House Ways and Means Committee Democrats introduced the Growing Renewable Energy and Efficiency Now (GREEN) Act of 2021 on February 5, 2021. The bill is an updated version of a similar bill of the same name introduced in June of 2020.
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Covid-19 Relief Legislation to Have Extenders for Renewables
Last night, Congressional leaders announced an agreement on a $900 billion COVID relief bill. While the text of the bill has not been released as of this writing, people familiar with the negotiations have indicated that the deal will extend renewable energy tax credits for wind and solar projects and the Section 45Q carbon capture
COVID-19: CARES Act Fails to Address Renewable Energy Industry’s Concerns But Path Forward with the IRS Remains
Please click here to read our latest client alert, which discusses some of the tax-related concerns that the renewable energy is facing due the COVID-19.
Senator Paul Requests Changes to the IRS’ “Beginning of Construction” Guidance for PTCs
In a letter dated May 8, 2018, Senator Rand Paul (R-Ky.), in support of his state’s coal industry, urges the U.S. Department of Treasury (“Treasury”) to make significant changes to the existing “beginning of construction” guidance issued by the Internal Revenue Service (“IRS”) in a series of notices (“IRS Notices”). The IRS Notices include industry-friendly
Financing Wind New York Soundbites
On May 30, A Word About Wind held its first annual Financing Wind New York conference. Tickets to the conference sold out and the attendees were generally wind pros with considerable experience. The panelists provided many useful insights regarding the wind industry.
Below are soundbites from the conference. They are organized by topic, rather than chronologically, and were prepared without the benefit of a transcript or a recording.
Offshore Wind
“Right now, globally there is 18 GW of offshore wind.” — North American Leader, European Based Offshore Wind Developer
“Expecting 20 to 30 GW of offshore wind by 2030. So that means a couple of gigawatts a year of offshore wind.” — North American Leader, European Based Offshore Wind Developer
“Offshore wind can be very close to the load centers, 20 to 30 miles away from where people are actually using the electricity. That makes offshore wind easier than onshore wind, which is now facing transmission challenges to get their power to where people actually use it.” — North American Leader, European Based Offshore Wind Developer
“The European model has been to have the local utility build out to the offshore wind. In the US, the trend appears to be wind generators are responsible for getting their wind to shore. I expect wind developers will end up paying for the grid connection. There is a discrete set of permitting and risks building that connection 30 miles out in the water to the project.” – President, Transmission Developer
“Energy is politically driven, so having manufacturing facilities set up here in the US is very important.” — North American Leader, European Based Offshore Wind Developer
“Energy policy is very much driven by the states. However, the federal government under Trump has been supportive of offshore wind. The Trump administration has taken on board streamlining the offshore wind permitting process and has been supportive of new offshore wind leases.” — North American Leader, European Based Offshore Wind Developer
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Tax Reform Interview with Stratton Report
The Stratton Report has published an interview with me that discusses the pending tax reform legislation: http://strattonreport.com/longforms/davidburtonmayerbrown/.
Solar Industry Magazine Publishes – A Decade of Evolution In U.S. Project Financing
The full text of the article is below or it is available at Solar Industry Magazine:
The solar industry has undergone a tremendous evolution in the course of the last decade. Below we outline some of the more notable developments, with a focus on project financing in the U.S.
In 2007, the largest solar photovoltaic project in the world was an 11 MW project in Portugal, called Serpa, that cost EUR 58 million to build. Today, the largest solar PV project in the world is Tengger Desert Solar Park in China and is 1,500 MW, or more than 100 times the capacity of Serpa, and the cost of building a solar project is a fraction of what it was a decade ago.
In 2007, manufacturers of thin-film solar and manufacturers of crystalline silicon solar were battling to see which would be the predominant technology. Today, there are more manufacturers of crystalline modules than thin film and more projects using crystalline modules than thin film; however, First Solar appears to have found success with rigid thin-film modules.
In 2007, terms like “resi,” “C&I,” “DG” and “community solar,” which are now ubiquitous in our industry, were unknown to most energy financiers.
Continue Reading Solar Industry Magazine Publishes – A Decade of Evolution In U.S. Project Financing
Solar Power International 2017 Soundbites
Below are soundbites from panel discussions at Solar Power International in Las Vegas on September 11 and 12. The soundbites are organized by topic, rather than in chronological order, and were prepared without the benefit of a transcript or recording.
