Law360 has published our article How The New Tax Law Blue Book Impacts Regulated Utilities.  The article is available at here or the full text is below.

The recently released the Joint Committee on Taxation’s Blue Book explanation[1] of the Tax Cuts and Jobs Act[2] confirms that qualifying tangible property leased to a regulated public utility is eligible for the new 100 percent expensing rules, also called full expensing,[3] even if the property would not be eligible for full expensing if it were owned by the regulated utility.

As discussed below, there was some concern in the industry that an exception applicable to certain property used by a regulated utility, or the regulated utility exception,[4] might extend to an owner/lessor leasing to a regulated utility.  With the release of the Blue Book, we would expect there to be more lessors prepared to offer advantageous lease financing rates to regulated utilities, reflecting the lessor’s ability to claim full expensing.
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Here’s a presentation that Joseph Sebik, CPA of Siemens Financial Services and I gave to the Energy Subcommittee of the Equipment Leasing and Finance Association on January 22: Tax Equity Energy Subcommittee 1-22-19 of ELFA.

Despite being to a leasing trade association, the focus of the presentation is the partnership flip structure.  The presentation

I am pleased to announce that I will be speaking in an upcoming Strafford live webinar, “Tax Reform and Renewable Energy: Planning Techniques, 100% Expensing, BEAT, Tax Credits and Interest Deduction Limitations” scheduled for Wednesday, January 16, 1:00 pm-2:30 pm Eastern.

As a reader of this blog, you are eligible to attend this

Below are answers to questions we received during our tax equity webinar of October 23.  These questions were submitted online during the webinar.  The presentation from the webinar is available here.

Question: Commercial and industrial (C&I) has higher returns but how many projects raise tax equity versus other segments of the solar market? What

We were pleased to participate in Power Finance & Risk’s (PFR) Tax Equity Roundtable.  We were joined in the roundtable discussion by Rich Dovere of C2 Energy Capital, Marshal Salant of Citi, Kathyrn Rasmussen of Capital Dynamics Clean Energy and Infrastructure, Pedro Almeida of EDP Renewables North America and as moderator PFR’s editor, Richard Metcalf. 

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.

Please join Mayer Brown and Alfa Energy Advisors for a webinar.  The webinar will address how tax reform is impacting the tax equity market and certain structures in particular.  Additional topics include:

  • The latest industry trends
  • New bonus depreciation rules and their impact on tax equity transactions and modeling
  • Compressed financing margins for wind and

We have published our whitepaper: Gain Deferral Using Qualified Opportunity Zone Investment Strategies Legal Update.  “Qualified Opportunity Zones” are not specific to renewable energy and do not involve tax credits but provide a powerful new tax benefits as a result of their enactment last year as part of the “Tax Cuts and Jobs Act.”

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
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