Washington Report and Industry Update

MODERATOR PANELISTS

Michael Novogradac Novogradac & Company LLP

Keith Martin Chadbourne & Parke LLP

@Novogradac @ChadbourneKeith

MICHAEL NOVOGRADAC Novogradac & Company LLP

The Washington Report

What to expect the balance of 2016

Presidential Candidates and Renewable Energy

Possible Election Outcomes

Dec. 9 CR expires

SEP OCT NOV DEC FEB

Sep. 30 Fiscal year end

Nov. 8 Presidential election

JAN 2016 2017

Dec. 31 Various extenders expire, including ITC for certain technologies, 45L, 179D

MAR

Oct. 27 Today

‘Orphaned’ Renewable Energy Technologies

www.novoco.com/blog

‘Orphaned’ Renewable Energy Technologies

www.novoco.com/blog

‘Orphaned’ Renewable Energy Technologies

www.novoco.com/blog

‘Orphaned’ Renewable Energy Technologies

www.novoco.com/blog

Available at: www.novoco.com/blog www.twitter.com/novogradacCPAs

@NovogradacCPAs

Dec. 9 CR expires

SEP OCT NOV DEC FEB

Sep. 30 Fiscal year end

Nov. 8 Presidential election

JAN

Jan. 20 Presidential inauguration

2016 2017

20 days left in session for 2016

Senate in Session

16 days left in session for 2016

House in Session

Dec. 31 Various extenders expire, including ITC for certain technologies, 45L, 179D

MAR

Mar. 15 Debt limit suspension expires

President-elect transition period

Oct. 27 Today

NEXT >

What’s in store for 2017?

Presidential Candidates and Renewable Energy

TRUMP CLINTON

DEMOCRATIC CANDIDATE REPUBLICAN CANDIDATE

• Clinton’s energy plan invests in clean energy, R&D

• Feb. 4, 2016 primary: “I want to have half a billion more solar panels deployed in the first four years.”

• Nov. 2015: Discussed new jobs and businesses that come from a clean energy economy

• July 2015: “We need to continue the production tax credits.”

• Nov. 2007: “I will make the production tax credit for wind…permanent.”

Presidential Candidates and Renewable Energy

TRUMP CLINTON

DEMOCRATIC CANDIDATE REPUBLICAN CANDIDATE

• Has said he’s “okay” with wind PTC

www.novoco.com/journal

Clinton v. Trump

Clinton v. Trump v. Johnson v. Stein

Hillary Clinton 45.3%

Donald Trump 40.2%

Gary Johnson 5.6%

Jill Stein 2.0%

Donald Trump 43.0%

Hillary Clinton 47.9%

As of 10/26/2016

Current House and Senate Leadership

REP. RYAN Speaker Wis. - 1

REP. PELOSI Minority Leader

Calif. - 12

SEN. MCCONNELL Majority Leader

Kentucky

SEN. REID Minority Leader

Nevada

HOUSE SENATE

Current House and Senate Leadership

REP. PELOSI Minority Leader

Calif. - 12

SEN. MCCONNELL Majority Leader

Kentucky

SEN. REID Minority Leader

Nevada

HOUSE SENATE

Potential future

SEN. SCHUMER Minority Leader

New York

REP. RYAN Speaker Wis. - 1

November 2016

Democrat Republican Democrat

November 2016

November 2016 Recent Presidents Who Had Major Tax Bills the Year of Their Inauguration

OBAMA BUSH CLINTON BUSH REAGAN CARTER

November 2016 S. 2089 – American Energy Innovation Act

• Comprehensive Senate Democratic Energy Policy Proposal, includes tax title

• Would reform PTC and ITC to create performance-based incentive that’s technology neutral

• Based on carbon emissions per kilowatt hour generated

• Zero emissions would qualify for max credit:

– 2.3 cents/kWh PTC – 30% ITC

Sen. Cantwell Sen. Reid

Sen. Schumer Sen. Wyden

November 2016

Republican Republican Republican

November 2016

COMPREHENSIVE TAX REFORM

KEITH MARTIN Chadbourne & Parke LLP

Federal Suit Filed

• NRG, Dynegy, EPSA and others filed suit in federal court last week to block a New York program awarding nuclear power plants “zero emissions credits” to keep them running.

