Demystifying RE-Powering Deal Financing Brownfields 2011 | April 5, 2011 Todd B. Reinstein, Esq. CPA

2 What are Tax Credits? Tax credits reduce a taxpayer’s tax liability “dollar for dollar” −e.g., if TP owes $1M of taxes, and has $500K of tax credits, then TP only has to pay $500K in cash, and the rest is paid with the credits So, it can be a good deal if TP can obtain credits for less than $1 Tax rules generally make tax credits a bad investment for individuals due to passive activity rules Tax credits are not actually bought and sold - Instead, the investor becomes a partner of a partnership or member of an LLC, and gets a Schedule K-1 telling it how much in tax credits it has been allocated for the year

3 Energy Credit Credit equal to the basis of energy property multiplied by the energy percentage −For periods after December 31, 2005 the energy percentage is 30% for equipment which uses solar energy to Generate electricity To heat or cool a structure Provide solar process heat (swimming pools do not count) 30% of the facility’s basis, if placed in service prior to January 1, % of the facility’s basis, if placed in service after December 31, 2016 Can claim energy credit in lieu of production tax credit

4 Production Tax Credit Credit for the production and sale of electricity produced from qualified renewable energy resources or refined coal Must be produced at a qualified facility Credit is equal to the KwH produced times a fixed price over 10 year period Renewable Energy Sources: −Wind −Closed-loop biomass −Open-loop biomass −Geothermal −Solar (pre-2006) −Small irrigation power −Municipal waste −Qualified hydro −Marine & hydro-kinetic

5 Treasury Grant Program Enacted in Section 1603 of the American Recovery and Reinvestment Tax Act of % or 30% cash grant is provided for renewable energy facilities in lieu of Energy Credit Treasury Grant Program is administered by U.S. Treasury Department Extended Through 2011

6 PTC or ITC projects are eligible Qualifying projects must begin construction in 2011 −Costs “paid or incurred” and the 5% safe harbor −Possibility of extension? Placed in service dates: Placed in Service Dates Begin Construction Wind All other PTC projects ITC projects

7 Wind projects are eligible per Rev. Proc Ann Solar? Investor buys interest in PRS: −Allocated substantially all (e.g., 99%) of partnership items (income, gains, deductions, losses and credits) until IRR is reached −Allocation “flips” to small portion (e.g., 5-10%) of these items after Investor IRR is reached −Cash Distributions: 100% to Developer until Developer’s capital account reduced to zero Then, 100% to Investor until capital account goes to zero After the flip, cash distributions follow income allocations −Interest usually subject to FMV buy-out after IRR is reached −May make “pay-as-you-go” contributions to PRS Permits Investor to fund its investment with reductions in future federal income tax liability, and Places part of the risk of the investment on the developer 2011 Bonus Depreciation Deal Structures PRS Developer Investor DRE Income, Losses, Credits