Selling the Deal to the CFO MODERATOR PANELISTS

Courtney Mooney Nixon Peabody LLP

Bentley Stanton Novogradac & Company LLP

Nat Eng Novogradac & Company LLP

Craig Robb Zions Energy Link

Have a question? Text it to the moderator at www.crowdmics.online/novocoenergy

Current # of “Active” Tax Equity Investors?

20? Maybe 35?

Who are Most of the Tax Equity Investors Currently Out There?

• Big Banks • Big Insurance Companies

How come there are not more tax equity investors out there?

• No tax appetite • Their money is stuck overseas • The rules are rigged against individuals and closely held

corporations • Renewable energy is a relatively new industry with less

history than other industries • These deals are complex and can take a lot of

commitment from senior management, particularly the CFO

What tax equity structure is most appropriate for a new investor?

• The partnership flip structure is what the majority of new tax equity investors are landing on due to its ability to stratify the transaction risk profile between sponsor and tax equity coupled with its relative simplicity

• There are a few new entrants that are comfortable with variations of the lease passthrough/inverted lease transaction structure coming from the Historic tax credit industry

Benefits of Partnership Flip Structures to Tax Equity Investors

• Fairly quick return on investment due to the monetization of ITC and depreciation benefits

• Minimal cash flow risk due to the sponsor equity typically underwriting such risk

• Structural flexibility – target yield based and fixed date flips

Deal Guy

What the Deal guy sees

INVESTOR MEMBER BENEFIT SCHEDULE - ASSUMING CALL EXERCISED

Tax Savings Federal Cash Taxable Gain (Costs) from Capital Tax Priority Operational Cash From Distributions Income (Loss) Income (Losses) Cumulative

Year Contributions Basis Reduction Credits Distribution Distributions Call Price and Credits (Losses) Upon Exit and Tax Credits Net Benefits

2017 $ 40,095,000 $ (14,850,000) $ 29,700,000 $ 801,900 $ 41,202 $ - $ 30,543,102 $ (12,772,901) $ - $ 34,170,515 $ (5,081,382) 2018 - - - 801,900 42,221 - 844,121 (10,784,876) - 3,774,707 (462,555) 2019 - - - 801,900 43,247 - 845,147 845,147 - (295,801) 86,790 2020 - - - 801,900 44,280 - 846,180 846,180 - (296,163) 636,807 2021 - - - 801,900 45,321 - 847,221 847,221 - (296,527) 1,187,501 2022 - - - 801,900 46,371 - 848,271 848,271 - (296,895) 1,738,877 2023 - - - 91,884 - 4,433,293 4,525,177 379,196 4,145,982 (1,583,812) 4,680,243 2024 - - - - - - - - - - 4,680,243

- $ 40,095,000 $ (14,850,000) $ 29,700,000 $ 4,903,284 $ 262,642 $ 4,433,293 $ 39,299,219 $ (19,791,762) $ 4,145,982 $ 35,176,023

Annual After-Tax Internal Rate of

Return (IRR) 21.55%

CFO

What the CFO sees

2017 2018 2019 2020 2021 2022 2023 Gain/Loss on Exit - - - - - - (317,101) Investment Income (Loss) - HLBV Adjustment (26,273,878) (9,675,955) 1,409,965 1,084,495 1,085,432 841,577 550,679 Pretax Earnings (26,273,878) (9,675,955) 1,409,965 1,084,495 1,085,432 841,577 233,578 Income Tax Provision Federal Current Tax Benefit (Expense) - ITC 29,700,000 - - - - - - Federal Current Tax Benefit (Expense) 4,500,024 3,804,251 (266,221) (266,547) (266,875) (267,205) (1,580,596) Federal Deferred Tax Benefit (Expense) (501,667) (417,667) (227,267) (113,027) (113,027) (27,347) 1,682,411 Total Tax Benefits (Expenses) - "Below the Line" 33,698,357 3,386,584 (493,488) (379,573) (379,901) (294,552) 101,814 Net Income (Losses) 7,424,480 (6,289,371) 916,477 704,922 705,531 547,025 335,393

GAAP Accounting issues

Geography Issue HLBV

VIE Accounting

Investor accounting for partnership flips

• Sponsor consolidates 95% of time under VIE accounting, investor does not need to consolidate typically

• Investor records equity method investment • 2 main outstanding questions

– How to account for the ITC? – How to deal with the ongoing accounting for the equity method

investment? HLBV?

The Flowthrough Method

2017 2018 2019 2020 2021 2022 2023 Gain/Loss on Exit - - - - - - (317,101) Investment Income (Loss) - HLBV Adjustment (26,273,878) (9,675,955) 1,409,965 1,084,495 1,085,432 841,577 550,679 Pretax Earnings (26,273,878) (9,675,955) 1,409,965 1,084,495 1,085,432 841,577 233,578 Income Tax Provision Federal Current Tax Benefit (Expense) - ITC 29,700,000 - - - - - - Federal Current Tax Benefit (Expense) 4,500,024 3,804,251 (266,221) (266,547) (266,875) (267,205) (1,580,596) Federal Deferred Tax Benefit (Expense) (501,667) (417,667) (227,267) (113,027) (113,027) (27,347) 1,682,411 Total Tax Benefits (Expenses) - "Below the Line" 33,698,357 3,386,584 (493,488) (379,573) (379,901) (294,552) 101,814 Net Income (Losses) 7,424,480 (6,289,371) 916,477 704,922 705,531 547,025 335,393

