Global Project Finance > Tax Equity Telegraph
06 Apr '16

This is an article‎ that David Burton published in Tax Notes that discusses three recent Internal Revenue Service rulings in which permission was granted, in what appears to be solar energy project, inverted lease transactions, in two instances to make a late election to pass through the investment tax credit to the lessee and in a third instance to make a late election out of bonus depreciation. 

Here is a link to the article.


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30 Mar '16

Question from Seminar Participant: The tax equity investor invests to own only a portion of the production tax credits (PTCs) up front, since there is an unknown of the actual production levels of the wind farm. What does the project company do with the portion of the PTCs not sold up front? Are they generally sold to the same tax equity investor year after year, or is there some other way for the project to receive value for them?

Answer: In a typical wind tax equity partnership that follows the safe harbor in Revenue Procedure 2007-65, the tax equity investor is allocated 99 percent of the profit and loss (which is different from its right to distributable cash), determined using tax principles until the later of (a) when it achieves after-tax flip rate and (b) five years. That allocation of profit and loss brings with it the right to 99 percent of the PTCs. PTCs are generated for 10 years from the project’s placed-in-service date (i.e., when it starts operating). If the tax equity investor achieves its flip rate before that 10-year period is over, the tax equity investor’s allocation declines.  The minimum revenue procedure permits the investor’s allocation can decline to 4.95% (i.e., 5 percent of 99 percent), but the exact level to which it declines is negotiated up front in the limited liability company agreement (LLCA). 

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29 Mar '16

Navigant Consulting on February 19 submitted a report, Solar Project Return Analysis for Third Party Owned Solar Systems, to the Arizona Public Service (APS). The thesis of the report is that residential solar developers are charging homeowners unnecessarily high rates given the extension of so-called bonus depreciation1 and Congress pushing out when the investment tax credit ratchets down from 30% to 10% by a number of years. The implication of that thesis would seem to be that if the solar companies accepted more reasonable after-tax returns they would be able to lower the rates charged to homeowners; then the homeowners could pay more to utilities for transmission and other infrastructure that they need access to when the sun is not shining while still paying less overall than customers who have not adopted solar.

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