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Michael J. Goldman, Esq. Donald Nimey, CFA, FRM Daniel J. Smith, CPA

Michael J. Goldman, Esq. Donald Nimey, CFA, FRM Daniel J. Smith, CPA. Energy Credit. Section 48 of the Internal Revenue Code

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Michael J. Goldman, Esq. Donald Nimey, CFA, FRM Daniel J. Smith, CPA

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  1. Michael J. Goldman, Esq. Donald Nimey, CFA, FRM Daniel J. Smith, CPA

  2. Energy Credit • Section 48 of the Internal Revenue Code • Energy property using solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat, but not to generate energy for the purposes of heating a swimming pool • Must be new property

  3. Solar Energy Credit • 30% of the facility’s basis, if placed in service prior to January 1, 2017 • 10% of the facility’s basis, if placed in service after December 31, 2016

  4. Solar Energy Credit • Credit is claimed in the year the facility is placed in service • (although it could be claimed based on “progress expenditures” over more than one year) • Recapture possible for 5 years • (credit vests 20% per year)

  5. Who Claims The Credit? • The owner of the solar facility • If there are multiple owners, it is shared in accordance with profits sharing • The lessee

  6. What is the credit basis? • Cost of the facility • Not all items includible • Cost Certification • Fair market value of the facility • Lease passthroughs • Appraisal

  7. When are the tax benefits claimed? • Placement in service • Credits • 50% bonus depreciation • Depreciation

  8. Who participates, and who cannot participate? • Corporate investors • Individuals • Issues with respect to at-risk and passive activity rules • Tax-exempt entities • Qualified allocations

  9. Exit strategies • Flip • Put/Call

  10. Special considerations • Profit motive • AMT • Timing • Rebates • Utility subsidies • Transfers of Interests

  11. Structures Self-owned Partnership Lease Passthrough / Inverted Lease Sale-Leaseback

  12. Sample ITC Single Tier Structure – Flip Renewable Energy Project Developer Tax Credit Investor, Corp. Investor contributes equity equal to $1.XX per ITC at completion of project; receives 99.99% of Project Ownership, Depreciation, Residual Cash Flow (after fees) and ITCs. A yield-based or timing-triggered flip of partnership interests typically precludes a put or call of Investor’s interest in Project. Retains 0.01% of Project Ownership, Depreciation and Residual Cash Flow; receives fees to strip out some cash flow; buys out Investor after flip in partnership interests Renewable Energy Project Owner, LLC 10+ year fixed PPA; Utility makes base year payment of $0.XX/kWh with X% annual escalations Utility/Grid/ Dedicated End-User

  13. The Captive Energy Company Property Operating Partnership Developer Energy Company, LLC Equity Investor 99% Fund Manager 1% General Partner 1% $ $ Investment Fund 99% Developer $ PPA/Lease Revenue PPA/Lease Agreement Managing Member 1% Energy Credit Investor 99% $ Dev. Fee 30% ETC Installation Agreement Systems Integrator/Installer

  14. Sample ITC Master Lease Structure Renewable Energy Project Developer Tax Credit Investor, Corp. Investor contributes equity $1.XX per ITC at completion of project; receives pass-thru ITCs and depreciation plus X% cash priority for 5 years and XX% put proceeds at end of 5th year (both %s based on contributed equity) Retains 51% of Project Ownership and Depreciation; receives fees to strip out most cash flow; buys out Investor after 5 years Master Tenant, LLC 10+ year fixed PPA; Utility makes base year payment of $0.XX/kWh with X% annual escalations ITCs passed via Master Lease; Master Tenant operates equipment and makes lease payments to Owner Renewable Energy Project Owner, LLC Utility/Grid/ Dedicated End-User Contributes Investor’s equity into Owner; receives 49% of Project Ownership and Depreciation for 5 years

  15. Sale Leaseback Structure Solar Developer Purchase Agreement Solar Developer, LLC Lessee Corporate Investor Lessor Solar Developer may provide certain guarantees to Corporate Investor and funds would be held in escrow accordingly. Yield guarantees, O&M, Insurance etc. Funds released to Solar Developer as guarantees burn off. Lease Agreement Sales Proceeds Sale of SEFs and Lease Payments Lessor is owner of SEF, Investment Tax Credits, Tax Losses (Depreciation Deductions), Rebates, RECs, Recipient of lease payments, Potential residual buyout PPA/Lease Agreements Solar 1, LLC Solar 2, LLC Solar 3, LLC Engineering, Procurement and Construction Agreement (“EPC”) Solar Installation Host #1 Solar Installation Host #2 Solar Installation Host #3 Systems Integrator/Installer

  16. Investment Tax Credits for Solar—The Basics

  17. Investment Tax Credits for Solar—The Basics

  18. ARRA Grant Program • Placement in service in 2009 or 2010 • Or placed in service before 2017 if construction commenced prior to 2011 • Application deadline is September 30, 2011 • Guidance forthcoming

  19. Contacts Michael J. Goldman Nixon Peabody LLP 401 Ninth St., NW Suite 900 Washington, DC 20004 202-585-8289 mjgoldman@nixonpeabody.com Donald Nimey Reznick Group, P.C. 7700 Old Georgetown RoadSuite 400Bethesda, MD 20814-6224 301-280-1846 don.nimey@reznickgroup.com Daniel J. SmithNovogradac & Company LLP303 West Third StreetDover, Ohio 44622 330-602-4600dan.smith@novoco.com

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