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Clean Tech 2010: Opportunities for a New Decade. San Diego Event. March 25, 2010 . Energy and Clean Tech Practice. Who We Are. Represent more than 200 energy and clean tech clients More than $2 billion of energy and clean tech deals completed from 2006 to 2009

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who we are

Energy and Clean Tech Practice

Who We Are
  • Represent more than 200 energy and clean tech clients
  • More than $2 billion of energy and clean tech deals completed from 2006 to 2009
  • Closed more than 120 clean tech transactions since 2006, including 40 last year
  • Worked on mergers & acquisitions, public offerings, venture capital and joint venture collaboration deals in the clean tech sector
  • Supported the development, construction and financing of more than 8300 MWs of (approximately $9 billion) energy generating facilities
  • Represent clients with projects under development which will result in excess of 1000 MWs from myriad sources
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Table of Contents

Agenda

  • Federal Grants and Loan Guarantees
  • Corporate Strategic Investment on the Rise
  • Trends in Venture Capital Financing
  • Pending Federal Legislation and Programs
  • Tax Incentives
  • Clean Tech Intellectual Property: Developments and Trends

desksite job # here

the recovery act

Federal Grants and Loan Guarantees

The Recovery Act
  • The Recovery Act provides appropriations for projects and activities that are related to transitioning the economy to clean energy with a total investment of over $90 billion
arpa e new funding opportunities

Federal Grants and Loan Guarantees

ARPA-E: New Funding Opportunities
  • On March 2, 2010, the Department of Energy (DOE) announced that an additional $100 million in ARRA funds would be made available for additional ARPA-E grants. These grants will target three specific areas of the clean tech sector:
    • (1) grid scale energy storage
    • (2) soft magnetics, high voltage switches, and reliable, high-density charge storage
    • (3) energy efficient cooling technologies and air conditioners
  • Application deadlines in April 2010
the president s fy 2011 budget

Federal Grants and Loan Guarantees

The President’s FY 2011 Budget
  • In addition to the grant and loan guarantee programs currently in place, President Obama’s proposed 2011 budget provides for significant funding opportunities for companies in the clean technology space. Among the highlights:
    • More than $217 million in new funding for science research and discovery, including an additional $40 million for the existing Energy Frontier Research Centers program and $107 million for Energy Innovation Hubs
    • $300 million for the Advanced Research Project Agency – Energy (ARPA-E)
    • Lending authority to support approximately $40 billion in loan guarantees for innovative clean energy programs
    • More than $108 million in new funding to advance and expand research in the areas of wind, solar and geothermal energies
    • Source: U.S. Department of Energy
corporate investment on the rise

Corporate Strategic Investment

Corporate Investment on the Rise
  • Companies are increasingly getting involved in clean tech through direct investment, including mergers, venture funding, as well as applying clean tech solutions to their core operations to deliver operational and cost efficiencies, new revenue streams and climate change and sustainability goals
  • Figure 1 from an Ernst & Young survey of 300 corporations worldwide. In the same survey, 85% of respondents reported “significantly or moderately accelerating the pace of their company’s strategic response to climate change compared with two years ago.”
  • Source: Ernst & Young
effects of the global financial crisis

Trends in Venture Capital Financing

Effects of the Global Financial Crisis
  • After three consecutive years of record VC funding of clean tech, investment slowed in 2009 under pressure from the global financial crisis
    • 2009: $4.85 billion in 356 deals
    • Consistent with the last four years, solar power was once again the leading investment segment in 2009 at more than $1.4 billion in 84 deals, followed by biofuels at $976 million in 44 rounds
  • Source: Greentech Media
funds concentrating in a few private companies

Trends in Venture Capital Financing

Funds Concentrating in a Few Private Companies
  • Around the world, venture funding is increasingly finding its way into the hands of a small percentage of companies:
    • US: 16% of companies have received 65% of the capital
    • Europe: 3% of the companies have received 46% of the capital
    • China: 13% of the companies have received 57% of the capital
new financing strategies

Trends in Venture Capital Financing

New Financing Strategies
  • A February 2010 study by CalCEF presents a series of innovative financing options for energy efficiency platforms that “can be used to achieve comprehensive energy savings across a broad spectrum of residential, commercial, and industrial market segments.”
  • Examples:
    • 1. Clean Energy Works Program: A city-wide initiative in Portland, OR is providing comprehensive financing through long-term loans and technical assistance to local homeowners
    • 2. Property Assessed Clean Energy (PACE): Programs, like the highlighted Palm Desert, CA initiative offer property owners 20-year loans for EE that are repaid through property tax assessments
    • 3. On-bill Financing: SDG&E’s program is an example of the 100% financing terms for EE that small and medium-sized customers receive with loan repayments being made on their regular utility bill
    • 4. Utility Aggregated EE Deployment: Ice Energy’s program with utilities deploys large numbers of Thermal Energy Storage units under a single financing structure at no cost to customers
post recession fundraising

Trends in Venture Capital Financing

Post-Recession Fundraising
  • Funding is trending towards energy efficiency solutions which require less capital than renewable energy technologies
    • Energy efficiency as a capital efficient investment for VC fund managers
  • Energy storage and water technologies will also be focal points for funding post-recession
  • Reexamination of business models
energy climate legislation

