Michael J. Goldman, Esq. Donald Nimey, CFA, FRM Daniel J. Smith, CPA

Energy Credit Section 48 of the Internal Revenue Code Energy property using solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat, but not to generate energy for the purposes of heating a swimming pool Must be new property

Solar Energy Credit 30% of the facilitys basis, if placed in service prior to January 1, % of the facilitys basis, if placed in service after December 31, 2016

Solar Energy Credit Credit is claimed in the year the facility is placed in service –(although it could be claimed based on progress expenditures over more than one year) Recapture possible for 5 years –(credit vests 20% per year)

Who Claims The Credit? The owner of the solar facility –If there are multiple owners, it is shared in accordance with profits sharing The lessee

What is the credit basis? Cost of the facility –Not all items includible –Cost Certification Fair market value of the facility –Lease passthroughs –Appraisal

When are the tax benefits claimed? Placement in service –Credits –50% bonus depreciation –Depreciation

Who participates, and who cannot participate? Corporate investors Individuals –Issues with respect to at-risk and passive activity rules Tax-exempt entities –Qualified allocations

Exit strategies Flip Put/Call

Special considerations Profit motive AMT Timing Rebates Utility subsidies Transfers of Interests

Structures Self-owned Partnership Lease Passthrough / Inverted Lease Sale-Leaseback

Sample ITC Single Tier Structure – Flip Renewable Energy Project Owner, LLC Tax Credit Investor, Corp. Renewable Energy Project Developer Utility/Grid/ Dedicated End- User Retains 0.01% of Project Ownership, Depreciation and Residual Cash Flow; receives fees to strip out some cash flow; buys out Investor after flip in partnership interests 10+ year fixed PPA; Utility makes base year payment of $0.XX/kWh with X% annual escalations Investor contributes equity equal to $1.XX per ITC at completion of project; receives 99.99% of Project Ownership, Depreciation, Residual Cash Flow (after fees) and ITCs. A yield- based or timing-triggered flip of partnership interests typically precludes a put or call of Investors interest in Project.

The Captive Energy Company Equity Investor 99% Equity Investor 99% Fund Manager 1% Fund Manager 1% Investment Fund 99% Investment Fund 99% General Partner 1% General Partner 1% Systems Integrator/Installer Energy Credit Investor 99% Energy Credit Investor 99% Developer Property Operating Partnership Property Operating Partnership Developer Energy Company, LLC Developer Energy Company, LLC $ $ Installation Agreement $ 30% ETC $ Managing Member 1% PPA/Lease Agreement PPA/Lease Revenue Dev. Fee

Sample ITC Master Lease Structure Tax Credit Investor, Corp. Renewable Energy Project Developer Utility/Grid/ Dedicated End- User Master Tenant, LLC ITCs passed via Master Lease; Master Tenant operates equipment and makes lease payments to Owner Retains 51% of Project Ownership and Depreciation; receives fees to strip out most cash flow; buys out Investor after 5 years 10+ year fixed PPA; Utility makes base year payment of $0.XX/kWh with X% annual escalations Contributes Investors equity into Owner; receives 49% of Project Ownership and Depreciation for 5 years Investor contributes equity $1.XX per ITC at completion of project; receives pass-thru ITCs and depreciation plus X% cash priority for 5 years and XX% put proceeds at end of 5 th year (both %s based on contributed equity) Renewable Energy Project Owner, LLC

Lessor is owner of SEF, Investment Tax Credits, Tax Losses (Depreciation Deductions), Rebates, RECs, Recipient of lease payments, Potential residual buyout Solar Installation Host #1 Solar Installation Host #1 Solar Installation Host #2 Solar Installation Host #2 Solar Installation Host #3 Solar Installation Host #3 Solar 1, LLC Solar 2, LLC Solar 3, LLC Solar Developer, LLC Lessee Solar Developer, LLC Lessee PPA/Lease Agreements Corporate Investor Lessor Corporate Investor Lessor Engineering, Procurement and Construction Agreement (EPC) Solar Developer may provide certain guarantees to Corporate Investor and funds would be held in escrow accordingly. Yield guarantees, O&M, Insurance etc. Funds released to Solar Developer as guarantees burn off. Lease Agreement Sales Proceeds Sale of SEFs and Lease Payments Purchase Agreement Systems Integrator/Installer Solar Developer Sale Leaseback Structure

Investment Tax Credits for SolarThe Basics Tax Credit Investor Tax Benefits Structure Tax Credits Tax Deprec. Basis Adjust. Book Deprec. FlipYesProb. Sale/LeasebackYes Lease Pass-ThroughYesNo

Investment Tax Credits for SolarThe Basics Tax Credit Investor Cash Benefits Structure Cash Inflow Cash Outflow FlipPPA LPA Distribution Sale/LeasebackLease Note Payments Lease Pass-ThroughPPA Lease Payments

ARRA Grant Program Placement in service in 2009 or 2010 –Or placed in service before 2017 if construction commenced prior to 2011 Application deadline is September 30, 2011 Guidance forthcoming

Contacts Michael J. Goldman Nixon Peabody LLP 401 Ninth St., NW Suite 900 Washington, DC Donald Nimey Reznick Group, P.C Old Georgetown Road Suite 400 Bethesda, MD Daniel J. Smith Novogradac & Company LLP 303 West Third Street Dover, Ohio