Energy Policy

Below are soundbites from panelists at the Infocast Wind Power & Finance Investment Summit on February 28, 2017 in Rancho Bernardo, California.  The soundbites are organized by topic, rather than in chronological order, and were prepared without the benefit of a transcript or a recording.  The soundbites were edited for clarity.

Prospects for Tax Reform

 “Generally in Congress things take longer than they want them too.” – In House Lobbyist

“Tax reform won’t take shape until next year, and that is probably early.” – Regulatory Affairs Executive

“Amidst the unknowns, if you are not taking into account the uncertainty of the corporate tax rate, you are probably not getting it right.” – Regulatory Affairs Executive

“If tax reform is good for corporate America, then in the grand scheme it is good for us, given the [number of] corporate buyers” of wind power.  – CEO of Texas Wind Developer

 

Allocation of Tax Reform Risk in Transactions

“There is a risk that early deals that have to get done set a standard for the allocation of tax reform risk [between the tax equity investor and the developer] that is not sustainable.” – Renewable Energy Executive

“If corporate tax reform remains uncertain, it poses a risk of such a big swing in the economics [of a wind project] that no one is prepared to absorb that risk.”  – Executive from East Coast Utility

“Our [utility] commission has been okay with a clause in a power purchase agreement requiring renegotiation of the pricing for tax changes.  If there is an adverse tax change, we will be buying power at the higher rates in any event at that time.”  – Executive from Midwest Utility

 
Continue Reading Infocast Wind Power & Finance Investment Summit Soundbites

On January 19, 2017, the US Internal Revenue Service (IRS) released Revenue Procedure 2017-19 (the “Rev. Proc.”) providing a safe harbor for certain alternative energy sales contracts with federal agencies to be treated as service contracts under Section 7701(e)(3).[1] The safe harbor is important because, if such a contract is treated as a lease to the federal agency, a solar project would constitute “tax-exempt use property” that is ineligible for the investment tax credit (ITC) and accelerated depreciation (including bonus depreciation).[2]
Continue Reading IRS Provides Safe Harbor for Solar Contracts with Federal Agencies

The post below addresses the legality of the  expected withdraw from the Paris Agreement on climate change by the United States under the next Administration.

The White House characterized the Paris Agreement on climate change as an “executive agreement” that was adopted upon signing by the President, and as such a subsequent President can terminate it.  Under the US Constitution, the difference between an executive agreement and a treaty is that a treaty must be ratified by two-thirds of the Senate, which is a process President Obama did not initiate.

As reflected in Article 15 of the Paris Agreement, the agreement has no penalty for withdrawing from (or ignoring) it: “A mechanism to facilitate implementation of and promote compliance with the provisions of this agreement is hereby established.  [That] mechanism … shall consist of a committee that … shall function  in a manner that is … non-adversarial and non-punitive.” 
Continue Reading Legality of Exit from Paris Climate Pact

The Congressional Research Service (CRS) has issued its periodic report on the investment tax credit (ITC).

The report has a helpful summary of current law, useful history and data regarding the cost of the ITC; however, it omits certain ITC eligible technologies from its discussion. The full report is available here: CRS 2016 ITC Report.

Below is a helpful table included in the CRS report that summarizes the tax credit phase out rules for certain renewable energy technologies:

CRS ITC chartContinue Reading CRS Report on ITC: Useful but Omits Certain Technologies

On August 30, 2016, the US Internal Revenue Service (“IRS”) finalized regulations that clarify the definition of real property for purposes of the real estate investment trust (“REIT”) provisions under Section 856. The final regulations generally are consistent with the proposed regulations that were released in May 2014. (See our earlier update, “Proposed Regulations Provide REITs a Framework for Solar Energy Property,” from May 14, 2014.) Certain solar industry participants were advocating for solar to be a REIT-eligible asset class in an effort to create a new market for solar projects in the event that the investment tax credit (“ITC”) declined to 10 percent after 2016. In December 2015, Congress extended the ITC with a gradual phase-down. (See our earlier update, “Certain US Energy Tax Credits Extended, But Phaseout Dates Scheduled,” from December 28, 2015.) The extension made the need to make solar a viable asset class for REITs a less pressing issue. It is fortunate for the solar industry that it does not have to rely on REITs, as the new regulations only enable REITs to own solar projects in limited situations.

