Presenting a live 90-minute webinar with interactive Q&A Solar Leases: Legal Considerations for Property Owners Analyzing Lease Sites and Deal Structures and Addressing Key Document Provisions WEDNESDAY, SEPTEMBER 12, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Stephen A. Kisker, Member and Chair of the Renewable Energy and Sustainability Group, Wolff & Samson , West Orange, N.J. Clay A. Butler, Partner, The Butler Firm , Austin, Texas The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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STRUCTURING SOLAR ENERGY PROJECTS Presented by Stephen A. Kisker www.wolffsamson.com 5
Benefits of Solar Energy System Electric Savings – Fixed cost (with or without escalator) or percentage savings below retail A. Highest Rates – Hawaii, Alaska, Connecticut, New York, Massachusetts, New Jersey, New Hampshire, California B. Lowest Rates – Idaho, Kentucky, West Virginia, Washington, Nebraska www.wolffsamson.com 6
Benefits of Solar Energy System (cont.) Tax Benefits A. ITC equal to 30% of Qualified Project Costs i. roll back one year (amended return) and carry forward up to 20 years. ii. generally passive income. iii 15% basis bonus – 85% of project costs left to depreciate after ITC. B. Accelerated Depreciation – 5 years MACRS for entire project. C. Bonus Depreciation – 50% of entire project in first year if project is placed in service in 2012. D. Various State Based Incentives: i. Sales tax exemptions (NJ, MA, MD) ii. Property tax exemptions (NJ, CA, NY, MA) iii. State income tax credits (NC, MD) www.wolffsamson.com 7
Benefits of Solar Energy System (cont.) SRECs – Current pricing (per mWh) i. New Jersey ($90) ii. Massachusetts ($210) iii. Delaware ($45) iv. Maryland ($195) v. Ohio ($140) vi. Pennsylvania ($20) vii. Washington DC ($295) viii. Connecticut -- auctions currently occurring Coming soon …. i. Puerto Rico (1/1/15) ii. New York (??????) Other states have REC programs not tied specifically to solar energy. www.wolffsamson.com 8
Benefits of Solar Energy System (cont.) Rebates - State (frequently utility and area specific) (see dsireusa.org) Grants - State (frequently utility and areas specific) (see dsireusa.org) Societal / Marketing Benefits – “Being Green” www.wolffsamson.com 9
Project Structures Outright Purchase – First Party Ownership A. Requires significant capital outlay. Electric generated by system “free” after initial capital outlay. B. C. Owner benefits from tax benefits, SREC revenue, grants and rebates. www.wolffsamson.com 10
Project Structures (cont.) Power Purchase Agreement – Third Party Ownership of System A. No capital outlay. B. Tax benefits, SREC revenue, grants and rebates belong to system owner. C. Purchaser must purchase electricity generated by the system, whether or not it uses the electricity. D. Electricity is purchased at a reduced price for a period of 15 – 20 years (or longer). Price can be fixed (with or without escalator) or variable (based on index or “going rate”). The financial benefits are passed through to the purchaser through the reduced price of electricity. www.wolffsamson.com 11
Project Structures (cont.) Capital Lease A. No up front capital outlay. B. Monthly rental payments required. Only interest portion of monthly payment can be expensed. C. Tax benefits, SREC revenue, grants and rebates can be passed through to the “lessee”. D. Electric is “free” after lease payments. www.wolffsamson.com 12
Ways to Structure a Solar Project Landlord purchases system and sells electricity to tenants: A. Tax benefits, SREC revenue, electric sale revenue, grants and rebates go to landlord. B. Tenant gets reduced electricity rate. C. Usually requires a lease modification requiring landlord to supply electricity and addressing with roof access and maintenance issues. D. Both parties can advertise they are using “green” energy. E. Large up front capital outlay by landlord. F. No capital outlay by tenant. G. May require change in building electric distribution. www.wolffsamson.com 13
Ways to Structure a Solar Project (cont.) Tenant purchases system for its own use: A. Requires a roof lease wherein landlord will receive roof rent. Negotiation will include responsibility for roof maintenance and roof access going forward. B. Tax benefits, SREC revenue, grants and rebates go to tenant. C. Tenant gets “free” electricity after initial capital outlay. D. Tenant can advertise “green” benefits – landlord’s connection to “green” benefits are very limited. E. Large up front capital outlay by tenant. F. Not practical for small, in-line tenants. www.wolffsamson.com 14
Ways to Structure a Solar Project (cont.) Tenant executes Power Purchase Agreement: A. Requires a roof lease wherein landlord will receive roof rent. Negotiation will include responsibility for roof maintenance going forward. B. Tax benefits, SREC revenue, electric revenue and rebates go to third party system owner. C. Tenant obtains reduced rate electricity with no capital outlay. Tenant can advertise “green” benefits – landlord’s connection D. to “green” benefits are very limited. www.wolffsamson.com 15
Ways to Structure a Solar Project (cont.) Landlord executes Power Purchase Agreement: A. Tax benefits, SREC revenue, electric revenue, grants and rebates go to third party system owner. B. Requires a roof lease with third party system owner in which landlord may or may not collect meaningful revenue. C. Landlord obligated to purchase electricity from system. D. Landlord passes electricity to tenant either at cost or at a profit Landlord and tenant can advertise “green” benefits . E. www.wolffsamson.com 16
Practical Considerations in Structuring a Solar Deal A. Who maintains the roof? i. Roof warranty. ii. Roof leaks. iii. Rooftop equipment. iv. Roof repairs and resurfacing that require removal of system. v. Casualty. B. Where to put array? i. Roof. ii. Vacant land. iii. Parking lot and walkway canopies. iv. Parking garages. v. Storm water basins. C. Building Electrical System i. Does each tenant have its own meter? ii. How difficult to modify system for single service with submeters? www.wolffsamson.com 17
What’s in it for me? A. Landlord i. Revenue and tax benefits. ii. Being “green” . iii. Ability to reduce tenant occupancy costs which can result in higher rents, a competitive advantage in leasing, or both. iv. Many tenants require spaces directly leased by them, or in some instances leased by their suppliers, to be “green” . B. Tenant i. Revenue and tax benefits. ii. Being “green” . iii. Many customers require or strongly encourage their suppliers to be “green” . iv. Competitive advantage in contracting. v. Reduce operating costs. vi. Fixed or predictable operating costs. www.wolffsamson.com 18
For more information, please contact: Stephen A. Kisker Chair, Renewable Energy and Sustainability Group Wolff & Samson PC One Boland Drive West Orange, New Jersey 07052 Tel: 973-530-2074 Fax: 973-530-2274 E-mail: skisker@wolffsamson.com www.wolffsamson.com 19
T HE B UTLER F IRM Utility-Sponsored leasing Provisions September 2012 Clay A. Butler info@thebutlerfirm.com 512-992-0794 This presentation, furnished on a confidential basis to the recipient. It is intended exclusively for the use of the client to whom it has been delivered by The Butler Firm and it is not to be reproduced or redistributed to any other person without the prior consent of The Butler Firm.
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