The Stratton Report has published an interview with me that discusses the pending tax reform legislation: http://strattonreport.com/longforms/davidburtonmayerbrown/.
The US tax reform bill that the Senate passed on December 2, 2017—along partisan lines in a 51 to 49 vote—is a mixed bag for the tax equity market. The bill is now headed to the conference committee, consisting of House of Representative and Senate leaders, to be reconciled with the tax reform bill passed by the House on November 16.
Below we describe the five differences from the House bill that are of greatest significance to the renewable energy tax equity market. (See also our prior analysis of the ramifications for the tax equity market of the House bill.)
Amounts of and Eligibility for Tax Credits
First, the amount of renewable energy tax credits available and the rules for qualifying for those credits are unchanged from current law under the Senate bill. Specifically, the inflation adjustment that applies to production tax credits is left in place and the “start of construction” rules are unchanged. The fact that the Senate bill left these provision alone is positive for wind and solar, which are in the midst of a phase-out, for wind, and a phase-down, for solar.
However, the Senate bill also left alone the lapsed tax credits for the “orphaned” renewable energy technologies that were inadvertently omitted from the 2015 extension that benefited wind and solar. The orphaned renewable energy technologies are fuel cells, geothermal, biomass, combined heat and power, landfill gas, small wind, solar illumination, tidal power and incremental hydroelectric.
Proponents of those technologies may have more negative views of the Senate bill. There is still discussion of the tax credits for the orphaned technologies being included in an “extenders bill” to possibly be taken up after the tax reform process is over. Continue Reading Senate’s Tax Bill’s Impact on the Tax Equity Market: Five Differences from the House Bill
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.
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
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
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. Continue Reading Solar Power International 2017 Soundbites
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
Our article AZ Companies Win Preferential Tax Treatment for Solar Panels was recently published in State Tax Notes. The article analyzes a favorable opinion by the Arizona Supreme Court in a case brought by SolarCity and SunRun. The Arizona Supreme Court that held that an Arizona law allowing taxpayers to attribute no value for property tax purposes to solar panels leased to customers did not violate the Arizona Constitution.
On June 28, Mayer Brown and Alfa Energy Advisors presented the webinar Tax Structuring and Impact of Potential Tax Reform. An audio recording of the presentation with video of the slides is available here (the button is near the bottom of the page). A pdf file with just the slides is available here.
Below are the questions submitted by the webinar audience with answers:
1. Question: For solar projects that use a third-party investor to monetizes the tax benefits, what is the split between the use of a sale-leaseback, partnership flip or an inverted lease structure in the market today?
Answer: There is no published data on this question. An educated guess in the current market is that partnership flips are more than half the market, inverted leases are less than ten percent of the market with the remaining portion made up of sale-leasebacks.
2. Question: In today’s solar tax equity market, are time- or yield-based flips more prevalent?
Answer: Yield-based flips are more prevalent. However, one very large tax equity investor prefers time-based flips. A generalization is that solar tax equity investors that started in wind projects prefer yield-based flips as that is what is sanctioned in the safe harbor for wind projects in Revenue Procedure 2007-65, while investors that started in tax equity by investing in historic tax credits prefer time-based flips. Continue Reading Presentation from Tax Equity Structuring & Impact of Potential Tax Reform and Q&As from the Webinar
Please join Mayer Brown and Alfa Energy Advisors for another session of our popular webinar addressing how tax reform could affect various tax equity structures, how the market is allocating tax reform risk between sponsors and tax equity investors.
Key Event Information
Date & Time
Wednesday, June 28, 2017
12:00 p.m. – 1:30 p.m. EDT
Register here for this complimentary webinar.
Topics to be covered in the seminar will include:
• Trends in the tax equity market
• Impact of potential tax reform on flip partnership structuring
o Wind PTC projects
o Solar ITC projects
o Earnings per share impact analysis
o Key takeaways
• Comparison of time- and yield-based partnership flip structures
• The IRS’s updated “start of construction” guidance for tax credit qualification