The final regulations keep the facts and circumstances framework, as opposed to bright-line rules, for determining whether property is real property for purposes of Section 856. Therefore, all of the specific facts of a particular solar energy property will need to be analyzed to determine its REIT classification. The final regulations apply for taxable years beginning after August 31, 2016.
Continue Reading As Expected, Final REIT Regulations Offer Little Help for Solar

Below are soundbites from panelists at the Renewable Energy Finance Forum Wall Street held in New York City on June 21 and 22, 2016.  The soundbites are divided by topic below: market conditions, the tax equity market, cost of capital, community solar, challenges facing the renewables market, net metering, the YieldCo market, economics for utilities and storage.

Market Conditions

“The market is long capital and short projects.”  Boutique Investment Banker

“The brightest spot in clean tech today is that panels, turbines, batteries and balance of system are all moving down in cost.” Bulge Bracket Investment Banker

“Year over year there have been very precipitous declines in the cost of these technologies.”  Boutique Investment Banker

“Before the expiration of the production tax credit, wind will reach grid parity [with electricity from natural gas] in many parts of the country.” Bulge Bracket Investment Banker

Background: The production tax credit is available for projects that “start construction” prior to 2021, and to meet the Internal Revenue Service safe harbor a wind project would have to be placed in service prior to 2026.  Our article discussing the start of construction rules for wind projects is available here.

Continue Reading Soundbites from 2016 Renewable Energy Finance Forum Wall Street

Senator Martin Heinrich (D-NM) introduced  S. 3159 (available at: www.heinrich.senate.gov/download/energystoragetaxincentiveanddeploymentact2016) to make energy storage eligible for an investment tax credit (ITC) under section 48.  The bill introduced last month would make energy storage systems with a capacity of at least five kilowatt hours, regardless of whether it was supplied by a renewable resource, investment tax credit eligible.  For instance, a stand-alone storage project that drew power from the grid would be ITC eligible under this bill.

The bill would also allow individuals to own a storage system with a capacity of at least three kilowatt hours used at their homes and to claim a residential energy efficient property tax credit under section 25D.  Like the proposed ITC rules for storage, an individual could qualify for the credit even if the storage system was unrelated to a solar system.

Importantly, the bill has a Republican co-sponsor: Senator Dean Heller (NV). To emphasize, the bipartisan support of the bill, Senator Heller issued a press release (available at http://www.heller.senate.gov/public/index.cfm/pressreleases?ID=E2A22E55-5453-4CD6-B6B7-49AF0D22F0F6).  Five other Democrats co-sponsored it: Franken (MN), Merkley (OR), Reed (RI) and Hirono (HI); further, Senator King (I-ME) co-sponsored it.
Continue Reading Senators Introduce Storage ITC Bill

We are pleased to make available the materials from our June 29 tax equity seminar.

Here’s is the link to a PDF of the slides: Seminar Slides PDF.

The webinar audience submitted questions that we did not have time to answer.  The questions were:

1.  Why do balance sheet players have an advantage in

First published by Law 360 on June 27, 2016

On April 21, 2016, Rep. Jared Polis, D-Colo.,[1] introduced in the U.S. House of Representatives the Solar Expansion of Distributed Generation Exponentially Act (the Solar EDGE Act) to provide a two-year increase in the credit available under Section 25D and Section 48 of the Internal Revenue Code for certain solar energy property that has a nameplate capacity of less than 20 kilowatts.[2]

Section 25D of the code provides a tax credit (residential solar tax credit) to individuals for expenditures for property which uses solar energy to generate electricity for use in a dwelling unit located in the United States and used as a residence[3] by the taxpayer (qualified solar electric property expenditures).
Continue Reading Bill to Increase Solar Tax Credits Highlights Inconsistent Standard for Residential Credit