• The suit charges that such state programs “intrude on the exclusive authority” of the federal government over the wholesale power markets.

• RECs

Tax Basis Issues

• 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 in September asking four questions about basis issues.

• There is some IRS audit activity. • The IRS is taking flak from Senator Hatch.

• fair value

Section 1603

• 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 six-year statute of limitations. • The government has started filing counterclaims to discourage anyone else

from suing.

Construction-Start Issues

• 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. • The notice may give examples of significant physical work on a site.

Four-Year Lookback Rule

• 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.

Orphan Tax Credits

• 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 this year, remain in play.

• coin toss

Corporate PPAs

• Roughly 3,000 MWs of corporate PPAs are expected to be signed in 2016, down from earlier estimates.

• 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 are not already in operation.

• Minnesota Power

Community Choice Aggregators

• Community choice aggregators could displace as much as 20% to 40% of the electricity load in California.

• The utilities are bracing for the loss of so many customers and charging exit fees for customers that leave to cover stranded costs.

Community Solar Projects

• Community solar projects are moving closer to acceptance by the financial community.

• The big issues are the commercial-residential mix, whether projects must be fully subscribed at closing, and what base-case revenue to assume given that customers can disappear on short notice.

• securities?

Independent Generators

• 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

Taxes for Project Developers

• Project developers are more likely to have to pay taxes on any appreciation in project value when forming a partnership with a tax equity investor or other money partner under new regulations the IRS issued last week.

• The developer may be considered to have made a "disguised sale" of the project to the partnership.

• pre-formation expenditures

Falling Electricity Prices

• Falling electricity prices mean there is less cash in solar tax equity deals. • This is making it harder to transfer tax benefits to tax equity investors due to

large deficit capital accounts. • DROs are reaching 40+%. • The IRS said two weeks ago that it has concerns about "whether and to what

extent it is appropriate to recognize DROs." • project debt

Problems for Tax Equity Investors

• There are more than 35 active tax equity investors. • Solar tax equity was a $6.8 billion market last year. • Solar installations suggest demand for $10 to $11 billion this year. • Some of the new investors are running up against passive loss restrictions.

Sponsors and Tax Equity Investors

• Sponsors are keeping more cash and monetizing at debt yields through back-levered debt.

• Some tax equity investors are becoming more accommodating on cash sweeps at the partnership level to pay indemnities.

• Tax loss insurance is being used to avoid sweeps.

US/China Deals

• US inbound acquisitions by Chinese companies are generating more heat. • At least three Chinese deals were abandoned earlier this year due to fears the

acquisitions would bog down with CFIUS. • Sixteen House members want tougher screening for state-owned companies to

buy into the US and want CFIUS to take into account whether foreign subsidies give state-owned players an unfair edge.

A Move to Pooled Depreciation?

• Some tax equity investors are worried that depreciation on existing projects could be affected if the next Congress moves to pooled depreciation.

• The last time Congress made depreciation less generous in 1986, the change was effective for assets placed in service in the future.

• Transition rules protected companies that were committed to investments based on the old rules.

Length in years of Irom Chanu Sharmila’s hunger strike against the Indian government:

16

Percentage of US jobs created since the recession that have gone to workers with post-secondary education:

99%

Number of states that do not require Electoral College members to vote for the candidate who won their state:

20

Washington Report and Industry Update

MODERATOR PANELISTS

Michael Novogradac Novogradac & Company LLP

Keith Martin Chadbourne & Parke LLP

@Novogradac @ChadbourneKeith