Project Financing

Modified Accelerated Cost-Recovery System (MACRS)

Businesses can recover investments in certain property through depreciation deductions. The MACRS establishes a set of class lives for various types of property, ranging from three to 50 years, over which the property may be depreciated. For solar, wind, and geothermal property placed in service after 1986, the current MACRS property class is five years. With the passage of the Energy Policy Act of 2005, fuel cells, microturbines, and solar hybrid lighting technologies are now classified as 5-year property as well. 26 USC § 168 references 26 USC § 48(a)(3)(A) with respect to classifying property as "5-year property" and EPAct 2005 added these technologies definition of energy property in § 48 as part of the business energy tax credit expansion.

For more information, see IRS Publication 946, IRS Form 4562: Depreciation and Amortization, and Instructions for Form 4562. The IRS web site provides a search mechanism for forms and publications. Enter the relevant form, publication name or number, and click "GO" to receive the requested form or publication. Source: The Database of State Incentives for Renewable Energy: www.dsireusa.org

Escrow

A financial instrument held by a third party on behalf of two other parties in a transaction, The funds are held by the escrow service until the service receives the appropriate written or oral instructions or until obligations have been fulfilled by participating parties. Securities, funds, and other assets can be held in escrow.

Due Diligence

Do your homework! Due diligence means that you have looked at a particular investment from as many angles as possible to best understand the risks, rewards, and opportunity costs. Lenders, investors, contractors, and equipment suppliers will be much more willing to work with you if you can demonstrate that you know the lingo and understand the industry.

Clean Renewable Energy Bonds (CREBs)

A CREB is a special type of tax credit bond providing rural electric cooperatives, municipal electric utilities, and government entities (including tribal councils) the equivalent of an interest-free loan for financing qualified energy projects. CREBs were created in the Energy Policy Act of 2005, and are largely modeled on the Qualified Zone Academy Bond program that provides tax credit bonds for school renovation and upgrades in certain qualified school districts. They deliver an incentive comparable to the production tax credit that is available to private renewable energy project developers and investor-owned utilities. $800 million of CREBs were allocated by the U.S. Treasury for 2006 and 2007 through an application process by qualified borrowers. The program was fully subscribed for 2008 for $400 million of bonds.

Avoided Cost

The rate that utilities are required to pay independent power producers according to the Public Utilities Regulatory Policy Act (PURPA). Avoided cost is the simply the cost that the utility would have incurred for producing the same amount of power. This is not a favorable rate to recieve as an independent power producer.

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