On July 17, 2019, the US Internal Revenue Service (IRS) issued final regulations (T.D. 9872) providing guidance on the rules under Internal Revenue Code (IRC) section 50(d)(5) that require an income inclusion by the lessee in the so-called “pass-through lease” structure used with investment tax credit property. The final regulations adopt, without change, the proposed regulations issued in July 2016. Read about the final regulations in this Mayer Brown Legal Update, which discusses the IRS’ and Treasury’s response to taxpayer comments and modifications made by the final regulations to Revenue Procedure 2014-12, the safe harbor for transactions involving IRC section 47 rehabilitation credits.
On June 6, 2019, the US Internal Revenue Service (IRS) published a notice providing the inflation-adjustment factors and reference prices for the calculation of renewable electricity production tax credits (PTCs) under Internal Revenue Code (IRC) section 45 for 2019.
The notice provides that the PTC for electricity produced from wind, as well as closed-loop biomass and geothermal energy, increased from 2.4 cents per kilowatt-hour (kWh) to 2.5 cents per kWh for 2019. The notice also includes the PTC amounts for electricity produced from other qualified energy resources. Specifically, the PTC for electricity produced from open-loop biomass, landfill gas, trash, qualified hydropower, and marine and hydrokinetic resources remains at 1.2 cents per kWh for 2019. The PTC for refined coal also increased from $7.03 per ton to $7.173 for 2019. Continue Reading IRS Releases 2019 Section 45 Production Tax Credit Amounts
As previously discussed on this blog, Maryland, in 2017, become the first state in the county to offer an income tax credit for energy storage systems and, to our knowledge, as of 2019, it remains the only state to do so.
On February 21, 2019, the Maryland Energy Administration (“MEA”) announced that it is now accepting applications for the 2019 Maryland Energy Storage Income Tax Credit Program. Continue Reading Maryland’s Energy Storage Tax Credit Turns Two
According to a related presale report (and as had been announced in an earlier request for proposal), the Connecticut Green Bank (Green Bank) is monetizing certain solar renewable energy credits (SHRECs) generated under its Solar Home Renewable Energy Program and sold to Connecticut Light and Power (d/b/a Eversource Energy) and United Illuminating (UI).
Under the SHREC program, the utility SHREC buyers are directed by statute to enter into purchase agreements for the related SHRECs. Pursuant to separate Eversource and UI Master Purchase Agreements and related Eversource and UI Confirmations, the utility SHREC buyers pay $50 for the SHRECs generated by the first 6788 PV systems in so-called “tranche 1” and $49 for each generated SHREC for the next 7250 PV systems in “tranche 2” over a fifteen year term. Eversource buys 80% of the applicable SHRECs and UI buys the remaining 30%. Connecticut’s Public Utilities Regulatory Authority reviewed the purchase agreements and approved cost-recovery by the utility SHREC buyers.
There are 2 classes of rated Notes – $36,800,000 of Class A (rated A- (sf)) and $1,800.000 of Class B (rated BBB- (sf)) Notes. Interest on the Class B Notes is deferred and funds are used to amortize Class A Notes if a specified DSCR falls below a threshold level.
While the presale report states that the transaction was analyzed under the rating agency’s related ABS methodology, the report also describes the significant analysis of the counterparty utility SHREC buyers, the quasi-public nature of the Green Bank, the statutory authority for, and related regulatory review and approval of, the SHREC program, a required independent engineering report to estimate PV generation and other related features of the transaction.
Below are soundbites from panelists who spoke at Infocast’s Wind Finance & Investment Summit on February 6 and 7 in Carlsbad, CA. The attendance at the event appeared strong, and the mood was generally optimistic.
Despite the title of the conference being wind, many of the panelists touched on solar and storage, so readers who do not work in the wind industry may nonetheless find some points of interest below.
The soundbites are edited for clarity and are organized by topic, rather than in chronological order. They were prepared without the benefit of a transcript or recording.
Topics covered below include the tax equity market, the 2020 soft deadline for the full production tax credit (“PTC”), the impact of the PTC phase out, PG&E’s bankruptcy, storage and more.
State of the Tax Equity Market
“There was $12 billion of combined wind and solar tax equity investment in 2018. This up from $10 billion of tax equity investment in 2017; however, the actual new volume was down in 2018 as $3 billion of the $12 billion in 2018 was secondary market transactions” (i.e., one tax equity investor selling down to another tax equity investor). Managing Director, Money Center Bank
“Tax equity has done well in terms of how it has worked out for the banks that invested in it.” Tax Equity Head, Corporate Investor Continue Reading Infocast’s Wind Finance & Investment Summit Soundbites
The recently released the Joint Committee on Taxation’s Blue Book explanation of the Tax Cuts and Jobs Act confirms that qualifying tangible property leased to a regulated public utility is eligible for the new 100 percent expensing rules, also called full expensing, even if the property would not be eligible for full expensing if it were owned by the regulated utility.
