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Clean Tech 2010: Opportunities for a New Decade

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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Clean Tech 2010: Opportunities for a New Decade

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  1. Clean Tech 2010: Opportunities for a New Decade San Diego Event March 25, 2010

  2. 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

  3. 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

  4. Federal Grants and Loan Guarantees

  5. 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

  6. 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

  7. 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

  8. Corporate Strategic Investment

  9. 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

  10. Trends in Venture Capital Financing

  11. 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

  12. 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

  13. 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

  14. 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

  15. Pending Federal Legislation and Programs

  16. 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

  17. 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

  18. Tax Incentives

  19. 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

  20. 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

  21. 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

  22. 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

  23. 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

  24. Clean Tech Intellectual Property: Developments and Trends

  25. 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 25

  26. 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 26

  27. Trends in Clean Tech IP Source: cepgi.typepad.com

  28. Trends in Clean Tech IP Source: cepgi.typepad.com

  29. Trends in Clean Tech IP Source: cepgi.typepad.com

  30. Trends in Clean Tech IP Source: cepgi.typepad.com

  31. 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

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