Kevin Pearson Addresses Uncertainties in Wind Energy Financing After the Election

“In response to this uncertainty, many investors have begun negotiating (and, in some cases, re-opening for negotiation) certain provisions in tax equity financing documents relating to the allocation of risk between the investor and the developer with respect to changes in tax law.”

—Kevin Pearson in NA Windpower.

Attorney Kevin Pearson authored an article for North American Windpower titled “Financing Uncertainty In A Trump Administration.” The article addresses the possible effects on tax equity financing for wind energy projects caused by the uncertainty over the changes the Trump administration may make in energy and tax policy.

Pearson first speaks to the effect a reduction in the top marginal corporate tax rate, part of the tax plan described in the presidential campaign, would have on the primary federal income tax incentives available for qualified renewable energy projects. The production tax credit (PTC) and investment tax credit (ITC) would be relatively unaffected in value as they are applied to reduce tax liability on a dollar-for-dollar basis.

On the other hand, the modified accelerated cost recovery system (MACRS), which accelerates depreciation deductions for most qualified projects, as well bonus depreciation for which certain projects qualify, may create tax losses that would be less valuable than under current law because they would be used to offset income that would be taxed at a lower rate.

Finally, Pearson discusses negotiations made by investors starting at the end of 2016 to reduce, based on concerns about where tax rates may end up, the amounts of their tax equity financing investments, which are priced to take into account the value of tax credits and any tax losses expected to be generated.

“Developers also may want to consider negotiating parameters around what changes in tax rates or other changes are to be taken into account in resizing the investor’s investment,” Pearson wrote.

Read “Financing Uncertainty In A Trump Administration,” published April 2017.

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