As discussed below, there was some concern in the industry that an exception applicable to certain property used by a regulated utility, or the regulated utility exception, might extend to an owner/lessor leasing to a regulated utility. With the release of the Blue Book, we would expect there to be more lessors prepared to offer advantageous lease financing rates to regulated utilities, reflecting the lessor’s ability to claim full expensing. Continue Reading Blue Book Confirms Bonus Depreciation for Equipment Leased to Utilities
Here’s a presentation that Joseph Sebik, CPA of Siemens Financial Services and I gave to the Energy Subcommittee of the Equipment Leasing and Finance Association on January 22: Tax Equity Energy Subcommittee 1-22-19 of ELFA.
Despite being to a leasing trade association, the focus of the presentation is the partnership flip structure. The presentation includes appendices on the phase down of tax credits for solar and the phase out of tax credits for wind; the “start of construction” rules; and hypothetical liquidation at book value (HLBV).
I am pleased to announce that I will be speaking in an upcoming Strafford live webinar, “Tax Reform and Renewable Energy: Planning Techniques, 100% Expensing, BEAT, Tax Credits and Interest Deduction Limitations” scheduled for Wednesday, January 16, 1:00 pm-2:30 pm Eastern.
As a reader of this blog, you are eligible to attend this program at half off. As long as you use the links below.
Our panel will review the application and impact of tax reform on the renewable energy sector. The panel will discuss new tax law changes impacting renewable energy and provide planning strategies to optimize tax benefits, credits, deductions and avoid pitfalls.
After our presentations, we will engage in a live question and answer session with participants so we can answer your questions about these important issues directly.
I hope you’ll join us.
Or call 1-800-926-7926
Ask for Tax Reform and Renewable Energy on 1/16/2019
Mention code: ZDFCA
Below are soundbites from panel discussions at Solar Power International on September 25 and 26 in Anaheim, California. Overall the conference was well-attended and the panelists and audience seemed optimistic regarding current and future opportunities.
The soundbites are organized by topic, rather than presented chronologically. The soundbites were prepared without the benefit of a recording or a transcript and have been edited for clarity.
Topics covered include tax equity, the solar start of construction rules, the investment tax credit (“ITC”) and tax basis risk after the Federal Circuit’s opinion in Alta Wind, the inverted lease structure, back-leverage debt, storage, community solar and merchant projects.
Macroeconomic Factors for Solar and Tax Equity
“Rising corporate profits have caused more tax equity to enter the market. That has shifted the negotiating leverage to the sponsors.” Managing Director, Money Center Bank
“Tax equity always needs to fund around 40 percent of the capital stack in order to use the tax benefits efficiently.” Managing Director, Money Center Bank “Equipment costs continue to come down. Module prices are back to where they were before the tariffs at 30 to 40 cents a Watt.” President, Diversified Solar Services Company
“There are greater economies of scale for utility scale solar than for residential or C&I. As module prices drop faster than that customer acquisition costs, utility scale will become a larger portion of the market.” President, Diversified Solar Services Company
“I am very bullish on next year. This has been the best year ever from a volume perspective, not from an income perspective, because the market is causing us to charge less.” Managing Director, Regional Bank
“Falling electricity prices aren’t leading to sponsors raising less capital, because sponsors have been beating down lenders and service providers.” Managing Director, Regional Bank
“Capital providers are taking more risk for less return.” Managing Director, Regional Bank
“Residential solar debt has become an accepted asset class.” Managing Director, Regional Bank
“Soft costs, such as marketing, legal, accounting and tax advice, are five to seven percent of a solar project’s cost in Europe and Asia; they are 35 percent of solar project’s cost here; we need to attack that.” President, Solar Developer Continue Reading Solar Power International 2018: Soundbites
Below are questions submitted by the audience during our webinar Window of Opportunity: The IRS Issues Initial Guidance on Qualified Opportunity Zone Rules. The webinar was on November 2, 2018. Here’s the presentation from the webinar and our whitepaper on the new regulations.
- If I am a partner of a partnership and want to use the gain on an individual transaction by the partnership in 2018, what information must I receive from the partnership and do I have until the end of June 2019 for my investment?
You are right, if you are going to elect to defer gain at the partner level, the 180-day period does not begin until the last day of the partnership taxable year in which the realization event occurred—which is the date on which the partner “recognizes” its allocable share of the gain absent a partnership-level election to defer. Given that (i) the gain occurred in 2018; and (ii) if the last day of the partnership taxable year is on December 31, 2018, you would have until the end of June 2019 to make the investment into a QOF.
As an alternative, you may elect to treat your own 180-day period as being the same as the partnership’s 180-day period (thus, it would begin on the date of the realization event in 2018). The regulations are silent as to what information the partner willing to make such an election must obtain from the partnership, but presumably you would want documentation that provides assurance as to the amount of the gain and that the partnership will characterize the gain as “capital” (as opposed to “ordinary”) on your K-1. Continue Reading Questions and Answers from our Webinar Window of Opportunity: The IRS Issues Initial Guidance on Qualified Opportunity Zone Rules