Our article Proposed GOP Tax Reform Would Curtail Tax Incentives for Wind and Solar is available from North American WindPower (no subscription required). The article includes a discussion of the politics of the Senate passing tax reform and a discussion of market implications; however, the discussion of the specific changes to the Internal Revenue Code is similar to our blog post GOP Tax Bill Proposes Changes to the Renewable Energy Industry’s Tax Incentives of November 4.
On Thursday, November 2, Republicans in the US House of Representatives released their proposed tax reform legislation, providing for massive alterations to tax law. The proposed legislation would trim tax benefits applicable to the wind and solar industries, while broadening the scope of the application of the “orphaned” energy tax credit. Further, it would eliminate the tax credit for electric vehicles starting in 2018. The proposed legislation is subject to further amendments and may not be enacted into final legislation.
Continuity of Construction. Pursuant to current law, the production tax credit (PTC) and investment tax credit (ITC) phase out over time, with the level of credit for which a renewable energy project qualifies being based on when the project began construction relative to various deadlines that determine the level of PTC or ITC. Under the proposed legislation, for any renewable energy project to qualify for a specific level of PTC or ITC, there would need to be continuous construction on such project from the deadline for the specific PTC or ITC level through the date the project is placed in service.
The concept of continuous construction does not exist in the current PTC and ITC provisions of the Tax Code. It was adopted by the IRS as an administrative matter in Notice 2013-29. However, the IRS later, under Notice 2016-31, created a safe harbor to enable projects to avoid application of the IRS’s “continuity” requirement. To qualify for the safe harbor, a project must be placed in service within four calendar years after the end of the calendar year in which construction began. The proposed legislation would effectively codify the continuity requirement and eliminate the safe harbor. Further, these changes appear to apply to all projects that have not been placed in service as of the date of enactment of the proposed legislation, regardless of whether construction of such projects began before enactment. Continue Reading GOP Tax Bill Proposes Changes to the Renewable Energy Industry’s Tax Incentives
On July 11, 2017, the Connecticut General Assembly enacted H.B. 7208 (“Revised C-PACE Statute”) to make several minor changes to the existing statute governing the State’s commercial property assessed clean energy (or “C-PACE”) program. All of the changes are favorable.
Specifically, the Revised C-PACE Statute: (1) expands the program to include C-PACE financing for energy efficient new construction; (2) adds leases and power purchase agreements as permitted financing methods for third-party capital providers; (3) establishes the name “benefit assessment liens” for liens arising under the C-PACE program (referred to here as “Program Liens”) and specific provisions governing the operation of Program Liens (described below). The bill repeals and replaces Section 16a-40g of the general statutes (the “Existing Statute”) effective as of October 1, 2017.
The most important change to the Existing Statute appears to be some minor wording changes to a section of the Existing Statute describing certain types of “energy improvements” permitted to be financed under the C-PACE program. This category of qualifying “energy improvements” is described as including any renovation or retrofitting of qualifying property to reduce energy consumption. The Revised C-Pace Statute adds the words “improvement” and “energy efficiency” such that the this category of financeable energy property is now described as “any improvement, renovation, or retrofitting to reduce energy consumption or improve energy efficiency. 
Under the Program Lien rules, there is a lien on the property for all amounts due and payable. Noteworthy for creditors is that a property foreclosure to satisfy past payment obligations extinguishes the Property Lien only with respect to the payment obligations assessed through the foreclosure date. The Program Lien continues to apply to the property with respect to any payments due to paid in the future. Continue Reading Connecticut Makes Favorable Changes to its Commercial PACE Financing Program
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.