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

Affordable Housing New Markets Tax Credits Historic Renewable Energy Affordable Housing New Markets Tax Credits Historic Renewable Energy

Affordable Housing New Markets Tax Credits Historic Renewable Energy Affordable Housing New Markets Tax Credits Historic Renewable Energy

Why Solar? • • Escalating energy costs Uncontrollable costs Unpredictable costs Caps on rental 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 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 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) 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, – 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 – 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 • SOLAR COMPANY OWNS – Owner gets “free” energy – Owner Structures DEVELOPER/OWNER OWNS • SOLAR COMPANY OWNS – Owner gets “free” energy – Owner purchases “cheap” energy + hedge – Owner qualifies for tax credits/depreciation – Solar Company qualifies for tax credits – Owner syndicates – Solar company syndicates – Owner maintains/repairs (and gets warranties) – Power purchase agt. /possible buy-out

COMBINING PTCs and LIHTCs - OWNERSHIP MODEL 9% LIHTC Solar Panel Cost Solar Credit COMBINING PTCs and LIHTCs - OWNERSHIP MODEL 9% LIHTC Solar Panel Cost Solar Credit (30%) 4% LIHTC $1, 000, 000 $300, 000 $150, 000 (assumes 50% tax-exempt debt) $925, 000 Housing Credit $850, 000 Basis (reduce by ½ solar credit) Times Credit Percentage 8. 10% x 10 = 81% 3. 50% x 10 = 35% Housing Credit $688, 500 $323, 750

Combination of Solar Credits & LIHTC 9% Credits Non-DDA/QCT Cost of Solar Installation $ Combination of Solar Credits & LIHTC 9% Credits Non-DDA/QCT Cost of Solar Installation $ I, 000 (Reduced per TE Bond %) $ DDA/QCT 1, 000 0% - - Solar Tax Credits (30% x $1, 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, 000 1, 105, 000 Times LIHTC Credit Rate (times 10 years) 8. 10% 688, 500 895, 050 Equity Raised from LIHTC (assume. 91/credit) * $ 0. 91 626, 500 814, 495 285, 000 Total Equity Raise due to adding Solar 911, 500 1, 099, 495 Net Cash (Cost) Benefit of Solar Install** (88, 500) 99, 495 Equity Raised from Solar Credits* $ 0. 95 *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 Cost of Solar Installation Non-DDA/QCT $ 1, Solar Added to a “ 4%” LIHTC Cost of Solar Installation Non-DDA/QCT $ 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) 92. 5% 925, 000 130% 925, 000 1, 202, 500 Times LIHTC Credit x 10 yrs 3. 50% 323, 750 420, 875 Equity Raised from LIHTCs Credit (assume. 91/credit) * $ 0. 91 294, 612 382, 996 0. 95 142, 500 437, 112 525, 495 (562, 888) (474, 504) Remaining Basis for LIHTCs If DDA/QCT Basis Boost, then boost by 30% Equity Raised from Solar Credits (assume. 95/credit)* Total Equity Raise due to adding Solar Net Cash (Cost) Benefit of Solar Install** $ *Prices subject to project specifics & negotiation **Not including any State Rebates, utility incentives, or energy savings; assumes no dev’t fee on solar

Issues with Combining • • Viewed as double dipping? Per-unit cost and subsidy caps Issues with Combining • • Viewed as double dipping? Per-unit cost and subsidy caps in 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) 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

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