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Market Update

Market Update. Keith Martin kmartin@chadbourne.com.

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Market Update

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  1. Market Update Keith Martin kmartin@chadbourne.com

  2. A US appeals court in Texas said this week that public service commissions have discretion under PURPA not to require utilities to buy electricity from intermittent resources like wind and solar projects.  Separately, state-mandated power contracts are under a cloud after two US appeals courts said that Maryland and New Jersey cannot force utilities to sign long-term power contracts at different prices than in the regional wholesale power market.  Only the federal government has authority to regulate wholesale sales.  • existing contracts?

  3. More wind farms will get tax equity financing after the IRS suggested in August that little work had to have been done at a project site or factory for a project to be considered under construction in 2013, but projects with thin facts will still have a tough time. The focus is shifting to whether projects can still qualify for tax credits if not completed until after 2015.  • 3% test •       cost overruns

  4. Congress may take up tax extenders in a "lame-duck" session in late November or December.  The solar industry is hoping that Congress will change the 2016 deadline to complete projects to qualify for a 30% investment tax credit into a deadline merely to start construction.  Wind and other renewables developers are hoping for another two years through December 2015 to start construction of their projects. • outlook?

  5. Congress is very likely to extend a 50% depreciation bonus through December 2015 if it addresses any tax extenders.  The House voted in July to make the bonus permanent.  The Senate tax-writing committee voted in April for an extension through 2015. • value?

  6. If Congress does not change the 2016 deadline for solar projects into a deadline to start construction, then financing will become more difficult for projects that will take until late 2016 to build.  Five things must happen for a utility-scale power plant to be considered placed in service.

  7. There are more tax equity investors in the market than ever before.  Yields have been trending down slightly.  Basis risk is starting to shift partly back to tax equity investors.  Investors are less likely to be willing to lock in depreciation methods and useful lives. • forbearance

  8. The Treasury is expected to take action "very very soon" to stem the flood of corporate inversions.   Corporate inversions make action on corporate tax reform more likely in the next Congress.  Both political parties want to reduce corporate tax rates.  The only way to reduce rates is to strip accelerated depreciation and most tax credits from the US tax code. • wild card?

  9. Industry was not interested testifying this week at a Senate hearing on energy tax reform.  Senator Ron Wyden (D.-Oregon) suggested that tax incentives for energy should be combined into a single clean energy tax credit.  Orrin Hatch (R.-Utah), who will become chairman if the Republicans pick up at least six Senate seats this November, said he opposes eliminating incentives for oil and gas production.

  10. There are 19 pending lawsuits against the US Treasury by companies that feel shortchanged under the section 1603 program.  The oldest case has been pending since July 2012.  Final decisions are not likely in any of the cases before next year. • four significant issues •       AMT

  11. The Treasury is taking the position that developer fees should not normally be more than 2% to 5% of project cost.  It is not clear yet to what extent the IRS will take the same position on audit when tax credits are claimed.  The IRS has been focused largely on basis issues in several pending audits.

  12. California extended a property tax exemption for solar projects through 2024.  Such projects are exempted from property tax assessment the first time they change hands after construction.  Assessments are delayed until there is a later sale or change in control of the project company. • doing business

  13. The Colorado Supreme Court said that electricity is a "service" rather than "property."  This could make construction of new power plants in the state more expensive.  Oregon reached a similar conclusion in September last year. • manufacturing exemption

  14. The IRS said tentatively last week that investment tax credits can be claimed on improvements to existing solar projects.  The agency has decided separately to withdraw a private ruling it issued two years ago that allowed investment credits on projects owned by Indian tribes to be transferred to tax equity investors in lease structures.

  15. Yield cos are driving up asset prices as they vacuum up operating projects.  REITs are getting new attention after the IRS told a telephone company that it could spin off its lines, real estate and other fixed assets into a REIT and then lease them back.  The move is expected to save the company $100 million a year in taxes. • rooftop solar

  16. Number of traffic citations written last year by the seven-member police department in Waldo, Florida, one of the nation's top two "traffic traps": • 11,603

  17. Percentage of US population that was born in another country: • 13%

  18. Percentage of Canadian population that was born in another country: • 21%

  19. Market Update Keith Martin kmartin@chadbourne.com

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