COMPARISON OF ITCS TO PTCS OR WIND PROJECTS

Posted in: 2009-05-24 01:40PM

Discussion below chart.

Chart Comparing ITC to PTC Value

This single chart illustrates the relative value of the Investment Tax Credit (ITC) based on the “Breakeven” or “Equivalent” Net Present Value (NPV_10%) of the cash flows of a wind project utilizing the ITC versus the same project utilizing the Production Tax Credits (PTCs). The chart is presented as a function of the Project Capital Cost ($/kw) and Net Capacity Factor (%). The dashed blue line shows the current value of the PTCs ($21/ MWH + esc.). Cases above this line (shaded in light green) favor the ITC because the “Equivalent” NPV_10% of the ITC and its associated depreciation benefits would be worth more than the $21/MWH PTC and its associated depreciation benefits. Cases below the dashed blue line (shaded in pink) favor the PTC because the NPV of its after-tax value and depreciation benefits are greater.

Key assumptions include: i) reduction to the depreciable basis of the asset with the ITC, ii) escalation of the PTC, iii) 50% Bonus Depreciation and iv) a discount rate of 10% after-tax on a leveraged basis. This chart, along with complete “Bank Quality” analysis, reports and charts of “Project-Level” and “Partner Level” returns can be produced using the EconExpert-Wind^TM Financial Model and the EconExpert-Partnership Module. Other premises entered into the EconExpert model in this analysis are shown on the next page.

Some important premises that are the basis for the chart on the previous page include:

Net Capacity Factor	analyzed from 18% to 42%
Capital Cost	$1000/kw to $3000/kw net power
Discount Rate for NPV	10%
State Income Tax Rate	5%
% Debt Financing / Term / Interest Rate	50% / 14 yrs / 7%
Federal Income Tax Rate	35%
Federal ITC Rate	30%
Percent of Capital that Qualifies for ITC	90%
PTC Start Rate	$21.00
PTC Annual Escalation Rate	2%/yr (Rounds Annual to Nearest Whole $)
Schedule	Start of Operations 12/2010
50% Bonus Depreciation	Yes
PTC Term	10 Years
% of Project at 5 Year MACRS Qualified	90% (A)
Reduction in Basis if ITC is Utilized	15% of (A) above
% of Applicable Fed. ITC / Depreciation Monetized	100%
$21.00	100%

Other project premises used in the model that were not influential in the “Project Level” ITC vs PTC comparison included operating costs, land lease rates, royalties, escalation rates, PPA rates, etc.

It is important to note that the comparative value of the ITC and PTC on a Net Present Value basis is not the only consideration to take into account when considering these alternative strategies. Other important considerations, all of which can be fully assessed in EconExpert include: i) the up-front receipt / lack of production risk associated with the ITC, ii) investor’s appetite for tax benefits and risk, and iii) alternative business strategies for monetizing the ITCs, PTCs and accelerated depreciation benefits including Federal Grant Programs, Tax Limited Partnerships, Leases and Alternative Financing Approaches. What is most important is that now investors will have a menu of options to choose from when developing projects, improving the prospects for success and profitability, and that all of these options can be fully evaluated in EconExpert from the perspective of any stakeholder in the transaction.

For further information and for a demonstration of the EconExpert suite of advanced software tools for the analysis of investments in Renewable or Fossil Energy Projects, please visit our website at www.CEInsight.com , or contact us directly at:

Competitive Energy Insight, Inc. 12025 Blue Diamond Court San Diego, CA 92131

Tel) 858 – 566 – 0221 Fax) 858 – 566 – 0287

email) SProvol@CEInsight.com Website) www.CEInsight.com

COMPARISON OF ITCS TO PTCS OR WIND PROJECTS

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