Prior to the dramatic recent growth, and subsequent volatility, of Yieldcos, renewable energy financiers believed that their best hope of access to the public equity capital markets would be through Real Estate Investment Trusts (REITs) and/or Master Limited Partnerships (MLPs). Both of these structures are exempt from corporate level taxation, with their earnings taxed only at the investor level, but to date, neither vehicle is permitted unrestricted equity ownership of renewable generation assets. This presentation compares structures, tax treatment, legal issues and economics of Yieldcos, REITs and MLPs, and how they might compete for renewable energy issuers and investors if permitted to do so. Please join us as industry-leading expert, Kenneth Kramer, managing director of Rushton Atlantic, shares his experience and insights into this essential field.

1. Principal Solar Institute
Kenneth P. Kramer
Managing Director
Rushton Atlantic, LLC
Public Market Alternatives for Energy Portfolios - Comparing
Yieldcos to REITs, MLPs and Related Instruments
Ken Kramer has 30 years’ experience in structured asset finance, in valuation
consulting, banking and corporate treasury. He is a co-founder and Managing
Director of Rushton Atlantic, LLC, a boutique valuation advisory firm specializing in
the energy, infrastructure, manufacturing and transportation sectors. Ken also
serves on the Steering Committee of the Department of Energy's Future of the
Grid Initiative, and on the Renewable Energy and Energy Efficiency Advisory
Committee to the Secretary of Commerce. Rushton Atlantic provides specialized
valuation services supporting structured and project financings, acquisition due
diligence, insurance placement, financial reporting and tax compliance.

2. 2
Background of
Energy Project Finance
Off BS financing for large energy, mining
projects
Financed with corporate equity & project debt
Not tax intensive
Renewables were bankable in terms of credit
quality – issue was competitiveness of capital
cost

3. 3
Alternative Forms of Incentives
Feed In Tariffs (FITs) successful in Europe,
worked well with project finance model
US history with “highest avoided cost” PURPA
contracts made FITs problematic
In 2009 ARRA brought in 30% ITCs and
$.023/kWh PTCs, and 5-year MACRS
Biggest issue was non-transferability of tax
benefits

4. 4
Growth of Tax Equity Finance
During recession, 1603 program for refundable
ITC was huge success, but allowed to expire
Back to tax equity – flip partnerships,
sale/leasebacks, inverted leases
Complex, expensive, limited supply
2017 ITC reduction
In low rate environment, public market
alternatives become increasingly attractive

5. 5
Public Investment Vehicles
Public equity capital markets are deep, liquid, and
attractively priced with $100 Bns invested in
income generating assets
Many investment vehicles, most prominently REITs
and MLPs, are untaxed at the entity level
With contracted revenue streams, are particularly
attractive when traditional fixed income
alternatives offer historically low yields

6. 6
US Public Yieldcos
NYLD – NRG Yield, Inc. - NYSE
PEGI – Pattern Energy Group Inc. - Nasdaq
ABY – Abengoa Yield plc - Nasdaq
NEP - NextEra Energy Partners, LP - NYSE
TERP – Terraform Power, Inc. (SunEdison) - Nasdaq
CAFD - 8point3 Energy Partners LP (First Solar &
SunPower) Nasdaq

7. 7
Yieldco Trading History

8. 8
Yieldco Overview
Sponsor Public
Yieldco
Operating
Sub
Operating
Sub
Opco

9. 9
Yieldco Overview
 Yieldco is a C corp, generally with a partnership subsidiary which holds
its operating businesses, which are power generating assets with long
term offtake agreements.
 Yieldcos, like REITs and MLPs, appeal to public equity market investors,
seeking income plus appreciation, and target double digit total returns
 While taxable at the entity level, the initial portfolio assets provide
sufficient tax shelter, from ITC, PTC and MACRS deductions, to eliminate
corporate income tax liability and maximize cash flow available for
dividends
 Dividends in excess of earnings may also be treated nontaxable return
of capital
 As a taxable C corp, a Yieldco has no legal restrictions on types of assets
it owns, type of earnings permitted, or percentage of income or cash
flow paid out to investors

10. 10
Alternative Public Vehicles
Real Estate Invest Trusts (REITs)
Master Limited Partnerships (MLPs)
Canadian Foreign Asset Income Trusts (CFAITs)
Up-C structure
Equipment Lease Income Funds

11. 11
Real Estate Investment Trusts
Investors
REIT
Property Property

12. 12
Real Estate Investment Trusts
 REITs can deduct dividends paid to shareholders, and
avoid tax at the corporate level, so long as:
– 75% of assets are qualifying assets such as real
estate assets
– 75% of income is generated from rents or
mortgages, and
– 90% of taxable income is distributed to
shareholders
 2014 market cap of REITs - $907 Bn
– Equity REITs - $846 Bn
– Mortgage REITs $61 Bn

13. 13
Real Estate Investment Trusts
 Broadened definition of eligible income includes:
– Rentals of gas and electric distribution systems
– Revenues attributable to hotel and hospital services
 Issues for renewable generation:
– Rental income definition doesn’t include PPA revenues
– Real property definition doesn’t include fixtures
such as solar panels and related hardware
 Rooftop solar can be owned by a Taxable
REIT Subsidiary (TRS)

14. 14
Umbrella Partnership REITs
(UpREITs)
Public
Investors
Public REIT
GP
Property
Contributors/
Sellers - LPs
UpREIT
Operating
Partnership
Property Property

15. 15
UpREITs
Property is contributed tax free for partnership
units in 1031 like-kind exchange
After 1 year, put option is exercisable to convert
partnership units to liquid REIT shares
Exchange is taxable, but for estate planning
purposes, appreciated real estate can be
stepped up in basis upon inheritance, avoiding
capital gains on sale of REIT shares

