Upload
diego-russell
View
216
Download
0
Tags:
Embed Size (px)
Citation preview
SOLAR TAX CREDITS
Green Homes and Sustainable CommunitiesAugust 7 and 8, 2008
Jeffrey S. LeskNixon Peabody LLP
Affordable Housing New Markets
Historic Renewable Energy
Tax Credits
Affordable Housing New Markets
Historic Renewable Energy
Tax Credits
Why Solar?
• Escalating energy costs
• Uncontrollable costs
• Unpredictable costs
• Caps on rental income
Sizing and SelectingSolar Array
• Consult with Engineer• Building Footprint/Configuration• Electrical Demand Load• Who pays utilities?• Cost (consider tax credits, rebates, net
metering)• Amount of available LIHTCs
Designing for Sola r
• Building Footprint/Configuration
• Lot Size
• Land Use Restrictions
• Battery Back-up/Inversion Equipment (design and location)
• Integrated Design
• Only part of the energy reduction puzzle
How the Solar Credit Works
SOLAR ENERGY INVESTMENT TAX CREDITS (Section 48 of IRC)
– INVESTMENT: 30% of cost of facility
– All in year placed in service
– Investment in qualifying equipment
– TCs to owner of equipment
– Recapture potential: 5 years (20% vesting/year)
– Reduced by grants, tax exempt bonds, subsidized energy financing
– Reduces depreciable basis by 50% of the credit (depreciate 85% of equipment)
– Depreciate over 5 years
– Placed in service by 1/1/09
– Cost Certification by third-party accountant
– Submission to IRS on Forms 3468 and 3800 (General Business Credits)
Structures• DEVELOPER/OWNER OWNS
– Owner gets “free” energy
– Owner qualifies for tax credits/depreciation
– Owner syndicates
– Owner maintains/repairs (and gets warranties)
• SOLAR COMPANY OWNS
– Owner purchases “cheap” energy + hedge
– Solar Company qualifies for tax credits
– Solar company syndicates
– Power purchase agt./possible buy-out
COMBINING PTCs and LIHTCs - OWNERSHIP MODEL
9% LIHTC 4% LIHTC
Solar Panel Cost $1,000,000 $1,000,000
Solar Credit (30%)
$300,000 $150,000 (assumes 50% tax-exempt debt)
Housing Credit Basis (reduce by ½ solar credit)
$850,000 $925,000
Times Credit Percentage
8.10% x 10 = 81%
3.50% x 10 = 35%
Housing Credit $688,500 $323,750
Total Credits $988,500 $473,750
Combination of Solar Credits & LIHTC 9% CreditsNon-DDA/QCT DDA/QCT
Cost of Solar Installation $ I,000,000 $ 1,000,000(Reduced per TE Bond %) 0% - -
Solar Tax Credits (30% x $1,000,000)
30% 300,000 300,000
Reduction to LIHTC Basis
(50% of Solar Credits)50% (150,000) (150,000)
Remaining Basis for LIHTC 85% 850,000 850,000
If DDA/QCT Basis Boost, then boost by 30%
130% 850,000 1,105,000
Times LIHTC Credit Rate (times 10 years)
8.10% 688,500 895,050
Equity Raised from LIHTC (assume .91/credit) *
$ 0.91 626,500 814,495
Equity Raised from Solar Credits*
$ 0.95 285,000 285,000
Total Equity Raise due to adding Solar
911,500 1,099,495
Net Cash (Cost) Benefit of Solar Install**
(88,500) 99,495
*Prices subject to project specifics & negotiation
**Not including any State Rebates, utility incentives, or energy savings; no developer fee taken on solar
Solar Added to a “4%” LIHTCNon-DDA/QCT DDA/QCT
Cost of Solar Installation $ 1,000,000 $ 1,000,000
Reduced Solar Credit Basis (assume 50% TE Bonds)
50% 500,000 500,000
Solar Tax Credits (30% x 500,000)
30% 150,000 150,000
Reduction to LIHTC Basis (50% of Solar Credits)
50% (75,000) (75,000)
Remaining Basis for LIHTCs 92.5% 925,000 925,000If DDA/QCT Basis Boost, then boost by 30%
130% 925,000 1,202,500
Times LIHTC Credit x 10 yrs 3.50% 323,750 420,875
Equity Raised from LIHTCs Credit (assume .91/credit) *
$ 0.91 294,612 382,996
Equity Raised from Solar Credits (assume .95/credit)*
$ 0.95 142,500 142,500
Total Equity Raise due to adding Solar
437,112 525,495
Net Cash (Cost) Benefit of Solar Install**
(562,888) (474,504)
*Prices subject to project specifics & negotiation
**Not including any State Rebates, utility incentives, or energy savings; assumes no dev’t fee on solar
Issues with Combining
• Viewed as double dipping?• Per-unit cost and subsidy caps in QAPs• QAPs encourage --- but how much is too much?• Is it commercial property (excluded from basis) –sale
of energy, RECs?• Includable in development cost from which
Development Fee is based?• Utility allowance issue• Coordination with other project documents• Is there a market for the credits?
Investor Reaction
• First year boost• 5-year ACRS (not all value)• Utility savings• More predictable energy costs• Low recapture potential• Qualified selection, installation, maintenance• Adequate Insurance• Carriage turns back into a pumpkin – 12/31/08• Green is good
• Jeffrey S. Lesk• [email protected]
Thank you!