As my colleague Mike Mendelsohn has noted in several analyses, the relatively constrained tax equity market may limit the amount of investment flowing to renewable energy projects. [1] [2] To help bolster the supply of tax equity, high-net-worth individuals could moonlight as renewable energy investors much in same way a corporation would. However, unlike corporations, individual investors are subject to passive loss rules that will likely mitigate the value of federal incentives for renewable energy projects.

Passive loss rules can restrict renewable energy investment in two ways:

The rules stipulate that individuals, as passive investors, can only apply the tax credits or depreciation to other forms of passive income. In the context of renewable energy projects, most individual investors who are not actively participating in the day-to-day operation and management decisions of the project would likely be considered as passive by the Internal Revenue Service. [3]

Most individuals do not earn that much passive income. Qualifying passive income is generally limited to either (1) rental income or (2) income from a project in which the investor does not materially participate either in the management or normal business activity.[4]

via Passive Loss Rules and You | Renewable Energy Project Finance.