16. 16
Example – Hannon Armstrong
Sustainable Infrastructure (“HASI”)
 Focus on energy efficiency, and renewable energy projects
 Structure is subject to IRS private letter ruling
 Investments include:
– Financing receivables
– Debt & equity securities
– Real estate
– Equity Investments in unconsolidated affiliates
 Portfolio composition (12/31/2014):
– 71% loans, receivables, financing leases, debt securities
– 13% real estate with long-term leases
– 16% minority ownership of wind projects

17. 17
Master Limited Partnerships
Property Property
MLP
General
Partner
Public
Managers

18. 18
Master Limited Partnerships
 Current rules established in 1987 by IRC section 7704, which
limited classes of investments held by publicly traded
partnerships eligible to avoid entity level taxation.
 Per sec. 7704 (d), 90% of MLP income must be from interest,
dividends, rents, capital gains, and the exploration,
development, mining or production, processing, refining,
transportation or marketing of minerals or natural
resources, including real estate; and since 2008 certain
biofuels and industrial source carbon dioxide
 Current MLP market is $488 billion, predominantly
midstream oil & gas pipelines

19. 19
Master Limited Partnerships
Tax code does not require minimum distribution to
investors, although partnership agreements customarily
require all available cash to be distributed to the
partners
General partner typically manages the MLP’s operation
in return for 2% of distributable cash flow, plus incentive
distribution rights
Limited partners are entitled to 98% of distributable
cash flow
Distributions are treated as a tax-deferred return of
principal to the extent of the investor’s basis.

20. 20
MLPs – Proposed Changes
 IRS proposed regs (currently out for public comment) intended
to clarify how far down the value chain of minerals and
depletable resources businesses can be MLP eligible, - e.g.
oilfield catering/fuel delivery to gas stations/plastics &
petrochemicals?
 Senator Coons (D, MD) has reintroduced the MLP Parity Act,
extending MLP eligibility to renewable energy resources,
including wind, biomass, geothermal, solar, MSW, hydropower,
fuel cells, CHP, cellulosic, ethanol, biodiesel, and algae-based
fuels, energy-efficient upgrades for buildings, electricity storage,
CCS, renewable chemicals, and waste-heat-to-power
technologies.

21. 21
Example – Sol-Wind
Public Management
Team
Sol-Wind
Renewable
Power LP
Sol-Wind
JV CLN LLC
Tax Equity
Investor
Renewable
Energy Asset
Renewable
Energy Asset
Project
LLC
Project
LLC
Project
Holding
Companies
Sol-Wind Global
Holdings
LLC
Sol-Wind JV
SWP LLC
Sol-
Wind
LLP GP

22. 22
Example – Sol-Wind
 Intent was to launch an IPO of an MLP with energy assets
whose income didn’t qualify for the 7704(d) tax exemption.
 Structure included a top level partnership that owned a
corporate sub, rather than a top level corporate entity that
owned a partnership, as in a yieldco
 KKR had used a similar partnership structure for similarly non-
qualifying investments, for which partnership treatment was
advantageous, having both US and offshore investors
 Intent, like yieldcos, was to avoid corporate taxation by
investing in new renewables transactions with attractive tax
benefits, as well as to raise tax equity financing

23. 23
Canadian Foreign Asset Income Trusts
Unit
Holders
TSX
FAIT
Canadian Holdco
US Opco
US
Asset
US
Asset

24. 24
Canadian Foreign Asset Income Trusts
 Until 2006, Canada didn’t tax income trusts at the corporate level.
With their increasing popularity, the corporate level tax exemption
was limited to REITs and Foreign Asset Income Trusts
 US assets are eligible, and deals can be structured to avoid US
withholding taxes on distributions from the Canadian trust. Like a
yieldco, renewable energy assets may provide sufficient tax shelter
for US unitholders to avoid personal income tax on distributions
 IPO’s can be done on the TSX more quickly, more cheaply and with
lower market caps than on the NYSE.
 US oil & gas issuers Eagle Energy and Parallel Energy succeeded in
this market. CleanREIT Partners was unsuccessful with a US solar
deal

25. 25
Up – C Structure
Historic
Partners Public
Pubco
LLC or
Partnership
Operating
Subsidiary
Operating
Subsidiary

26. 26
Up – C Structure
 Up-C uses features of UpREITs and MLPs
 Usually partnerships can’t go public – Up-C can do so in stages
 Seen in PE exits (GoDaddy, Shake Shack), and energy deals
 Public company sells A shares, downstreams the proceeds to partnership
which redeems partnership units for cash, and supervoting, non-
economic B shares
 Pass through entity continues to own and operate assets, Pubco is
taxable on A share assets only, and partners exchange units for liquid A
shares over time, taxable at capital gains rate
 Transferred assets written up based on A share value, and basis step-up
on intangibles is amortized for tax over 15 years
 85% of tax savings paid to partners per Tax Receivable Agreement

27. 27
Equipment Lease Income Funds
Low volume – under $1 billion/year
Organized as partnerships, distributed through
investment advisors
SEC registered, but not publicly traded
Some tax deferral through depreciation
Finite life, self liquidating – principal is returned upon
sale of assets, providing nontaxable return of
principal

28. 28
Questions and Discussion
Please enter your questions into the Chat window
Contact:
ken.kramer@rushtonatlantic.com
www.rushtonatlantic.com
Kenneth P. Kramer
Managing Director
Rushton Atlantic, LLC
845 Third Avenue - 6th Floor
New York, NY 10022