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
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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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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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