Pending Federal Legislation and Programs

Energy/Climate Legislation
  • Senate leaders are beginning to consider dropping the cap-and-trade program from proposed legislative packages altogether. Draft legislation of a new bill has recently been introduced by Senators John Kerry, Joe Lieberman and Lindsey Graham. The legislation would:
    • require the United States to reduce greenhouse gas emissions by 17% below 2005 levels by 2020
    • Involve a cap-and-trade or a cap-and-dividend for electric utilities beginning in 2012 and a phase-in, delayed by three to five years, for manufacturers
    • expand offshore oil and gas drilling
    • provide federal assistance for construction nuclear power plants and carbon capture and sequestration projects at coal plants
the home star program

Pending Federal Legislation and Programs

The Home Star Program
  • The bill provides $6 billion of incentives intended to generate an estimated 3 million home energy-efficient retrofits for consumers
  • Rebates would be awarded to consumers on a tiered basis:
    • $1000-1500 Silver Star rebates for individual retrofits
    • $3000 Gold Star rebates for whole home retrofits
  • Contractors installing the retrofits would be required to obtain certification from state governments
  • Legislative language was released in March
accelerated depreciation

Tax Incentives

Accelerated Depreciation
  • Property may be eligible for 5-year accelerated depreciation
  • 50% first-year bonus depreciation expired at the end of 2009 but may be extended retroactively
  • Depreciation recapture triggered if project disposed of for value
production tax credit ptc

Tax Incentives

Production Tax Credit (PTC)
  • 2.1 cents (’08) per kWh of electricity produced from certain renewable resources
  • Available for 10-year period after qualified facility is placed in service
  • No annual cap
  • Subject to cutback for government financing
  • Nonrefundable credit
  • No basis reduction
investment tax credit itc

Tax Incentives

Investment Tax Credit (ITC)
  • One-time, up-front federal income tax credit based on amount invested in a facility rather than electricity production and sale
  • 30% of the tax basis of the property
  • Nonrefundable credit
  • 50% of credit reduces facility’s tax basis (i.e., tax basis is reduced by 15%)
  • Credit recapture if project is disposed of within 5 years
  • Unlike PTC, no cutback for government financing
  • Expect increased use after 2010 if cash grant not extended
cash grants in lieu of tax credits

Tax Incentives

Cash Grants in Lieu of Tax Credits
  • ITC-eligible projects can instead receive a cash grant of equivalent value
  • Grant generally operates like the ITC
    • Same property is eligible
    • 30% of costs
    • 50% of grant reduces facility’s tax basis
    • 5-year recapture period
    • Construction must begin in 2010 if not extended
    • Criticism over grants to non-US developers
ptc itc or cash grant

Tax Incentives

PTC, ITC or Cash Grant?
  • Quantitative Considerations
    • Relative financial value between the PTC and ITC (or equivalent cash grant) will depend on installed project costs and production capacity
    • E.g., projects with higher production capacity and lower installed costs generally favor the PTC
  • Qualitative Considerations
    • The ITC (and cash grant) add leasing as a financing option
    • Only PTC is subject to cutback for government financing
    • Cash grant may reduce or eliminate need for tax equity investors
    • Receipt of PTC is dependent upon project performance
    • Liquidity - remaining PTC can be transferred to new project owners; ITC and cash grant subject to recapture
patent portfolio development
Patent Portfolio Development

Developments in Clean Tech IP

  • New programs available to clean tech-oriented patent applications at US Patent and Trademark Office
    • Clean tech patent applications are starting to be examined as part of pilot peer-to-peer review program
      • GE patent application directed to control and optimized power dispatch in microgrid
      • Consolidated Edison patent application directed to hybrid vehicle charging
    • Green technology pilot program allows certain “green” patent applications to be expedited
      • Currently limited to first 3,000 applications with certain limits on technology, number of claims. This program only applies to unexamined patent applications filed before December 8, 2009

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patent litigation activity
Patent Litigation Activity

Developments in Clean Tech IP

  • Increasing number of clean tech patent infringement lawsuits seen as sign of maturity of industry
    • GE sued Mitsubishi for infringing patents directed to wind turbines and related components
      • Lawsuit was in response to Mitsubishi’s recent push into US wind market and after Mitsubishi prevailed in ITC proceeding
    • SIPCO sued utilities (Florida Power and Light), GE, and Kleiner Perkins funded start-up Silver Spring Networks for patent infringement for wireless mesh technology relating to smart meters
    • Other large companies have also been sued

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slide27

Trends in Clean Tech IP

Source: cepgi.typepad.com

slide28

Trends in Clean Tech IP

Source: cepgi.typepad.com

slide29

Trends in Clean Tech IP

Source: cepgi.typepad.com

slide30

Trends in Clean Tech IP

Source: cepgi.typepad.com

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Our Speakers

Tom Burton

Chair, Energy & Clean Technologies

617-348-3097

trburton@mintz.com

Carl Kukkonen

Member, Intellectual Property

858-314-1535

cakukkonen@mintz.com

Travis Blais

Associate, Tax

617-348-1684

tllblais@mintz.com