© 2013 Barnes & Thornburg LLP. All Rights Reserved. This page, and all information on it, is the property of Barnes & Thornburg LLP which may not be reproduced,

© 2013 Barnes & Thornburg LLP. All Rights Reserved. This page, and all information on it, is the property of Barnes & Thornburg LLP which may not be reproduced, disseminated or disclosed without the express written consent of the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

SOUTHERN SOLAR SUMMIT

COMMON CHALLENGES WITH FUNDING SOLAR PROJECTS

SEPTEMBER 19, 2013

William P. EwingPartnerBarnes & Thornburg LLP3343 Peachtree Road, N.E., Suite 1150Atlanta, Georgia 30326-1428Direct: 404-264-4050Cell: 404-502-4402Fax: [email protected]

Stephen ElkindSenior Director, DevelopmentOCI Solar Power, LLCFive Concourse Parkway, Suite 2500Atlanta, Georgia 30328Direct: 770-375-2424Cell: 310-738-8677Fax: [email protected]

Atlanta Chicago Delaware Indiana Los Angeles Michigan Minneapolis Ohio Washington, D.C.

mailto:[email protected]

http://www.btlaw.com/

mailto:[email protected]

http://www.btlaw.com/


INTRODUCTION

Alignment of all construction, financing, tax planning and contracts takes time and coordination – with many pitfalls

Solar project finance depends heavily upon federal and state tax incentives (generally > 60% of lifetime project cost)

Federal investment tax credit

Accelerated depreciation deductions

State tax credits and other incentives (e.g., Georgia Clean Energy State Tax Credit)

Common funding vehicles

Partnership Flip

Sale/Leaseback


Developer`

EPCTax Equity Financing

Debt Financing

Public Finance

Land Owner

Mineral Rights Owner

State Permitting

Federal Permitting

County Permitting

Legislative Policy

Property Tax Assessment

Insurance Carriers

Equipment Suppliers

Utility / Grid Operators

SOLAR ECOSYSTEM


Objective:

Developer wants long term ownership


Objective:

Developer wants to maximize upfront cash


Common Pitfalls/Challenges

Topic Description

Bank Support • Project bankability (panels, inverters, etc.)• Solar resource (reliability of weather tools)• Amount of electricity that can be expected (P50, P75, P90)• Equipment warranties, guarantees

Reliability of Cash Flows

• Off-taker creditworthiness• PPA terms (assignment, default terms)• Debt service coverage ratios range (1.2x-1.4x)

Tax Requirements • 30% ITC for qualifying solar property through 2016• 1603 safe harbor requirements• Placed-in-service deadlines (50% bonus depreciation)

Site Issues • Land/roof rights and lease terms• Easements, surveys• Environmental review (USACOE, USFWS, etc)• Permitting timeline• Interconnection variability


Common Pitfalls/Challenges

Topic Description

Other Commercial Contractual Issues

• EPC contract terms (exclusions, change orders)• O&M operator (scope of services)• Equipment guarantees (the who’s and when’s)

Transaction Costs • Financing > risk mitigation > complexity > cost• Transaction costs can kill a project’s profitability

Timing of Financing • Financing comes only after risks mitigated• Duration to obtain lender/tax equity investor commitment• Corporate/personal guarantees can expedite

Finding Right Financing Party That Can Use Tax Benefits

• Banks and insurance companies – low risk, low return• Small projects have relatively high transaction costs

• Private Equity – higher risk, higher return• Typical hurdle = 7 to 9% unlevered

• Passive loss limitations for individual investors• Minimum investment hurdles for larger financing parties


Conclusion

Awareness of all parties involved, all requirements for moving forward and all timing constraints will help avoid project pitfalls

Documents

© 2013 Barnes & Thornburg LLP. All Rights Reserved. This page, and all information on it, is the property of Barnes & Thornburg LLP which may not be reproduced,