SOLAR INVESTORS

PUBLIC WELFARE INVESTMENT IN SOLAR ENERGY FACILITIES

What Is the Renewable Energy Investment Tax Credit Program?

The federal energy investment tax credit (ITC) program, authorized under 26 USC 48 (section 48), encourages the use of renewable energy, including solar energy.1 The energy ITC program reduces federal income taxes by offering a 30 percent tax credit to owners or long-term lessees for an energy property that meets established performance and quality standards.

The amount of the ITC is calculated based on the total cost of a solar energy property, including both equipment and labor but generally does not include the building or structural components on which the equipment is placed. Solar components eligible for the energy ITC would include equipment, such as solar panels, mounts, wiring, and installation

The Energy Improvement and Extension Act of 2008 extended the authorization for the energy ITC for solar property.2 A tax credit investor may use the energy ITC if a solar energy property is placed in service before January 1, 2017.3

The full value of the energy ITC is earned immediately when a solar energy property is placed in service. For a five-year compliance period, however, the tax credit is subject to recapture if either (1) the property ceases to be a qualified energy facility, or (2) a change in ownership interest occurs.

During the first year after the facility has been placed in service, the recapture rate is 100 percent. The rate declines by 20 percent each year thereafter until the end of the fifth year. The compliance period expires at the end of the fifth year after the facility has been placed in service.

National banks (banks) and federal savings associations (FSAs) should consult their tax planners for advice about these tax provisions and the provisions’ applicability to specific transactions, as well as the consequences that may apply to their own transactions.

How Does the Energy ITC Work?

Energy ITCs are used to help lower the cost of owning or financing solar energy properties. Although there are different deal structures that developers and investors use, the most commonly used involve a lease structure. Typically, an owner/developer and the bank or FSA tax credit investor establish an entity, ordinarily a limited partnership (LP) or limited liability company (LLC).

The tax credit investor usually has a substantial, but passive, interest (e.g., 99.99 percent) in the LP/LLC and the owner/developer of the solar energy property has a de minimis (e.g., 0.01 percent) interest. This LP/LLC ownership structure permits the tax benefit from the energy ITC to pass through to the tax credit investor.

An equity infusion by the bank or FSA may be used to lower the total amount that is needed to finance construction of the solar energy facility and thus lower the overall financing cost for the project. A bank or FSA that is also financing the construction of a solar energy property, could also choose to lower the interest rate as a tradeoff for the anticipated benefit from the energy ITC.

Investments in the LP/LLC must be made before the solar energy property is placed in service. The LP/LLC entity earns a reduction in federal tax liability for 30 percent of the eligible construction and equipment costs. The value of the tax credit is earned when the energy property is ready and available for its intended use (i.e., placed in service). The tax credit can be carried back one year or carried forward 20 years.

Therefore, the tax credit investor’s ability to absorb the entire amount of the energy ITC should be thoroughly analyzed. To avoid tax credit recapture, the members/partners of the LP/LLC must retain ownership of the property for the fiveyear compliance period following the year an energy property is placed in service.

For tax years beginning after enactment of the Energy Improvement and Extension Act of 2008, the energy ITC can be used to offset both regular and alternative minimum tax.

A bank or FSA, as a member of an LP or LLC, also may receive additional returns from the pass through of depreciation and cash flows generated by these investments, depending on how the LP/LLC is structured.

Another tax consideration for investments in solar energy equipment is the benefit from the modified accelerated cost recovery system, which provides accelerated depreciation over a five-year period, using the straight-line 20 percent double declining balance depreciation treatment.4

A solar energy ITC transaction can be structured in combination with other federal tax credit programs and state or local incentive programs, such as low-income housing tax credits (Internal Revenue Code (IRC) section 42), new markets tax credits (IRC section 45D), or state or local renewable energy incentives, although this is highly complex and requires careful tax planning. To Read More

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BRIEF EXAMPLES OF INVESTMENT OPPORTUNITIES

IN SOME STATES OF U.S.A

Mid-Size CFO: Monetize Your Tax Bill

Companies paying over $200,000 in income tax can turn their tax bill into a profitable short-term investment by becoming a “Tax Equity Investor” in a solar project. Large companies, like Google, have long been able to make tax credit investments. Meanwhile, mid-size companies were kept out because the deal exceeded their tax appetite. Now, that has changed thanks to the proliferation of firms like Greenzu developing tax-advantaged solar projects which demand corporate Tax Equity Investors of all sizes. The trick is figuring out if your company is an eligible investor, and if so, which solar projects are good investments. Below are a few important guidelines.

A. Corporate Tax Equity Investing In A Nutshell

A race is afoot to install solar on as much flat commercial roof space as possible using a financing mechanism called a Power Purchase Agreement (PPA). In a PPA, developers like Greenzu install solar on a building’s rooftop at no cost to the building owner. The building owner, in turn, agrees to pay the developer for all the solar electricity generated over the next 20 years. In other words, the solar developer becomes a utility company. It owns the generating assets and gets repaid over time for the sale of energy. In addition, as the system owner, the solar developer is entitled to take all the tax incentives offered to people who go solar.

When you install a solar electricity system on a commercial rooftop, over 50% of the installation cost is repaid immediately through federal tax incentives. Unfortunately, many solar project developers lack the tax appetite to utilize those tax incentives. As a result, they form a joint venture with a company that has a large enough tax bill to use the tax credits.

The way the joint venture works is the corporate partner buys an ownership stake in the solar project for an amount equivalent to the after tax value of the tax incentives, hence the name Tax Equity Investor. In return the Tax Equity Investor receives essentially all the tax credits and deductions given to the solar system, plus a share of the project cash flows. The Tax Equity Investor can expect returns between 12% to 15% over 5 years, with a 100% return of capital in the first year via tax bill reductions. To Learn More Click Here

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Investors Looking for Solar Projects

Worldwide

If you are looking for a private joint stock company that specializes in Loan, Finance & Investment activities in real estate, hospitality, industrial and sustainable technologies, strategic financial investments, education, healthcare services, Agriculture, Manufacturing, Mining, Energy and additional environmentally sustainable projects email:

networks@brightsolarsystems.com and place on the Subject title: Solar Investor Needed plus the reference # number below.

Solar Investor Reference # 8252015

Do you have projects that require funding in any of the areas above? We have finance available for your projects with over 2 trillion private and corporate investment portfolios.

We are looking for equity partners, Entrepreneur, Fund Raisers and Portfolio Managers who will pay up to 3.5% interest and/OR part equity position with a 5 to 10 year hold. In 2030, we plan on acquiring up to 2 Trillion in high-quality, low risk assets and investments to capitalize on the current market cycle.

Acting as a lender the fund will be disbursed on a clear interest rate of 3.5% annually to the Equity Partners and Entrepreneurs for their Investment Projects.

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