1. SOLAR TAX CREDITS Green Homes and Sustainable Communities August 7 and 8, 2008 Jeffrey S. Lesk Nixon Peabody LLP

2. Affordable HousingNew Markets HistoricRenewable Energy Tax Credits

3. Affordable HousingNew Markets HistoricRenewable Energy Tax Credits

13. Why Solar? Escalating energy costs Uncontrollable costs Unpredictable costs Caps on rental income

14. 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

15. 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

16. 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

17. –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

18. –Placed in service by 1/1/09 –Cost Certification by third-party accountant –Submission to IRS on Forms 3468 and 3800 (General Business Credits)

19. 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

20. 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

21. 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

22. 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

23. 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?

24. 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

25. Jeffrey S. Lesk jlesk@nixonpeabody.com Thank you!