SEIA Finance & SEIA Fina nce & Tax 101 Tax 101 Workshop - PowerPoint PPT Presentation

2020 2020 ww www. w.seia ia.org rg SEIA Finance & SEIA Fina nce & Tax 101 Tax 101 Workshop Wo rkshop February 26, 2020 2020 2020 www.s .seia.o .org rg

Thank Tha nk You t You to o Our Our Workshop Workshop Spo Sponsor! nsor! 2020 2020 2020 www.s .seia.o .org rg

Twitte Twi tter r In Infor formation mation Tweet with #SEIAFinTax to share your experiences at this event with others! 2020 2020 2020 www.s .seia.o .org rg

Workshop Welcome Workshop Welcome & Introdu & Introduction ction Tony Grappone Partner Novogradac 2020 2020 2020 www.s .seia.o .org rg

Sessio Ses sion n 1: I 1: Int ntrodu roduction ction to Renewable to Renewable Energ nergy Tax y Tax Credit Credit Tax Tax Subs Subsidies idies Steven Varady Kimberly Wojcik Principal Associate Novogradac Nixon Peabody LLP 2020 2020 2020 www.s .seia.o .org rg

2020 2020 www. ww w.seia ia.org rg Introduction t Introduction to o RETC RETC Subsid Subsidies ies Steven Varady, CPA Kimberly Wojcik Principal Associate Novogradac & Company Nixon Peabody LLP LLP 202.585.8430 415.356.7930 2020 2020 www.s .seia.o .org rg

Rene Re newabl wable e Ene Energy Tax C rgy Tax Cre redit its What credits are What is a tax credit? available to renewable energy property? Investment tax credit (IRC Dollar for dollar Section 48) reduction in federal tax liability Production tax credit (IRC Section 45) $1 tax credit is $1 less of taxes which Residential need to be paid to energy efficiency the government credit (IRC Section 25D) 2020 2020 2020 www.s .seia.o .org rg

More Mor e on on the the Credi Credits ts • Renewable energy t ax c redits are not refundable • Any excess credit over a taxpayer’s tax liability is carried to future years • Carryback 1 year and forward 20 years No cash back for excess credit Tax Liability Tax Credits 1 year 20 years 2020 2020 2020 www.s .seia.o .org rg

The Th e IT ITC C & PT & PTC Investment Tax Credit (ITC) Production Tax Credit (PTC) Investment-based Production-based Dollars spent on eligible kWh produced and sold to an property multiplied by unrelated third party applicable energy percentage multiplied by a specified credit rate 2020 2020 2020 www.s .seia.o .org rg

PTC PT C Pr Property operty Wind Open-loop biomass Closed-loop Geothermal biomass Small irrigation Municipal solid Marine and Hydropower waste hydrokinetic 2020 2020 2020 www.s .seia.o .org rg

How much How much is the is the PT PTC • PTC was initially 1.5 cents/kWh • Annually adjusted, rounded to nearest 0.1 cent • Begins the year the project is PIS and lasts 10 years Property Type Price per kWh (2019) Wind $0.025 Closed-loop biomass $0.025 Open-loop biomass $0.012 Geothermal $0.025 Municipal Solid Waste $0.012 Marine and Hydrokinetic $0.012 Hydropower $0.012 2020 2020 2020 www.s .seia.o .org rg

ITC IT C Pr Property operty Solar Energy Property Fuel Cells Combined Heat and Power Systems Equipment which uses ground or Small Wind Qualified Microturbine Property ground water as a thermal energy (turbines less than 100kW) source 2020 2020 2020 www.s .seia.o .org rg

How Mu How Much ch is the is the IT ITC? C? • The ITC is an investment-based credit • Credit is based on a dollars spent on eligible property, multiplied by a specified percentage Property Type Energy Percentage Solar * 30% (phases down) Fuel Cells 30% (phases out) Small Wind 30% (phases out) Combined Heat and Power 10% Microturbines 10% Geothermal 10% 2020 2020 2020 www.s .seia.o .org rg

ITC IT C Pha Phase se down down for for Solar Solar Pr Property operty • The ITC percentage for solar phases down over time • Based on when construction began on a project If construction begins The resulting energy and before… after… percentage is: 12/31/2015 1/1/2020 30%* 12/31/2019 1/1/2021 26%* 12/31/2020 1/1/2022 22%* 12/31/2021 TBD 10% * In order to be eligible for the energy percentage referenced above, projects must be placed in service by 12/31/2023, otherwise, the credit percentage available to the project becomes 10% 2020 2020 2020 www.s .seia.o .org rg

