Below are soundbites from panelists who spoke at Infocast’s Wind Finance & Investment Summit on February 6 and 7 in Carlsbad, CA.  The attendance at the event appeared strong, and the mood was generally optimistic.

Despite the title of the conference being wind, many of the panelists touched on solar and storage, so readers who do not work in the wind industry may nonetheless find some points of interest below.

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.

Topics covered below include the tax equity market, the 2020 soft deadline for the full production tax credit (“PTC”), the impact of the PTC phase out, PG&E’s bankruptcy, storage and more.

State of the Tax Equity Market

“There was $12 billion of combined wind and solar tax equity investment in 2018.  This up from $10 billion of tax equity investment in 2017; however, the actual new volume was down in 2018 as $3 billion of the $12 billion in 2018 was secondary market transactions” (i.e., one tax equity investor selling down to another tax equity investor).  Managing Director, Money Center Bank

“Tax equity has done well in terms of how it has worked out for the banks that invested in it.”  Tax Equity Head, Corporate Investor Continue Reading Infocast’s Wind Finance & Investment Summit Soundbites

Below are soundbites from panel discussions at Solar Power International on September 25 and 26 in Anaheim, California. Overall the conference was well-attended and the panelists and audience seemed optimistic regarding current and future opportunities.

The soundbites are organized by topic, rather than presented chronologically.  The soundbites were prepared without the benefit of a recording or a transcript and have been edited for clarity.

Topics covered include tax equity, the solar start of construction rules, the investment tax credit (“ITC”) and tax basis risk after the Federal Circuit’s opinion in Alta Wind, the inverted lease structure, back-leverage debt, storage, community solar and merchant projects.

Macroeconomic Factors for Solar and Tax Equity

“Rising corporate profits have caused more tax equity to enter the market.  That has shifted the negotiating leverage to the sponsors.”  Managing Director, Money Center Bank

“Tax equity always needs to fund around 40 percent of the capital stack in order to use the tax benefits efficiently.”  Managing Director, Money Center Bank “Equipment costs continue to come down.  Module prices are back to where they were before the tariffs at 30 to 40 cents a Watt.”  President, Diversified Solar Services Company

“There are greater economies of scale for utility scale solar than for residential or C&I.  As module prices drop faster than that customer acquisition costs, utility scale will become a larger portion of the market.”  President, Diversified Solar Services Company

“I am very bullish on next year.  This has been the best year ever from a volume perspective, not from an income perspective, because the market is causing us to charge less.”  Managing Director, Regional Bank

“Falling electricity prices aren’t leading to sponsors raising less capital, because sponsors have been beating down lenders and service providers.”  Managing Director, Regional Bank

“Capital providers are taking more risk for less return.”  Managing Director, Regional Bank

“Residential solar debt has become an accepted asset class.” Managing Director, Regional Bank

“Soft costs, such as marketing, legal, accounting and tax advice, are five to seven percent of a solar project’s cost in Europe and Asia; they are 35 percent of solar project’s cost here; we need to attack that.”  President, Solar Developer Continue Reading Solar Power International 2018: Soundbites

In 2017, Maryland, with Governor Larry Hogan’s (R) support, became the first state in the country to launch a tax credit program for energy storage systems.  In September, 2018, Maryland Energy Administration adopted new regulations that clarified certain qualifications of eligible systems and established procedures for individuals and businesses to apply for tax credits.

The program will grant tax credits to taxpayers that install energy storage systems between January 1, 2018 and December 31, 2022.  The amount of tax credits granted from this program will not exceed 30 percent of the total installed costs of the energy storage system.  The amount of tax credits granted for a system installed on residential property is further capped at $5,000.  The cap amount of a system installed on commercial property is $75,000.  The tax credits will be granted on a first-come, first-served basis and are subject to a maximum limit of $750,000 each year.  Unused credits from this program cannot be carried forward or backward to offset taxpayers’ tax liability in another taxable year.  Please click here to read more on the original Senate Bill and our observations about the incentive tax credit program.

The regulations clarified that an energy storage system is a system that stores electrical, mechanical, chemical or thermal energy for use as electricity at a later date or to offset electricity use at peak times.[i]

The regulations set forth certain safety and operational requirements for qualifying systems.  Qualifying systems must use equipment certified by a nationally recognized testing laboratory and must be installed in Maryland.[ii]  If the system is an electric system, it must also be installed by a licensed electrician, be in compliance with all applicable building and fire codes and, if applicable, be compliant with Maryland regulations regarding interconnection with the electric utility grid.[iii]

Qualifications for these systems may be adjusted by the Administration across program years.[iv]

