Financing Solar Energy Combining New Markets & Solar Tax Credits Herb Stevens

Overview of ETCs Energy Tax Credits are generally 30% of “facility” cost (e.g., transmission lines and substations are not eligible for the ITC) Includes Photovoltaic (PV) Concentrated Solar Power (CSP) & fuel cells Must generate electricity, heating, cooling, hot water, or fiber-optic lighting. Sale of elec. is not required

Placed in Service When is a facility placed in service? Usually when completed, with licenses and after pre-operational testing “Daily operation” can matter Acquired property must be delivered and ready to use; mere purchase is not enough

The Tax Benefits and Timing 30% ETC is usually taken in the year the facility is “placed in service” Possible recapture for 5 years (100% in first year, 80% in second year, etc.) Mostly 5-year MACRS depreciation, but new rules permit 50% depreciation in first year (PIS in 2009)

Technical Rules Almost all investors are corporations because of “At Risk” and “Passive Loss” Rules Basis reduction of 50% of ITC, meaning less depreciation Profit motive -- But compare Rev. Proc. 2007-65 (for wind) with Reg. 1.42-4 (for LIHTC)

Solar/New Markets Single Equity Structure Leverage Lender NMTC Investor $1.4 million $3.6 million Loan Equity Fund Solar Credit Investor $4 million Developer .01% Equity Equity 99.99% $5million Allocation of $5 million NMTCs CDE Power Purchase Agreement or Lease Project Owner Loan and Equity Energy User NMTC $5 million Solar $4 million Need $1 million Solar Project $10 million cost

Solar/New Markets Lease Pass Through Structure NMTC and Solar/Investor Credit Solar $4 million NMTC $1.5 million Equity Developer 51% Equity Lender CDE $5.5 million allocation Loan and 49% Equity $5.5 million Loan Power Purchase Agreement or Sublease $3.5 million Lease Lease Project Owner Master Tenant Energy User Credit Pass Through Solar Project $10 million cost Credit Equity $5.5 million Debt $3.5 million Need $1 million REC or Rebate

Thank you Herb Stevens