Below are soundbites from panelists at the Solar Energy Industries Association’s (SEIA) Finance & Tax Seminar in New York City.  The seminar was held on June 1 and 2, but only comments from the second day are reflected below.  The soundbites were prepared without the benefit of a transcript or recording and were edited for clarity.  Further, they are organized by topic, rather than appearing in the order in which they were said.

Tax Equity Market in 2017

  • It has been a slow start to the year. We will see a down year [compared to the $11 billion of tax equity funded in 2016]. – Executive Director, Energy Investing, Money Center Bank
  • There is relatively smaller tax equity flow in 2017, but there is continued demand for good projects with experienced sponsors. – Director, Investment Fund Manager
  • We saw a lag coming into this year. We haven’t seen a large uptick in investment. – Director, Structured Finance, Solar Services Company

Partnership Flip v. Sale-Leaseback Structures

  • A partnership flip provides an attractive balance for a cash equity investor to invest at scale and earn an attractive yield. The structure is attractive to cash equity investors because it raises less cash than a sale-leaseback.  [A cash equity investor is, generally, an investor other than the developer of the project.  Such investors are eager to invest, but typically do not have tax appetite.  Therefore, the partnership flip suits them well as it allows the tax equity investor to monetize 99% of the ITC, and much of the depreciation, while still requiring a significant cash equity investment.] – Director, Investment Fund Manager

Tax Equity Investors’ Reaction to the Possibility of Tax Reform

  • We are putting into our documents cash sweeps for the risk of tax reform resulting in a lowering of the tax rate. – Business Development Officer, Retail Bank
  • We want to be sure that if a tax law change occurs, we are protected with a step-up in our cash-sharing percentage or an indemnity. – Executive Director, Energy Investing, Money Center Bank
  • There is the potential for a tax equity investor’s economics to improve with a reduction in tax rates, if the reduction occurs after the losses are used. – Director, Project Finance, Solar Services Company


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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
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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

 
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Below are soundbites from panel discussions on September 14, 2016 at Solar Power International in Las Vegas.  The soundbites are organized by topic, rather than in chronological order, and were prepared without the benefit of a transcript or a recording.

Supply of Tax Equity Investment

“There are 32 tax equity investors in the renewables market, about 26 of those invest in solar.” — Managing Director from a Money Center Bank

“It is very challenging when syndicators are trying to bring in new investors.  Each new investor takes nine to 15 months to work through its approval issues.” — Director, Renewable Energy Investments for a Commercial Bank

“We continue to see insurance companies get into the market.  They like the asset.  You might have newcomers that invest in 20 MW of projects in commercial transactions.” — Managing Director of a Boutique Financial Advisor

“There are more investors for solar than wind.  Wind is limited to experienced project [financiers].  Overall there is enough tax equity capacity for solar.” — Managing Director of a Boutique Financial Advisor

“We prioritize tax equity investment opportunities based on:

  1. Basic project finance fundamentals – quality of the sponsor and its management team, the quality of the power purchase agreement (“PPA”), the quality of the equipment and its warranties, and pro forma stress tests.
  2. The minimum amount out the door.  For solar, we want to be investing $75 to $100 million per transaction.  If the transaction involves commercial and industrial or residential projects, we like it to take no more than six to nine months to deploy that amount.
  3. Repeat business.  Does the sponsor have a pipeline of projects, so we can reuse the papers we have” negotiated. —  Managing Director from a Money Center Bank


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