Presenting a live 90-minute webinar with interactive Q&A Structuring Solar Development Financing, Leasing and Operating Agreements for Commercial Properties Reducing Legal Risk and Maximizing Client Income Opportunities Through Strategic Use of Financing, Tax Incentives and Documentation THURS DAY, S EPTEMBER 18, 2014 1pm East ern | 12pm Cent ral | 11am Mount ain | 10am Pacific Today’s faculty features: Bruce A. Bedwell, Partner, Chapman & Cutler , Chicago Robert N. Freedman, Partner, Shearman & Sterling , New Y ork Melanie J. Gnazzo, Partner, Chapman & Cutler , S an Francisco 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 .
Tips for Optimal Quality FOR LIVE EVENT ONLY S ound Qualit y If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory, you may listen via the phone: dial 1-866-755-4350 and enter your PIN when prompted. Otherwise, please send us a chat or e-mail sound@ straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Qualit y To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.
Continuing Education Credits FOR LIVE EVENT ONLY For CLE purposes, please let us know how many people are listening at your location by completing each of the following steps: • In the chat box, type (1) your company name and (2) the number of attendees at your location • Click the S END button beside the box If you have purchased S trafford CLE processing services, you must confirm your participation by completing and submitting an Official Record of Attendance (CLE Form). Y ou may obtain your CLE form by going to the program page and selecting the appropriate form in the PROGRAM MATERIALS box at the top right corner. If you'd like to purchase CLE credit processing, it is available for a fee. For additional information about CLE credit processing, go to our website or call us at 1-800-926-7926 ext. 35.
Program Materials FOR LIVE EVENT ONLY If you have not printed the conference materials for this program, please complete the following steps: • Click on the ^ symbol next to “ Conference Materials” in the middle of the left - hand column on your screen. • Click on the tab labeled “ Handouts” that appears, and there you will see a PDF of the slides for today's program. • Double click on the PDF and a separate page will open. • Print the slides by clicking on the printer icon.
Solar Development Financing, Leasing and Operating Agreements September 18, 2014 5
Discussion Focus Review of tax incentives and benefits available for solar installations Financing structures and issues relevant to solar installations Project Contracts and related issues arising in connection with solar projects 6
Federal Tax Benefits Associated with Investments in Solar Energy Assets 7
Federal Tax Incentives Federal tax incentives for investments in solar energy generating equipment include: Investment Tax Credit Accelerated Depreciation (5 Year MACRS) Bonus Depreciation (expired at end of 2013) Grant in lieu of investment tax credit (also generally expired, except as to large scale projects in process) 8
Federal Tax Incentives (continued) Federal tax incentives are generally only available to the “tax owner” of the equipment Exception: ITC regulations authorize pass through election that transfers right to claim ITC (but not depreciation) to lessee if lessee would otherwise be eligible as owner Federal investment tax credits are not available if governmental or tax- exempt entities are “tax owners” or “lessees” Also, no accelerated depreciation for equipment owned or leased to such entities 9
Tax Ownership vs Lease vs Service Contract Various factors are relevant to determining “tax ownership” IRS has published guidelines (Rev. Proc. 2001-28) for distinguishing lease vs secured financing that are helpful in determining which party will be treated as owner/lessor vs lender/lessee Title does NOT control Factors considered generally focus on who has economic benefit of upside/who has economic burden of downside PPAs involving governmental or tax exempt energy purchasers (off- takers) generally must qualify as a service agreement and not as a lease or financing arrangement Tax Code (Section 7701) specifies factors for distinguishing a lease from an agreement to provide services Factors listed also focus on weighing who has economic benefits and burdens (similar to ownership tests) e.g. does service recipient or service provider control operations, bear risks of non-operation, reap benefits of cost savings, etc. 10
Investment Tax Credit Credit against federal income tax otherwise due based on eligible cost of qualifying assets x credit rate Credit rate varies from 10-30% depending on type of energy source, type of output (electricity vs heat) and date placed in service Solar = 30% for units placed in service by 12/31/16, drops to 10% thereafter Eligible project cost: includes only the cost of tangible personal property integral to the production or storage of solar energy Does not include costs for interconnection or distribution equipment or for most building or site improvements Cost can include development fees if reasonable and arm’s length If parties elect to pass ITC on to lessee, then credit is geared off fair market value of leasehold interest, not cost At least 80% of components must be new 11
Investment Tax Credit (continued) Payment: Credit is claimed on first tax return filed after project is PIS Recapture: A pro rata portion of the ITC is required to be repaid if project is sold, project is leased to persons not eligible to claim credit (e.g. governmental or non-profit entities) or project ceases to be in service or qualify as specified energy property any time during first 5 years after PIS 12
Grant in Lieu of Tax Credit Applied to solar energy projects that were otherwise eligible for ITC Grant was claimed in lieu of tax credits Could not claim grant if owner was a pass through entity with ineligible persons as partners or members Right to claim grant could be passed through to lessee (so long as lessee is eligible) Amount of Grant was also 30% of eligible project cost (costs computed same as for ITC) Paid in cash shortly after project is PIS Right to payment can be assigned to lenders 13
Grant in Lieu of Tax Credit (continued) Construction had to commence before 2012 and project must be placed in service by 12/31/16 Recapture: A pro rata portion of the grant is required to be repaid if project is sold to persons not eligible to claim credit (e.g. governmental or non-profit entities) or ceases to be in service or qualify as specified energy property any time during first 5 years after PIS No recapture if project is transferred to another eligible owner or leased on a true- lease basis to a tax-exempt or governmental entity 14
Depreciation/MACRS Eligible cost basis is reduced by half of any ITC (or grant) claimed So if ITC (or grant) is 30%, cost basis is reduced by 15% and remaining 85% is depreciated (deducted) using bonus depreciation up to max bonus rate MACRS (accelerated) depreciation allowed for remaining tax basis Recovery period is 5 years Rate of recovery is front-loaded rather than straight line 15
State Tax Benefits Associated with Investments in Solar Energy Assets 16
State Tax and Other Incentives There are also various state tax and other incentives that are applicable to the installation of new solar energy systems, including state tax credits, rebates and performance based incentives, as well as exemptions from sales taxes and property taxes for solar energy systems See, for example, the following sites for an overview of various state tax and environmental incentives: www.dsireusa.org/solar www.seia.org/policy 17
Overview of Common Financing Structures and Issues Relevant to Solar Installations 18
Equity Financed Structures 19
Basic Lease Structure Operator/ Managing Investor/ Non- Managing Member Member 95% 5% Owner LLC (Lessor ) Off-Taker (Lessee) Owner LLC must qualify as tax owner of project assets (site lease, solar energy generating equipment, licenses, etc) So long as Operator and Investor are private, for profit entities and other criteria for tax incentives are met, available tax benefits are allocated to each member If lessee is a governmental entity or non-profit, project cannot claim ITC and MACRS depreciation 20
Recommend
More recommend