Both individual and business taxpayers can participate in this program.[v]  Businesses must be formed as associations or joint-stock companies to be eligible.[vi]  Taxpayers must provide information requested by the Administration in the application process.  The Administration has the sole discretion in determining what information to request.  Taxpayers may be asked to provide their names, addresses and contact information or those of their representatives, estimated gross income or revenue, estimated tax liabilities, physical addresses of the property, proof of ownership of the property, description of the proposed energy storage systems, explanation of how the proposed systems offset electricity when discharging, information on the developers or installers, whether the proposed systems will participate in wholesale energy markets, estimated costs of the proposed systems, expected life of the proposed systems, anticipated in-service dates of the proposed systems, anticipated capacity factor of the proposed systems, energy storage duration, the amount of energy that can be stored in the proposed systems, the rate of energy flux per unit of area of the proposed systems,  documentation verifying that the proposed systems are in service, among other information.[vii]

Taxpayers that have already claimed a tax credit in this program are not eligible for additional tax credits from this program for the same taxable year.[viii]  Addresses, including multifamily properties, where tax credits were already claimed in this program are ineligible for additional tax credits from this program in all taxable years.[ix]  Electric vehicles are ineligible for this program.[x]

[i] Md. Regs. Code § 14.26.07.04(A).

[ii] Md. Regs. Code § 14.26.07.04(B), (C).

[iii] Id.

[iv] Md. Regs. Code § 14.26.07.04(D).

[v] See Md. Regs. Code § 14.26.07.01.

[vi] Md. Regs. Code § 14.26.07.03(B)(4); Md. Code Ann., Tax-General § 10-101(c).

[vii] Md. Regs. Code § 14.26.07.07(A).

[viii] Md. Regs. Code § 14.26.07.05(B).

[ix] Md. Regs. Code § 14.26.07.05(C).

[x] Md. Regs. Code § 14.26.07.05(D).

Mayer Brown’s David K. Burton and Jeffrey G. Davis both Tax Transactions & Consulting partners and part of the firm’s Renewable Energy group co-hosted a heavily attended webinar on how tax reform is impacting the tax equity market and certain renewable energy structures with Vadim Ovchinnikov, CFA, CPA and Gintaras Sadauskas of Alfa Energy Advisors. Topics addressed, included: The latest industry trends such as, the feds raising interest rates; the increase in project M&A activity for both development and operating assets; plans for large offshore wind projects in several east coast states; changes in PPA’s and revenue models; compressed margins and why developers and investors are moving towards commercial and industrial (C&I) solar projects. Additional topics, included:

  • New bonus depreciation rules and impact on tax equity transactions and modeling;
  • Compressed financing margins for wind and solar;
  • Strategies for “starting construction” to qualify for the maximum investment tax credit and rules for transferring safe harbored equipment between wind projects; and,
  • An overview of HLBV GAAP accounting for tax equity investments as a challenge for public companies.

Over 480 clients and contacts registered for the co-hosted webinar. Due to the volume of interest and post-presentation questions, we would like to share the slides from the presentation: webinar presentation.

We are reviewing and preparing responses to all of the questions that were submitted electronically during the webinar.  We will be sharing those questions with our answers in a subsequent blog post.

Below are soundbites from panelists from the Renewable Energy Finance Forum (“REFF”) Wall Street on June 19 and 20. The mood was upbeat.  There were many references to a “wall of cash chasing projects” as a metaphor for how competitive it is to win bids to finance or purchase projects.

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.

The topics covered include the tax equity, debt and M&A markets, C&I solar, offshore wind, bonus depreciation, storage, YieldCos and others.

Tax Equity Market

“Solar tax equity is 30 to 38 percent of the capital stack of a project.  Wind tax equity is 47 to 62 percent of the capital stack of a project.”  – Managing Director, Boutique Investment Bank

“We are seeing a lot more wind.  We are using our tax equity capacity in wind in 2018.  Solar is looking good for 2019 and beyond.”  Managing Director, Trust Company

“This year we will invest more in wind than in solar.” – Managing Director, Money Center Bank

“We are seeing tax equity portfolios that are seasoned trade in a secondary market.  [Generally These are tax equity portfolios] that haven’t flipped on time or that [have the benefit of material cash distributions] but not tax” credits.  – Managing Director, American Multinational Financial Services Company

“There is more tax equity now than there was before tax reform.”  Managing Director, REIT

“2018 is a slow down due to tax reform and tariffs.”  Managing Director, National Bank

“There is a lot less tax equity capacity due to the lower tax rate.” – Managing Director, American Multi-National Investment Bank

[Explained: there may be more tax equity investors in the market than last year; however, last year the corporate tax rate was 35 percent, and this year it is 21 percent, so a typical tax equity investor has 40 percent less tax appetite (and ability to invest in tax equity) in 2018 than it did in 2017.]

