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Understanding the economics of Solar Tax Credit investments Presented by: Tony grappone , cpa

Understanding the economics of Solar Tax Credit investments Presented by: Tony grappone , cpa Principal, novogradac & Company llp. Understanding the Economics and Running the Numbers. Why is it important to prepare a financial model? Who are the users of the financial model?

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Understanding the economics of Solar Tax Credit investments Presented by: Tony grappone , cpa

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  1. Understanding the economics of Solar Tax Credit investments Presented by: Tony grappone, cpa Principal, novogradac & Company llp

  2. Understanding the Economics and Running the Numbers Why is it important to prepare a financial model? Who are the users of the financial model? When does the financial model get prepared? Who prepares the model?

  3. Understanding (balancing) the sources and uses How much debt can the project afford and at what terms/rates? How much is available in state & local incentives? How much PPA revenue is available? How much equity can the project attract/afford? What’s the maximum fee the developer can charge? When will developer collect their fee? Projecting future cash obligations Investor issues addressed proactively Yield requirements Book / GAAP issues Structuring / Exit issues Running the Numbers: Developer Perspective

  4. Understanding the flow and timing of benefits When and how much capital do I contribute? How much, and when will I receive my tax credits? What, when and how much will my other tax benefits be? How much and when will I receive cash distributions? What other benefits can I expect? Who do I share the benefits with? What is my risk? When will the investment end? What is the projected IRR? Evaluate structuring options Problematic issues can be addressed timely Running the Numbers: Investor Perspective

  5. Key Assumptions: Entity type, allocations, life term Partnership Flip- Investor exits after 5-year recapture period ends, ownership interests flip from 1% / 99% to 80% / 20% GP (Developer) exercises call option to buy out Investor in Year 6 GP (Developer) owns system until year 20 In year 20, Developer sells system to third party Running the Numbers

  6. KeyAssumptions – System Size, Cost and Electricity Production Running the Numbers

  7. KeyAssumptions – Operations Running the Numbers

  8. Key Assumptions – Sources and Uses Running the Numbers

  9. Running the Numbers: Tax Credit Calculation

  10. Net Operating Income – Partnership Flip

  11. Taxable Income – Partnership Flip

  12. Investor Return Summary – Partnership Flip

  13. Investor Benefits – Partnership Flip • Total capital contributed by Investor = ($3,200,000) • Tax credits allocated to Investor = $1,690,583 • Total cash distributions to Investor (Years 1-5) = $914,589 • Tax savings benefit = $438,808 • Buyout payment to Investor (Year 6) = $186,383 • Cumulative net benefits (35% tax rate) = $30,363 • Annual Internal Rate of Return (IRR) = 10.74%

  14. Developer Benefits – Partnership Flip • Total Fee paid to Developer (Years 1-6) = $517,200 • Tax Credit allocated to Developer in year 1 = $17,077 • Total cash distributions to Developer (Years 1-20) =$1,487,787 • Less: Limited Partner Buyout in year by Developer = ($186,383) • Projected Residual value of system (Year 20) = $2,805,849

  15. Questions and Answers Tony Grappone Novogradac & Company LLP www.energytaxcredits.com (617)330-1920 Extension 114 Tony.Grappone@novoco.com

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