On June 22, 2018, the Internal Revenue Service (the “IRS”) issued Notice 2018-59, which provides long-awaited guidance on when construction of energy property will have begun for purposes of the Investment Tax Credit (“ITC”) under section 48 of the Internal Revenue Code (the “Code”).

The guidance is similar in many respects to the beginning of construction guidance issued for wind facilities and other facilities that are eligible for the PTC under section 45 of the Code or the ITC in lieu of the PTC (the “Prior Guidance”). Although the rules in Notice 2018-59 should be familiar to those who have worked with the Prior Guidance, this client alert covers the applicable rules in detail as they apply to solar PV projects.

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Introduction

The emerging trend of energy private equity (“EPE”) funds is revolutionizing the renewable energy field, as renewable energy joins leveraged buyouts, venture capital and hedge funds as asset classes that institutional investors and high net worth investors are using to deploy their capital in a diversified manner, with the added “social good” of investing in a sustainable energy future. Sophisticated energy sponsors are increasingly eschewing the traditional project finance structure, in which capital stacks are created for each deal, in favor of a private equity fund structure in which committed capital is deployed by the sponsor in accordance with a specified investment strategy.  From the sponsors’ perspective, the goal is the “holy grail” of all private equity sponsors – permanent capital.  This trend can be seen as further evidence of renewable energy maturing as an asset class within the larger investment world.  Since this trend is so new, the terms of EPE funds vary tremendously.  However, some common terms are summarized below. Continue Reading A Revolution Coming in Renewable Energy Finance: The Emergence of Energy Private Equity Funds