The Deferral Method 2017 2018 2019 2020 2021 2022 2023 Gain/Loss on Exit - - - - - - (853,043) Investment Income (Loss) - HLBV Adjustment - - - - - - - Pretax Earnings - - - - - - (853,043)

Income Tax Provision Federal Current Tax Benefit (Expense) - ITC - - - - - - - Federal Current Tax Benefit (Expense) 4,500,024 3,804,251 (266,221) (266,547) (266,875) (267,205) (1,580,596) Federal Deferred Tax Benefit (Expense) 697,476 (3,804,251) 266,221 266,547 266,875 267,205 1,580,596 Total Tax Benefits (Expenses) - "Below the Line" 5,197,500 - (0) 0 (0) 0 -

Net Income (Losses) 5,197,500 - (0) 0 (0) 0 (853,043)

Deferral Method – Technical Guidance

• ASC 740-10-25-20 paragraph (f): Investment tax credits accounted for by the deferral method. Under the deferral method as established in paragraph 740-10-25-46, investment tax credits are viewed and accounted for as a reduction of the cost of the related asset (even though, for financial statement presentation, deferred investment tax credits may be reported as deferred income). Amounts received upon future recovery of the reduced cost of the asset for financial reporting will be less than the tax basis of the asset, and the difference will be tax deductible when the asset is recovered.

HLBV

2017 2018 2019 2020 2021 2022 2023 Step 1: Calculate Taxable Gain (Loss) from Disposition of Partnership Assets Net Carrying Value of Asset - Book $96,666,667 $93,333,333 $90,000,000 $86,666,667 $83,333,333 $80,000,000 $76,666,667 Adjusted Tax Basis of Assets - Tax 68,000,000 40,800,000 24,480,000 14,688,000 4,896,000 - 34,690 Gain (Loss) on Liquidation 28,666,667 52,533,333 65,520,000 71,978,667 78,437,333 80,000,000 76,631,977 Proceeds from Sale in Hypothetical Liquidation 96,666,667 93,333,333 90,000,000 86,666,667 83,333,333 80,000,000 76,666,667 Step 2: Allocation of gain (loss) to the members in accordance with their post-flip sharing ratios Investor Member Beginning Capital Account $11,628,997 $0 $0 $0 $0 $0 $34,690 Remaining Income to be Allocated to Members 28,666,667 52,533,333 65,520,000 71,978,667 78,437,333 80,000,000 76,631,977 Remaining Gain Allocation % (Can be Tailored) 30.00% 25.00% 20.00% 15.00% 10.00% 10.00% 5.00% Investor Allocation of Remaining Income $8,600,000 $13,133,333 $13,104,000 $10,796,800 $7,843,733 $8,000,000 $3,831,599 HLBV Investment Balance (remaining cash to be allocated) $20,228,997 $13,133,333 $13,104,000 $10,796,800 $7,843,733 $8,000,000 $3,866,289

Tailored HLBV + Deferral Method

INVESTOR GAAP INVESTMENT BALANCE DETAIL 2017 2018 2019 2020 2021 2022 2023

Cumulative Contributions $40,095,000 $40,095,000 $40,095,000 $40,095,000 $40,095,000 $40,095,000 $40,095,000 Cumulative Distributions - Operations (758,792) (1,518,501) (2,279,133) (3,040,695) (3,803,194) (4,566,638) (4,649,334) Distribution - Call Option $0 - - - - - (4,433,293) Cumulative Investment Tax Credit (29,700,000) (29,700,000) (29,700,000) (29,700,000) (29,700,000) (29,700,000) (29,700,000) Cumulative Earnings (HLBV Adjustments) - - - - - - - Ending Investment Balance 9,636,208 8,876,499 8,115,867 7,354,305 6,591,806 5,828,362 1,312,373

2017 2018 2019 2020 2021 2022 2023 HLBV Investment Balance (remaining cash to be allocated) $20,228,997 $13,133,333 $13,104,000 $10,796,800 $7,843,733 $8,000,000 $3,866,289

CFO

Reasons why an investor may be married to the Flowthrough method

• Previous history in accounting for other investment tax credit transactions (Historic tax credits) may require a material change in accounting policy

• Auditor may disagree with application of the deferral method

I am stuck with the Flowthrough method what do I do?

• Hope that the investment is immaterial to the financial statements

• Tailor the liquidation provisions and make fund level accounting policy elections to allow HLBV to write down the investment as systematically as possible

Fund Level Accounting Policy Elections

• Investors can elect the “Recast method”, where assets are recorded at fair market value for purposes of net book value used in HLBV calculations

• Exclude the impact of certain items on net book value such as AROs and derivative fair market values

Other items a CFO may have concerns about

• Do we have enough tax appetite? • What happens if there is a delay in placed in service? • How do we minimize recapture risk? • Who is going to perform the transaction due diligence and

ongoing asset management? • Statutory reporting concerns?

Ways to mitigate CFO’s concerns

• Work with a syndicator to manage the transaction due diligence process and perform ongoing asset management services

• Have the syndicator wrap or guarantee certain transaction deal points

• Purchase third party insurance for potential ITC recapture

Selling the Deal to the CFO MODERATOR PANELISTS

Courtney Mooney Nixon Peabody LLP

Bentley Stanton Novogradac & Company LLP

Nat Eng Novogradac & Company LLP

Craig Robb Zions Energy Link

Have a question? Text it to the moderator at www.crowdmics.online/novocoenergy