The topics covered are: Tax Reform • Tax Equity Volume and Investor Mix • Tax Equity Structuring • Deficit Restoration Obligation Structuring and Senior Secured Debt in Partnership Flips • FMV Valuation Issues and Insurance • Community Solar • Community Choice Aggregators • Power Purchase Agreements • Residential and Community Solar Markets • State Policy • Department of Defense Procurement
Tax Reform
ITC has already gone through tax reform and already has a transition rule in place. These arguments resonate pretty well with Republicans. — SEIA, Gov’t Relations
Anyone who tells you where we are now in this tax reform debate, is lying to you. — Boutique Investment Manager
Low likelihood of comprehensive tax reform in 2017. Chances for a tax cut are pretty good. Indemnification for a tax rate cut is built into these transactions. — Boutique Investment Manager
We are using a 25% corporate tax rate in most deals. The specifics depend on allocation of risk [of change in tax law] and [the financial strength of] the counterparty. We are more likely to put in less capital now and contribute more later if there is not a tax rate cut. — Commercial Bank, Head of Business Development Energy Investing
Not one size fits all. We use a 35% tax rate for 2017 and a lower rate for 2018 and beyond. In our deals, for federal tax rates we use between 25 and 30% [for 2018 and later]. If rate reduction doesn’t occur, we then fund more. It frightened me when Paul Ryan said he was aiming for a 22.5% tax rate. [This was before the Republican Big 6 released their proposal with a 20% corporate tax rate.] — Money Center Bank, Managing Director
We have very flexible solutions in place now to address tax rate reduction risk in deals. It is not the headache it was six months ago. — Boutique Accounting Firm, Director
Since corporations generally pay less than 35% in federal taxes now, and $1 of tax credit is $1 of tax credit, it remains to be seen what a lower rate really means [for the solar tax equity market]. — Boutique Investment Manager
The potential change in tax rate means the potential for a cash sweep, which means sponsors can raise less back leverage. — Commercial Bank, Head of Business Development Energy Investing.
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NREL’s Wind Finance Report Highlights
The National Renewable Energy Laboratory (NREL), a federally-owned laboratory that is funded through the U.S. Department of Energy, recently released a report titled Wind Energy Finance in the United States: Current Practice and Opportunities. The report provides a thorough overview of the capital sources and financing structures commonly used in wind energy finance. Below are quotes from the report that are of particular interest to tax equity market participants. We applaud the authors for writing a comprehensive report on a topic that is extremely technical. Also, below we include comments clarifying certain tax or legal concepts referenced in particular quotes.
Wind Expansion in 2016
• By the end of 2016, cumulative U.S. wind generation capacity stood at 82.2 gigawatts (GW), expanding by 8.7 GW from 2015 installations levels. Wind energy added the most utility-scale electricity generation capacity to the U.S. grid in 2015 and the second most in 2016. Project investment in wind in the United States has averaged $13.6 billion annually since 2006 with a cumulative investment total of $149 billion over this time period. The investment activity demonstrates the persistent appeal of wind energy and its significant role in the overall market for electricity generation in the United States.
Future Outlook
• Looking ahead, the near-term outlook for wind energy reported previously suggests a continued need for capital availability at levels consistent with deployment seen in 2015 and 2016. The market has shown the capacity to finance projects at this level using current mechanisms at economically viable rates; however, increased deployment could necessitate new sources of capital. Broad changes to the financial industry—such as the possibility of major corporate tax reform, the currently scheduled phase out of the PTC and ITC for wind, and, specifically, a change in the role of tax equity—could fundamentally reshape the predominant mechanism for wind energy investment. It is possible that financing practices may need to evolve, while the growing body of wind energy deployment and operational experiences could help to attract new market participants.
PTC and Accelerated Tax Depreciation
• The United States Federal Government incentivizes renewable energy projects principally through the tax code. As of this writing, wind technologies are eligible to receive either the production tax credit (PTC) or the investment tax credit (ITC) (one or the other, but not both) as well as accelerated depreciation tax offsets through the Modified Accelerated Cost Recovery System (MACRS).
The PTC
• The tax credit incentives (the PTC and ITC) provide an after-tax credit on tax liabilities (i.e., the taxes paid) and thus are often described as dollar-for-dollar tax incentives. As of this writing the PTC is currently worth $0.024 for every kWh generated over a 10-year period while the ITC is structured as a one-time credit valued at 30% of eligible system costs. For projects to claim the aforementioned full PTC or ITC values, however, the project is required to have begun construction prior to December 31, 2016. Projects that begin construction in 2017 through 2019 are available for a reduced-value PTC or ITC.
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Connecticut Makes Favorable Changes to its Commercial PACE Financing Program
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.[1] 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. [2]
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.
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