On April 17, 2017, Oklahoma Governor Mary Fallin signed into law House Bill No. 2298, which moves the deadline for a wind project to be operational to qualify for the state’s production tax credit for wind power to June 30, 2017 – three and a half years earlier than the December 31, 2020 deadline under prior law. The state’s tax credit is a $0.0050 per kilowatt-hour credit for electricity generated by eligible zero-emission facilities. The credit is available for 10 years from the date the project becomes operational and is refundable for up to 85 percent of its face amount. Eligible zero-emission facilities are those located in the state that produce electricity from wind, moving water, sun or geothermal energy, and have a rated capacity of one megawatt or greater. The bill does not change the sunset date for the credit for any type of eligible facility other than wind (i.e., the end date for solar, moving water and geothermal facilities remains at January 1, 2021). In addition, all existing wind farms and those that are operational before July 1 of this year will continue to receive the 10-year production credit under the same terms as previous law. Continue Reading Oklahoma State PTC Ends for Wind Projects Not Operating Prior to July 1, 2017
Below are soundbites from speakers and panelists who spoke at Infocast’s Solar Power Finance & Investment Summit on March 22 and 23 in San Diego. It was Infocast’s best attended event ever, and the mood was relatively upbeat.
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.
Tax Equity Structures
“The tax equity flip [partnership structure] is more complicated, [than a sale-leaseback], in particularly if there is back leverage.” Director of Investing, Solar Company
“The optimal structure for C&I [for a partnership flip with back leverage] is 40 percent tax equity, 45 percent back leverage debt” and 15 percent sponsor equity. Director of Investing, Solar Company
“Last year it was almost universally inverted leases; this year mostly partnership flips.” Banker, Specialty Bank
“There is a more pronounced tension between back leverage and tax equity in an investment tax credit transaction, [than a production tax credit transaction,] because of the risk of recapture of the investment tax credit.” Managing Director, Tax Equity Investor
“There is increased tension between back leverage and tax equity, whether the stress is cash step ups for under performance or other matters. What we thought were normal structuring techniques the back leverage lenders take exception to.” Managing Director, Money Center Bank
Selecting a tax equity structure should be “all about velocity. Really, [the sale-leaseback] is what is easiest to do.” Managing Director, Regional Bank
“A cash strapped sponsor is not the best candidate for a partnership flip; they are better off with a sale-leaseback.” Executive Director, Non-Traditional Tax Equity Investor
“Some tax equity ask us to lend at the project level – senior secured – for capital account reasons. But by the time you negotiate the forbearance and related debt/equity terms, you might as well be back leverage.” Group Head, Regional Bank’s Capital Markets
“We only consider project level debt as a lender. We have negotiated dozens of forbearance agreements with tax equity.” Banker, Specialty Bank
State of the Tax Equity Market
“There is enough [supply of] tax equity for 2017 [projects]. We are seeing some 2018 transactions being pushed by developers into 2017.” Advisor, Boutique Accounting Firm
“We like to take our limited [annual] tax capacity and spread it over a greater volume of deals, so we prefer wind” which has a ten year production tax credit, rather than a 30 percent investment tax credit in the first year. Managing Director, Consumer Finance Bank
“In wind, you [(i.e., the tax equity investor)] are a bigger piece of the capital stack. In solar, it is smaller piece because the investment tax credit is all up front. [The sponsor] wants to minimize the tax equity to maximize the back leverage, which is cheaper capital.” Advisor, Boutique Accounting Firm Continue Reading Infocast’s Solar Power Finance & Investment Summit Soundbites
“PACE” – Is it the new buzzword? Lately, it seems I keep hearing about securitizations backed by PACE financings. What is a PACE financing program, and what is happening in the securitization market?
“PACE” stands for Property Assessed Clean Energy. Under PACE programs, municipalities and counties form special tax districts to help residential, commercial or industrial property owners finance energy efficient upgrades or renewable energy installations to their properties through payments of additional property taxes. While the specific details vary by state, the basic premise is that the property owner is allowed to finance 100 percent of the cost of the energy property through increased property tax assessments – the “PACE” assessments. The PACE assessments are typically for 15 to 20 years and operate similar to loan payments in that these property tax payments repay the initial financing cost for the energy upgrade. The PACE assessments, however, are legally property tax assessments and, thus, have the benefit of being secured by senior liens against the taxpayer’s property.
The way the financing works is specific to the individual programs, but the funds typically come from some form of private / public partnership, which allows the state or municipality to encourage identified property upgrades to achieve environmental and energy efficiency goals without having to raise funding, and provides investors with new opportunities to invest in a secure asset in the green energy space. The benefit to the property owner is typically the ability to realize immediate cost savings in reduced energy costs while paying for the improvement over a 15 to 20 year period, and also being able to finance 100 percent of the cost. Continue Reading “PACE” for Residential and Commercial Renewable Energy Projects – What is it?
On December 15, 2016, the US Internal Revenue Service (the “IRS”) released Notice 2017-4 (the “Notice”), which updates previous IRS “start of construction” guidance by extending the Continuity Safe Harbor (described below) to December 31, 2018, and modifying and clarifying Notice 2016-31.1 The Notice is good news for developers with projects for which physical construction started during 2013 in that the extension gives them five years to complete construction and have the project placed in service. The Notice also means they need not worry about whether minimal amounts of physical construction during 2013 would cause these projects to be ineligible for the extension if the extension was only available to projects that commenced construction during 2014.
As discussed in more detail below, the Notice provides that a facility will be deemed to automatically meet the continuous construction requirement if it is placed in service by the later of (i) December 31, 2018 (a two-year extension of the prior deadline) or (ii) the end of the calendar year that is four years after the year in which construction started (the “Continuity Safe Harbor”). Continue Reading IRS Extends Continuity Safe Harbor Until December 31, 2018
On June 10, the IRS issued Notice 2016-36, available at https://www.irs.gov/pub/irs-drop/n-16-36.pdf (the “Notice”), which updates and expands the existing safe harbor pursuant to which the transfer of an intertie (or reimbursement for the cost thereof) to a regulated public utility will be treated as a contribution to the capital of a corporation, and not a contribution in aid of construction (“CIAC”) and, accordingly, will not result in taxable income to the utility. Utilities often require developers of new projects to transfer interties as a condition to allowing the developers to transmit the power from their projects over the utility’s lines.
The full post is available at Notice 2016-36 Intertie Blog Post 6-15-16,
 The existing safe harbor is provided under a series of notices issued by the IRS between 1988 and 2001. See Notice 2001-82, 2001-2 C.B. 619; Notice 90-60, 1990-2 C.B. 345; and Notice 88-129, 1988-2 C.B. 541.
 See I.R.C. §§ 118(a) and (b) (contributions to the capital of a corporation are excluded from taxable income; the term “contribution to capital” does not include any CIAC).
First Published by Law 360 on May 27, 2016
Below is a link to our article discussing IRS Notice 2016-31, which the IRS published in May. Notice 2016-31 provides helpful rules for wind projects applying the “start of construction” deadline enacted by Congress in December with respect the extension of tax credits for wind projects (as well as geothermal, biomass, trash and hydro projects). The comparable guidance from the IRS for solar projects has not been published yet.