third-party ownership platforms. XGBoost and LightGBM models are trained to predict flip IRR intervals and ITC discount rates from 22 transaction-level and macroeconomic features, achieving a mean absolute error of 0.19 percentage points on held-out test transactions. SHAP value decomposition identifies the applicable MACRS bonus depreciation profile, benchmark Treasury rates, and contracted revenue escalation assumptions as the three highest-impact determinants of investor return, which in turn governs flip timing, while the deficit restoration obligation provision—frequently treated as legal boilerplate—emerges as a material constraint-relaxing mechanism that enables fuller depreciation utilization in high-bonus-election transactions. A Monte Carlo simulation framework, constrained by model-predicted investor IRR thresholds, generates sponsor net present value distributions across tax-driven capital structures scenarios, revealing that full bonus depreciation under a §48E domestic content scenario improves mean sponsor NPV by 19 percent relative to baseline. The framework is evaluated against the policy landscape established by the One Big Beautiful Bill Act signed into law on July 4, 2025, including the accelerated termination of §48E eligibility for solar facilities, the permanent restoration of 100 percent bonus depreciation, and the preservation of credit transferability under Section 6418. Findings support a scalable, transparent pricing infrastructure capable of reducing transaction friction and lowering capital formation costs across U.S. residential solar markets.