Developing a Model for Success

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Developing a Model for Success

  1. 1. Developing a Model for Success Patrick Louwagie, CPA Hoffman and Brobst, PLLP 903 East College Drive PO Box 548 Marshall, MN 56258 507-532-5735 Pat@hoffmanbrobst.com Web address: www.HoffmanBrobst.com
  2. 2. Tax Benefits 5 year Accelerated Depreciation   Federal PTC = 2.1 cents per kwh Sold This credit began at 1.5 cents in 1992  Due to expire at the end of 2009  Extended or Modified?   Tax Law Precludes Effective Use of PTC by Local Individual Owners  Outside Investor Takes a Majority of the Tax Benefits  Large C-Corporations are Best Suited  Most investors will not commit until Certain Key Agreements are in Place
  3. 3. Key Agreement The Power Purchase Agreement (PPA) This is where accurate  Cash Flow and  Tax Consequences modeling is so important to insure you have a sellable project
  4. 4. Key Factors to Consider Items Drive a Significant Portion of your Model Capacity Factor  Project Cost  Projected Maintenance 
  5. 5. Other Items to Consider Local Owner Royalty Payments  Lease Payments  MN Production tax   2 MW or Less = .012/kwh  Over 2 MW up to 12 MW = .036/kwh  Over 12 MW = .12/kwh MN CBED Security Fund or Letter of Credit  Maintenance and Warranty Costs   Both Scheduled and Unscheduled Insurance  Utilities   Telephone Communications  Turbine Electricity Use Management and Professional Fees 
  6. 6. Goals Find the Proper Power Purchase Agreement  Rate to provide adequate cash flow to: Cover Operating Annual Expenses  Debt Service  Local Owner Payments  Support Investors Required Return – Keep in Mind a  Significant Portion of the Investor’s Return is from the Tax Attributes (Depreciation and Tax Credits) Bottom Line – You want a project that you can sell to  the bank and to an outside investor
  7. 7. Develop a Financial Model to Make Your Project a Success

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