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
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We have published our Legal Update on the Federal Circuit’s opinion in the Alta Wind case involving the calculation of eligible basis for 1603 Treasury cash grant purposes.  The 1603 Treasury cash grant rules “mimic” the investment tax credit (ITC) rules, so the case has implications for ITC transactions being structured and end executed today. 

In a recent case, the Tax Court ruled in the taxpayer’s favor as to three California distributed generation solar projects’ eligibility for the energy credit under Section 48 and bonus depreciation under Section 168.  However, the Tax Court did reduce the taxpayer’s basis in the projects, and the taxpayer in the case enjoyed significant procedural advantages due to mistakes by the IRS.

In Golan v. Commissioner, T.C. Memo. 2018-76 (June 5, 2018), in late 2010 a solar contractor installed solar equipment on the roofs of three host properties and entered into power purchase agreements (“PPAs”) with the property owners.  The PPAs provided that the hosts would purchase electricity generated by the solar equipment at a discount to utility rates, while the solar contractor would retain the ownership of the equipment, including the right to any tax or other financial benefits, and would service and repair the equipment.

Mr. Golan, the taxpayer, in 2011 purchased the solar equipment, subject to the PPAs, from the solar contractor for a purported purchase price of $300,000, which was the sum of a purported $90,000 down payment, a $57,750 credit for certain rebates, and a $152,250 promissory note (which the taxpayer was the obligor under but the taxpayer also provided a personal guarantee thereof).  The solar projects were not connected to the grid until after the taxpayer acquired them in 2011.  The IRS unsuccessfully sought to disallow the taxpayer from taking energy credit and depreciation deduction with respect to the solar equipment.
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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

On October 31, 2016, the US Court of Federal Claims decided that Halloween was the perfect day to release its opinion in Alta v. United States, and the plaintiffs no doubt are enjoying this treat.

The case came about when the plaintiffs brought suit against the Treasury for the alleged underpayment of over $206 million in grants under section 1603 of the American Recovery and Reinvestment Tax Act of 2009. That section provides the owners of certain renewable energy projects with a grant equal to 30 percent of the specified energy property’s basis.

As the court aptly stated: “And therein lies the dispute.” Importantly, the court emphasized the general rule that “[b]asis, as defined in the IRC, is the cost of property to its owner” and, while there are “exceptions to the general rule that purchase price determines basis,” such exceptions did not apply under the facts of this case. Accordingly, the court found that the plaintiffs were entitled to the full amount of their grants and awarded damages equal to the shortfall plus reasonable costs.

The cases involved 20 plaintiffs, all of which were special purpose limited liability companies organized for the benefit of various institutional investors. For 19 of the plaintiffs, the purported basis was set via a sale of a wind project or an undivided interest therein to it from the developer that was followed by a lease back to the developer. For one plaintiff, the basis was set in outright sale from the developer to the plaintiff without a lease; that is, the plaintiff operated the project directly. All of the wind projects were contracted to Southern California Edison pursuant to a long-term fixed-price power purchase agreement (“PPA”). All of the projects were sold prior to their start of commercial operation.

The government, in denying payment of the full amount of the grant applied for, argued that basis should be calculated from “the value of each wind farm’s grant-eligible constituent parts and their respective development and construction costs.” Everything else would be categorized as either goodwill or going-concern value. Accepting the plaintiffs’ argument, argued the government, would mean accepting an inflated and improper number far in excess of what the assets would justify.

The plaintiffs’ determination of eligible basis was purchase price “minus small allocations for ineligible property such as land and transmission lines.”
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The Court of Federal Claims on October 28 entered judgment in favor of Alta Wind cash grant applicants awarding them collectively over $206 million for grants under Section 1603 of the American Recovery and Reinvestment Tax Act that the Treasury had declined to pay.  The two page judgment is available at Alta Wind Judgment Oct

First published in Bloomberg BNA’s Daily Tax Report on January 22, 2016

David Burton examines the Tax Court’s recent analysis in Leland v. Commissioner, favoring a lawyer’s bid for exception from the passive activity loss rules for his ‘‘material participation’’ of more than 100 hours per year in operations of a farm he owns