Finance Flashcards
either tax or cash return portion of cost
Rebates
Interest allocated
based on capital investment
Sponsor developer
forms a Finance Company to maintain a partnership
If sponsor doesn’t use back leverage then
no finance company is formed
Tax equity (TE) and Finance Company forms
Project Company that owns the System
Project Company
holds PPA with customer
Project Company distributes
cash and incentive (tax equity) to finance company and also distributes project debt.
Who recieves all the benefits from the ITC
the system owner
What is third party ownership.
Customer who want renewable energy but without the maintenance or management of the system is called third party ownership. The customer pays to system owner ( lease or PPA )
Allocation of loss cover
satisfies all portion of the profit and loss agreement as well as profit/loss ratios to absorb and deficiency.
Third party owner issues for consideration are
Developer receives tax credit and can apply depreciation to its taxable income as well as tax desire can choose for finance company via project debt or monetize tax debt.
Developers without tax apatite
Preform partnerships without financial tax apatite require tax equity investments .
Tax equity
A structured finance investment to give the investor tax credit at depreciation.
Partnership flips
are majority solar and wind use. In partnership flips investors and developers who own systems will in turn have access to benefits cash flow.
Tax investors and system owners
use complex financial structures to maximize their returns
What do income statements show
revenue and expenses.
Net income=revenue + expenses
Operation, interests as well as taxes.
Key components of partnership flips are what
Separate allocation of income and cash. Separate allocation of income and cash. ⦁ Target IRR flip – the tax equity exits and the investor calls and buys payout prices. ⦁ Separate allocation of wealth.
Federal incentives for renewable energy are
Performance tax credit. ⦁ Investment tax credit. Acceleration deprecation. ⦁ Creates tax losses that shield developer over 3 years.
Allocations that can shift over time are
⦁ U.S. partnerships can allocate income and cash items virtually any way they want. ⦁ Limitations on allocation structure based economic tests sent out by IRS. ⦁ In partnership flips, cash allocations are different from income allocations.
⦁ Tax equity may receive 99% of income and ITC and 20% of general cash flow, for example, while the managing member receives the remainder of each. ⦁ In some cases cash and income from different sources (e.g. PPA, RECs, incentives, etc.) are allocated independently.
⦁ Allocations to each partner may also change over time such as
Income allocations may adjust to most efficiently monetize tax benefits.
⦁ Allocations of income must must be carefully planned to avoid recapture of the ITC
Five year recapture period as well as after recapture period, partners can more freely allocate income (discussed in detail later)