When is the When is the ITC ITC Ea Earn rned? ed? • The ITC is generated 100% on the project’s placed in service date • Vests 20% per year • When is a project considered placed in service? • Condition or state of readiness and availability for its specifically assigned function; • All necessary permits and licenses received (PTO); • Synchronization into power grid; and • Completion of critical tests 2020 2020 2020 www.s .seia.o .org rg

When is the When is the ITC ITC Ea Earn rned? ed? • The ITC is generated 100% on the project’s placed in service date • Vests 20% per year • When is a project considered placed in service? • Condition or state of readiness and availability for its specifically assigned function; • All necessary permits and licenses received (PTO); • Synchronization into power grid; and • Completion of critical tests 2020 2020 2020 www.s .seia.o .org rg

ITC-El IT Eligi igible ble Property Property • In order to be eligible for the ITC , the energy property must: • Be depreciable or amortizable; • Have an estimated life in excess of 3 years; and • Be tangible personal property or other property if such property is used as an integral part in the production of electricity 2020 2020 2020 www.s .seia.o .org rg

Solar Pr Solar Property operty El Elig igibl ible e for for the the IT ITC • Solar energy property generally includes: • Collectors • Racking • Inverters • Wiring • Labor • Certain soft costs • Developer fee • Consulting costs • Engineering 2020 2020 2020 www.s .seia.o .org rg

Claimin Cla iming g the the IT ITC Must be an owner of the property for tax to purposes receive an allocation of the credits • For ITC transactions, you must be an owner on the placed-in service date • Special rule for sale leaseback structures • Pass-through election • Allocated to members based on general profits allocation 2020 2020 2020 www.s .seia.o .org rg

Recapture Recaptu re of of the the IT ITC ITC has a 5-year recapture period. Recapture occurs if.. • The property ceases to qualify as energy property, or • There is a disposition of the property or an interest in the property during the recapture period 5-year recapture period 80% 60% 40% 20% PIS date 2020 2020 2020 www.s .seia.o .org rg

Other Subsidies Other Subsidies Av Avai aila lable ble Many states and local governments have additional subsidies available to solar projects: • Accelerated depreciation (MACRS) • Bonus depreciation • State tax credits • State rebates • SREC programs • Property tax exclusions 2020 2020 2020 www.s .seia.o .org rg

Depreciation Deprecia tion Most ITC-eligible property will be 5-year MACRS property • Depreciated over a 5-year period • 100% bonus depreciation currently available Basis reduction equal to 50% of ITC taken 2020 2020 2020 www.s .seia.o .org rg

Th The e Ne Need ed for for Ta Tax x Equ Equity ity Large tax liability Access to capital Passive activity rules (Section 469): • Apply to individuals and closely held corporations • Limit taxpayers’ ability to use the depreciation and credits in an efficient manner At-risk rules (Section 465): • Apply to individuals and closely held corporations • Limit taxpayers’ ability to use the depreciation and credits in an efficient manner 2020 2020 2020 www.s .seia.o .org rg

What Wha t Does Does Ta Tax x Equ Equity ity Receive Receive Cash • Preferred Return • Residual Allocations • Put/Call Price Tax Credits • Up to a 99% allocation Losses (depreciation) 2020 2020 2020 www.s .seia.o .org rg

What Wha t Does Does Ta Tax x Equ Equity ity Pr Provide ovide • Tax Credit Investor Equity • Capital contribution sized based on present Tax Credit value of future expected benefits, discounted Investor Equity back at hurdle rate • May be reflected as a price per credit allocated • Portion of equity contributed at close and during construction. Majority at substantial Debt completion or placed-in service date • Preferred return typically required in order to receive “cash on cash” return / economic return Sponsor Equity More on Tax Equity After The Break 2020 2020 2020 www.s .seia.o .org rg

Sessio Ses sion n 2: F 2: Financing inancing Struct Structur ures es Part Part 1 1 – Partnership Partner ship Flip Flip and and Sa Sale le Le Leas asebac ebacks ks Shariff Barakat Nat Eng, CPA Partner Partner Nixon Peabody LLP Novogradac 2020 2020 2020 www.s .seia.o .org rg

2020 2020 ww www. w.seia ia.org rg Financing Structures Financing Structures Part Pa rt 1: Pa 1: Partnership rtnership Flips & Sa Flips & Sale le Leasebacks Leaseb acks Matt Lockhart, CPA Stephen B. Tracy, CPA Shariff Barakat Principal Partner Partner Novogradac & Company Novogradac & Company Nixon Peabody LLP LLP LLP 202.585.8369 212.801.7450 212.801.7440 2020 2020 www.s .seia.o .org rg