“If you are in BEAT [(i.e., the base erosion anti-avoidance tax in enacted as part of 2018 tax reform)], you cannot compete in tax equity.  A couple of investors were hit with BEAT and exited.” – Managing Director, American Multi-National Investment Bank

“We get ten requests for tax equity a week and say ‘yes’ to less than one a week.  We have to prioritize opportunities.”  – Managing Director, American Multi-National Investment Bank Continue Reading Renewable Energy Finance Forum Wall Street Soundbites: the Tax Equity, Debt and M&A Markets, etc.

A Word About Wind has published my article about offshore wind in the United States as part of its Legal Power List 2018 special report.  The article discusses how offshore wind projects, such as Vineyard Wind, have certain advantages over onshore wind, particularly with respect to tax credits for storage.  Here is a link to the special report; alternatively, if you are not a member of A Word About Wind, we are pleased to make the offshore wind article available.

Below are soundbites from panelists at Infocast’s Solar Power Finance & Investment Summit from March 19th to 22nd in Carlsbad, CA.  It was an extremely well-attended event and the mood of the participants was generally upbeat.  Many people observed that there was more capital for projects under development or to buy operating portfolios than there was such supply of projects available to meet that demand.

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.

Impact of Tax Reform on the Tax Equity Market

Impact of the Corporate Tax Rate Reduction on the Supply of Tax Equity, Yields and the Capital Stack

“This year we can do $9 million in tax credits; before we could do $15 million.”  [The implication is that a 21 percent federal corporate tax rate is 40 percent less than a 35 percent corporate tax rate, so the tax appetite has declined by 40 percent.]  Vice President, Industrial Bank

“The [supply side of the] tax equity market has declined by 40 percent; some tax equity investors are taking a pause.”  Vice President, Regional Bank

“Our bank this year is slightly below the billion dollars of tax equity it originated last year for its own book.” Vice President, Midwestern Bank

Some “mainstream tax equity investors have taken a pause [from investing] to figure out what the 21 percent corporate tax rate means for them.  It is an investors’ market, but we nervously see a sponsors’ market ahead.”  Managing Director, Financial Advisory Firm

Traditionally, rates for tax equity have been a function of supply and demand, but now we are seeing real pressure on rates.”  Managing Director, Money Center Bank

[It is difficult to jibe this banker’s quote regarding pressure on tax equity rates with the quotes above regarding the supply of the tax equity market being smaller due to tax reform.  Possibly, tax equity investors are agreeing to share some of the yield detriment of the depreciation being less valuable and that has resulted in reduced after-tax yields.]

“Some utilities that had tax appetite no longer have tax appetite and need to raise tax equity for their projects.”  Director, Money Center Bank

“We are trying to get back to the same all-in return where we were before tax reform.”  [As the depreciation is less valuable at a 21 percent tax rate than it was at a 35 percent tax rate, this means either (i) contributing less for the same 99 percent allocation of the investment tax credit or (ii) contributing the same amount and requiring a distribution of a larger share of the cash.]  Vice President, Midwestern Bank

“Tax reform helped us because it means tax equity contributes less to the project, so it makes our loan product more necessary.” General Manager Renewable Energy Finance, Small Business Bank

“The debt market has come in and is filling the decline in tax equity.” Executive Director, Manufacturing Corporation

“The buyouts of [tax equity investors’ post-flip interests] are more valuable because of the lower tax rate.”  Partner, Big 4 Firm

“We see sponsors’ financial returns over a 35-year project life increase due to the tax rate reduction.”  ” Managing Director, Structuring Advisory Firm Continue Reading Infocast’s 2018 Solar Power Finance & Investment Summit Soundbites

In a recently released private letter ruling (available here), the IRS confirmed that residential solar energy batteries are eligible for the tax credit under Section 25D of the Code (the “Residential Solar Credit”), subject to an important and unexpected caveat.

In Priv. Ltr. Rul. 2018-03-009 (Mar. 2, 2018) (the “PLR”), the taxpayers had previously installed a solar energy system on their home and claimed the Residential Solar Credit.  The taxpayers were now purchasing a battery to integrate into their existing solar energy system.  The battery was designed such that charging would only occur when the solar energy system was producing energy and only up to the instantaneous solar power, thereby ensuring that all energy that was used to charge the battery would come from the solar energy system. The remaining useful life of the solar energy system was expected to exceed the useful life of the battery.  The taxpayers posed two questions to the IRS: (1) Is the battery a type of property that is eligible for the Residential Solar Credit and, if so, (2) will the battery remain eligible for the Residential Solar Credit even though it was installed subsequent to the year in which the solar energy system was installed. Continue Reading Residential Solar Storage is Eligible for Tax Credit, Subject to a 100% Cliff

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