New Energy Beyond Its Tax Credits

Tax Equity Financing For Utilities: Another Helping Of Renewable Energy, But Hold The Tax Credits

Brian H. Potts and Andrew C. Hanson, July 18, 2018 (Forbes)

“…[The recently enacted Tax Cuts and Jobs Act has threatened to turn the clean energy boom into a fizzle because lower corporate taxes have reduced utilities' appetite for the renewables’] tax credits…[But tax equity financing could, which could overcome that threat, is on the rise.] Tax equity deals for renewable energy projects are common among private energy developers looking to stretch their capital and financial institutions eager for credits to reduce their tax liability…Under this structure, a developer and tax investor form a holding company that owns the project's assets…The financial institution contributes capital and, in exchange, receives the tax benefits (PTCs and depreciation) and cash distributions…When the tax equity partner has recovered its investment and captured the tax credits, the ownership structure flips…

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…[When the developer, which could be a utility, becomes the majority owner, it can buy out the tax equity investor's remaining fractional stake…[and own the project] for a fraction of the installed cost in exchange for handing over the tax credits and cash distributions to the investor…[It is unclear whether or how tax laws] may apply to regulated utility tax equity deals…[But the Empire District Electric Company (Empire) settlement with the Missouri Public Service Commission and the Missouri Division of Energy left largely intact the utility’s plan to use tax equity to finance up to 800 MW of wind generation…[In accordance with some basic tax equity deal parameters, it] would save customers $295 million over thirty years…[but it left final approval of the tax equity deal] subject to future proceedings…” click here for more

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