Why Solar? Escalating energy costs Uncontrollable costs Unpredictable costs Caps on rental income
Sizing and Selecting Solar 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 Solar 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% LIHTC4% LIHTC Solar Panel Cost$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% Credits Non-DDA/QCTDDA/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 Reduction to LIHTC Basis (50% of Solar Credits) 50% (150,000) Remaining Basis for LIHTC 85% 850,000 If DDA/QCT Basis Boost, then boost by 30% 130% 850,0001,105,000 Times LIHTC Credit Rate (times 10 years) 8.10% 688,500895,050 Equity Raised from LIHTC (assume.91/credit) * $0.91 626,500814,495 Equity Raised from Solar Credits* $ 0.95 285,000 Total Equity Raise due to adding Solar 911,5001,099,495 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% LIHTC Non-DDA/QCTDDA/QCT Cost of Solar Installation $1,000,000 Reduced Solar Credit Basis (assume 50% TE Bonds) 50%500,000 Solar Tax Credits (30% x 500,000) 30%150,000 Reduction to LIHTC Basis (50% of Solar Credits) 50%(75,000) Remaining Basis for LIHTCs 92.5%925,000 If DDA/QCT Basis Boost, then boost by 30% 130%925,0001,202,500 Times LIHTC Credit x 10 yrs 3.50%323,750420,875 Equity Raised from LIHTCs Credit (assume.91/credit) * $0.91294,612382,996 Equity Raised from Solar Credits (assume.95/credit)* $ 0.95142,500 Total Equity Raise due to adding Solar 437,112525,495 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 devt 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@example.com Thank you!