1. Winston & Strawn LLP © 2009 CHARLOTTE CHICAGO GENEVA HONG KONG LONDON LOS ANGELES MOSCOW NEW YORK NEWARK PARIS SAN FRANCISCO WASHINGTON, D.C. Renewable Energy Project Tax Planning Andrew W. Ratts September 25, 2009

2. Winston & Strawn LLP © 2009 2 Tax Code Provides Targeted Tax Benefits The Tax Code is used to provide targeted tax benefits The tax benefits take the form of: Depreciable lives less than the economic life of the assets Accelerated depreciation/current write-offs including “Bonus” depreciation Investment Tax Credits Production Tax Credits

3. Winston & Strawn LLP © 2009 3 Each Favored Energy Resource Has a Unique Package of Tax Benefits Available Through Specific Dates Often worth as much as 60% of the economic cost of the project The March/April 2009 edition of Business Entities published by Thomson Reuters has an article entitled “Stimulus Act Expands Renewable & Alternative Energy Tax Incentives" which includes a very useful summary chart of the tax credits organized by energy resource

4. Winston & Strawn LLP © 2009 4 Developers Often Don't Have Significant Tax Base (or Cash)

5. Winston & Strawn LLP © 2009 5 Even Institutional Developers May Not Have U.S. Tax Base Foreign utilities with renewable development activity in the United States don't yet have a U.S. tax bill – No matter how big they are at home

6. Winston & Strawn LLP © 2009 6 Tax Benefits Are Not Simply Realized Cannot simply transfer tax benefits to a tax investor for cash Most common means to realize value are via: Leasing Special Allocation Partnership

7. Winston & Strawn LLP © 2009 7 How to Involve a Tax Investor: Sale Leaseback DeveloperDeep Pocket Taxpayer Project Company Special Purpose Investment Entity 100% Sale of Project Rent Lease of Project Electricity Market Sale of Power

8. Winston & Strawn LLP © 2009 8 How to Involve a Tax Investor: Sale Leaseback Shifts 100% of "ownership" related tax benefits which include: cost recovery deductions – all of short life, accelerated schedule and bonus depreciation when available investment tax credit or cash grant, but not production tax credit with ITC election, this can work for all projects, which was a purpose for providing the election

9. Winston & Strawn LLP © 2009 9 How to Involve a Tax Investor: Sale Leaseback Can be executed until 90 days after placed in service date and move ITC and bonus depreciation Can provide a “guaranteed” return to the investor Currently favorable and well understood generally accepted accounting principles apply to investor which broadens market of interested investors relative to special allocation partnership Generally expect fixed price purchase options to be available (IRS Announcement 2009-69) Pre-tax cash requirements of true lease guidelines are not favorable to leverage or pricing, but cash grant election may alleviate this constraint for the moment

10. Winston & Strawn LLP © 2009 10 How to Involve a Tax Investor: Special Allocation Partnership DeveloperDeep Pocket Taxpayer Project Company Allocated 1% of Economics until target return achieved for taxpayer than 95.05% Allocated 99% of Economics until target return achieved then 4.95% Sale of Power Electricity Market

11. Winston & Strawn LLP © 2009 11 How to Involve a Tax Investor: Special Allocation Partnership Shifts 99% of all types of tax benefits of project company in which tax investor is a partner as the project company is the owner and operator of the project producing and selling the power Only bottom line income and loss are allocable. Cash distribution need not follow income and loss allocations. Cash, income and loss allocations can vary over time. All allocations subject to constraints of substantial economic effect tests. Optimization requires a highly interactive process between financial modeler and tax advisor Will still be necessary despite ITC election, for projects with high electricity production relative to cost

12. Winston & Strawn LLP © 2009 12 How to Involve a Tax Investor: Special Allocation Partnership If moving ITC or bonus depreciation transaction must be executed before placed in service date Special accounting applies based on a deemed liquidation analysis Fixed price purchase option now available at expected fair market value (and developer only buying in 4.95%) Safe harbor available which does not require pre-tax cash profit for wind transactions (and by analogy other renewable energy resources) Safe harbor also permits pay as you go structures, which can accommodate technology and production risks on new resources such as hydrokinetics

13. Winston & Strawn LLP © 2009 13 Prepaid Structure Power Purchase Project Company Power Purchase Agreement Prepayment for Power Underlying Project financed with a Sale Leaseback or a Special Allocation Partnership Sale of Power as Produced

14. Winston & Strawn LLP © 2009 14 Prepaid Structure: Tax Benefits Income from the prepayment can be deferred and amortized into income as the electricity is delivered A municipal utility can issue tax exempt debt to fund the prepayment such that the prepayment functions as a loan to the project company financed at tax exempt rates Cost recovery deductions and tax credits not adversely affected. They remain what they would have been without the prepayment or tax-exempt financing

15. Winston & Strawn LLP © 2009 15 Prepaid Structure: Requirements for Deferral of Income Must be sale of a good as opposed to the provision of a service. This is current IRS position for electricity Taxpayer cannot include income any earlier for any other purpose such as accounting for earnings Works because electricity is not storable so not in inventory. Otherwise substantial advance payment rule would limit deferral of income to two years

16. Winston & Strawn LLP © 2009 16 Inverted Lease: ITC/Some PTCs/Cash Grant The ITC/cash grant (and some PTCs) may be passed through to a lessee by election permitting the separation of the cost recovery deductions from the tax credits or cash grant. The lessee can sublease or enter into a power purchase agreement so lessee can be further separated from user Cost Recovery Deductions Electricity Lease with ITC Pass Through Election Sublease or Power Purchase Agreement  Available for all assets entitled to the investment tax credit including by way of election. Tax Owner Lessee User/ Power Buyer ITC/some PTCs/ Cash Grant

17. Winston & Strawn LLP © 2009 17 Conclusion Tax benefits for renewable and alternative energy projects have significant economic value Diligence is required to determine precise tax benefit package based upon physical reality of project Numerous structures, each with their own unique tax consequences and constraints, are available to move tax benefits among parties Optimization takes experienced focus, creativity and patience

18. Winston & Strawn LLP © 2009 CHARLOTTE CHICAGO GENEVA HONG KONG LONDON LOS ANGELES MOSCOW NEW YORK NEWARK PARIS SAN FRANCISCO WASHINGTON, D.C. Thank You.