What's New?
Keith Martin
[email protected]
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New York • Washington • Los Angeles • Mexico City • São Paulo • Moscow • Istanbul • Dubai • Johannesburg • London
Most renewable energy developers are well into
planning for how to start construction of
remaining projects by year end so that they
qualify for full tax credits. Wind companies have
been negotiating "PTC components" contracts
with turbine vendors to take delivery of enough
nacelles, tower segments and blades to amount
to at least 5% of the cost of future projects.
"incur"
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Soon the questions will start about doing limited
physical work by year end on the site or on
equipment like step-up transformers at the
factory. There must be a binding contract in
place for the work before it starts. Any
termination for convenience clause should
require a penalty of at least 5% of the remaining
contract price.
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Wind companies are looking at repowering
existing projects so that another 10 years of
production tax credits can be claimed on the
electricity output. The IRS made it easier to
qualify. The amount spent on repowering must
be at least four times the value of any used
equipment retained.
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An IRS notice is expected this fall on
construction-start issues for solar
companies. The Treasury let solar companies
stockpile panels and inverters to sprinkle later
over solar installations under the cash grant
program. It is not clear whether the IRS will allow
this for tax credits.
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A four-year lookback rule is causing pain for
developers who did something in an earlier year
on a project that could be construed as the start
of construction. Developers are having a hard
time selling or financing such projects. The
Treasury may provide relief, but the relief may
require developers to move quickly before year
end.
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Congress could extend a group of orphan tax
credits in December. Tax credits for fuel cells
and CHP projects, and possibly a phase out of tax
credits for geothermal, biomass, landfill gas and
incremental hydroelectric projects that start
construction after this year, remain in play.
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New York • Washington • Los Angeles • Mexico City • São Paulo • Moscow • Istanbul • Dubai • Johannesburg • London
Two key cases on tax basis issues are moving
through the US claims court and are being
watched closely by the industry. The Senate and
House tax committee chairmen wrote seven solar
companies last week asking four questions about
basis issues. There is some IRS audit activity.
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Roughly 28% of the 104,733 section 1603
payments made to date were for less than the
developers expected. More than 30 lawsuits have
been filed against the Treasury. The government
has won one and lost one so far. There is a sixyear statute of limitations. The government has
started filing counterclaims to discourage anyone
else from suing.
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Roughly 4,000 MWs of corporate PPAs are
expected to be signed in 2016. Corporate PPAs
shift basis risk to the sponsor, have shorter
tenors than utility PPAs and have more credit
risk. The offtakers want to buy from projects that
are nearing completion, but not already in
operation.
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Community choice aggregators are another
potential new offtaker for electricity. The 100-MW
Mustang solar project in California was able to
raise debt based on two CCA contracts by using
shadow credit ratings and cash sweeps if the
ratings metrics are not maintained.
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Community solar projects are moving closer to
acceptance in the financial community. The big
issues are the commercial-residential mix,
whether the projects must be fully subscribed at
closing, and what base-case revenue to assume
given that customers can disappear on short
notice.
securities?
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The IRS restated its rules this summer on when
interconnection payments by independent
generators must be reported by utilities as
income. Generators should be careful to transfer
the electricity to someone else before it reaches
the grid. Some generators may be entitled to
refunds of tax gross ups they paid in the past.
grid congestion
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The IRS is reevaluating when investment tax
credits can be claimed on batteries and other
forms of storage. Proposed regulations are
expected in 2017. Meanwhile, it put standalone
storage projects on the same footing as
generators when connecting to the utility grid.
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There is a wall of private money eager to buy
projects that are at the notice-to-proceed
stage. Discount rates have moved back into the
high single digits for pricing renewable energy
assets after the yield co collapse. Debt rates
remain low with 94 banks chasing deals. We
count more than 35 tax equity investors.
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Falling electricity prices mean there is less cash
in wind and solar tax equity deals. This is making
it harder to transfer tax benefits to tax equity
investors due to large deficit capital
accounts. The trend is for sponsors to keep as
much cash as possible to monetize through backlevered debt rather than at tax equity yields.
high DROs
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The decisions by the Obama administration on
September 9 and by a US appeals court on
September 16 to halt construction of sections of
the Dakota Access oil pipeline may make banks
less willing to finance projects before all the
appeals periods have run on permits.
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Percentage of US college graduates who think
that Judge Judy is a US Supreme Court justice:
nearly 10%
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From an obit in the Richmond Times-Dispatch:
"Faced with the choice of voting for Donald
Trump or Hillary Clinton, Mary Ann Nolan decided
to give herself to the everlasting love of the
Lord. When asked why she didn't just vote for
Bernie Sanders, she said, 'I don't think he stands
a chance in hell, but I am eager to find out.'"
New York • Washington • Los Angeles • Mexico City • São Paulo • Moscow • Istanbul • Dubai • Johannesburg • London
What's New?
Keith Martin
[email protected]
New York • Washington • Los Angeles • Mexico City • São Paulo • Moscow • Istanbul • Dubai • Johannesburg • London