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Tax Equity Financing

Tax Equity Financing

Moderator: Katherine M. Breaks, Tax Managing Director, Tax Credit and Energy Advisory Services, KPMG in the US.

Panelists: Santosh Raikar, Managing Director, Renewable Energy Investments, State Street Bank; Bob Schoenherr, Vice President, D.E. Shaw & Co., LP; Meghan Schultz, Senior Vice President - Finance, Invenergy, LLC; Lance Markowitz, Managing Director & Group Head, Leasing an Merchant Banking at MUFG Americas.

With the enactment of tax reform legislation in December, that cloud of uncertainty was starting to lift for the renewables industry. There was a concern that the lower corporate income tax rates together with a new Base Erosion Anti-Abuse Tax might casue tax equity investors to leave the market. So far, the tax equity market appears to have weathered these changes and very few appear to be exiting the market.

Tax reform will lead to less tax equity in the capital stack for renewables.
A lower corporate income tax rate isn't necessarily a good thing in the "topsy-turvy world of renewable energy financing," Breaks said as she launched the panel discussion on tax equity financing.

Tax deductions, which were once worth 35 cents on the dollar are now only worth 21 cents. The value of future tax losses generated by a renewables investment - part of what the tax equity investor is paying for - is worth less in the new world. The panelists agreed that the lower corporate tax has led to a reduction in the percentage of project financing provided by tax equity by approximately 5 -10 percent.

BEAT is not the problem the renewables industry feared it would be.
Despite concerns that the Base Erosion Anti-Abuse Tax (BEAT) provision would dampen tax equity investor interest in renewables, the panelists agreed that the market is stable. "It seems that all the key players are still in the industry, and we may have a new entrant here or there," Schultz said. "A couple of people have maybe paused slightly to figure out what their tax plan is, but I don't think anyone's really moving away," Schoenherr added.

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