Financing Renewable Energy

Transcription

1 Understanding the Critical Role of Tax Incentives in the Alternative Energy Market Place Elias Hinckley Tom Stevens Deloitte Tax LLP

2 Financing Renewable Energy Developer Infrastructure Project debt Interest and principal State tax incentives $/mwh PPA mwh Tax investor (federal tax) $ Local/muni incentives Non-tax gov t subsidy Utility Carbon offset buyer REC buyer Market power sales

3 Tax Credits Qualified Resources/Facilities Credit amount for 2008 Credit period Placed in Service Dates Solar 30% or 10% Investment based on or before 12/31/08 (30%); after 12/31/2008 (10%) Fuel Cell 30% Investment based on or before 12/31/08 Stationary Microturbine 10% Investment based on or before 12/31/08 Geothermal 10% Investment based Geothermal Wind Closed-loop biomass 2.1 cents per kwh* 2.1 cents per kwh* 2.1 cents per kwh* 5 or 10 years 10/22/04 12/31/08 10 years 1/1/94 12/31/08 10 years 1/1/93 12/31/08 * Adjusts for inflation

4 Tax Credits Qualified Resources/Facilities Credit amount for TY 2008 Credit period Placed in Service Dates Open-loop biomass Small irrigation power Municipal solid waste Hydropower 1.0 cents per kwh* 1.0 cents per kwh* 1.0 cents per kwh* 1.0 cents per kwh* 5 or 10 years 1/1/00 10/21/04 10/22/04 12/31/08 5 or 10 years 10/22/04 12/31/08 5 or 10 years 10/22/04 12/31/08 10 years 8/08/05 12/31/08 Refined coal $6.061 per ton* 5 or 10 years 10/22/04 12/31/08 Indian Coal $1.589 per ton* 7 years 1/1/06 12/31/12 * Adjusts for inflation

5 Production Tax Credit What is the PTC? PTC equals 1.5 cents (indexed for inflation) multiplied by the kilowatt hours of electricity produced by the taxpayer in the U.S. from qualified energy resources, and at a qualified facility during the 10-year period beginning on the date the facility was originally placed in service, and sold by the taxpayer to an unrelated person during the taxable year

6 Production Tax Credit Qualified energy resources Wind Closed-loop biomass Open-loop biomass Geothermal energy Small irrigation power Municipal solid waste Qualified hydropower production

7 Production Tax Credit Sale to unrelated person Section 45(e)(4) Notice Owner & producer In order to claim the tax benefits from a qualified facility, investors must be the owner of the assets and the producer of the electricity Lessees or operators (open-loop biomass only)

8 Production Tax Credit Grants, tax-exempt bonds, subsidized energy financing or other credits Potential haircut State and local tax credits Rev. Rul Alternative Minimum Tax Specified PTCs Placed in service after October 22, 2004 Only available first 4 years 1 Consider the impact of 38(c)(1)(B) when modeling PTC utilization

9 Energy Credit Investment credit on basis of energy property 30% Qualified fuel cell property Solar property for periods ending before January 1, % for other energy property (geothermal etc.) Energy property excludes public utility property Basis must be reduced by subsidized financing or by tax-exempt private activity bonds Sale-leaseback can be used to monetize credits

10 Other Incentives Accelerated tax recovery State (and local) based incentives Income tax credits and incentives Grant and rebate programs Loan programs Property tax relief Negotiated Incentives Advanced Coal Credits Gasification Project Credits Clean Renewable Energy Bonds

11 Partnership Flip Developer Tax Equity Investor Cash distributions Period 1: 100% Period 2: 0% Period 3: 95% Gross income (loss) Period 1: 1% Period 2: 1% Period 3: 95% Project Entity Rev. Proc Example 1 Cash distributions Period 1: 0% Period 2: 100% Period 3: 5% Gross income (loss) Period 1: 99% Period 2: 99% Period 3: 5%

12 Flip Structure Safe Harbors Rev. Proc Safe harbor requirements Minimum interest: Developer 1%; investor 5% Investor s 20% minimum investment Loss protection not allowed No developer loans/guarantees No more than 25% contingent contribution Purchase right must be at FMV when exercised No purchase right during the first 5 years No Section 45 credit allocation guarantees Only wind

13 What s Next? Federal legislation Credit extensions Federal RPS Carbon cap and trade State programs Incentives RPS Feed-in-tariffs

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