SAN FRANCISCO — “Renewable energy subsidies will be able to survive tax reform,” said Mike Novogradac founder of the boutique tax credit accounting firm during the opening session of the sixth annual Novogradac Financing Renewable Energy Conference in San Francisco April 24th and 25th.
Novogradac was commenting on the uncertainty surrounding the future of the Production Tax Credit (PTC) for wind that will expire at the end of 2013 in the context of corporate tax reform and the planned reduction of tax expenditures.
“Corporate tax reform will most likely be introduced in 2014 at the earliest,” said Keith Martin, partner at Chadbourne & Parke and lobbyist to Congress and Treasury. He went on to say, “Wind industry lobbyists are optimistic they will get another extension.”
Financing Structures Continue to Evolve, Corporate Investors Get in the Game
Faced with a shortage of tax equity in the post-1603 landscape, the solar energy industry been forced to evolve in a Darwinian effort for survival in what is still a nascent industry. “Lack of new investors is a limiting factor,” said Albert Luu, VP of Structured Finance at Solar City.
The viability of emerging financial solutions for solar and other renewables was a hot topic among panelists. REITs, MLPs and securitization were among the new structures discussed. Determination on a Private Letter Ruling (PLR) to the IRS on solar energy for REITs as an eligible asset class is pending. U.S. Senator Chris Coons of Delaware has introduced legislation that would expand eligibility of MLP financing beyond fossil fuels to renewables by revising the tax code. Martin thought the proposal, “faced long odds” and questioned “how many additional industries Congress will allow to operate without paying corporate income tax.”
But new financing structures for solar and other renewables won’t happen overnight.
NREL has established a working group, Solar Access to Public Capital (SAPC), to advance solar securitization and attract new investors. But, “because rating agencies need five years of historical project data, securitization may be delayed until 2014 or beyond,” commented Jonathan Baker of Deutsche Bank. And panelists agreed that the favorable tax treatment of MLPs and REITs may conflict with recapture rules under existing tax structures, like the ITC in revising the tax code.
Corporate investors are also slowly increasing their appetite for tax equity on solar deals to supplement traditional TE thanks to efforts by Solar City and Sol Systems. Albert Luu and Sol Systems founder Yuri Horwitz, both panelists at the conference, agree that “lack of new investors is a limiting factor” and that the going is slow, requiring “eight to twelve months to shepherd new investors through the process and educate them on tax structures and the new solar asset class.”
Sometimes though, the hard work pays off. Solar City closed a $65 million tax equity fund with Honda earlier this year.
Lead image: Dawn via Shutterstock