credit ( ITC ) and accelerated depreciation on the project . 2
A taxpayer generally may utilise ITCs to offset federal income taxes arising in the year the solar project is placed into service , although , under current law , unused ITCs for a taxable year generally must be carried forward to a subsequent year when the taxpayer has sufficient federal income taxes to be offset by the credit . 3 For this reason , developers of qualifying solar projects often seek co-equity investors , commonly referred to as tax equity investors , that have sufficient federal income tax exposure to utilise the ITCs and accompanying accelerated depreciation on a current basis and , based on the value of these benefits , generally accept an otherwise below-market economic return on their investment . State and local incentives benefiting solar projects also may exist , depending on the particular jurisdiction . We expect ESCO energy efficiency projects , and therewith their project financings , to grow as companies continue to look for ways to minimise their energy consumption and effectively manage the cost of implementing energy-saving equipment and facilities upgrades , as well as to achieve demonstrable reductions in their GHG emissions . •
Footnotes
1 – We note that as part of its Federal Energy Management Program the US Department of Energy has developed a number of energy efficiency structures to encourage federal agencies to continue to reduce their energy use ; among those structures , the DOE contemplates an “ ESPC ESA ” structure ( see at : https :// www . energy . gov / eere / femp / energy-savingsperformance-contract-energy-sales-agreements ) that is substantially similar to the one described in this article , but a discussion of the particularities of the federal programme is outside of the scope of this article . 2 – The ESCO may be able to access the production tax credit ( PTC ) ( or , in certain cases , a special wind ITC in lieu of the PTC ) with respect to qualifying wind projects , although wind assets tend to be incorporated into energy efficiency projects less often than solar assets . 3 – The Biden administration ’ s fiscal year 2022 revenue proposal would permit a taxpayer to elect a cash payment in lieu of claiming the ITC – the socalled direct pay option , similar to the cash grants offered in lieu of ITCs following the 2008 – 2009 financial crisis – which would make the ITC more desirable to taxpayers without sufficient taxable income to absorb the credit .
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68 Project Finance International October 6 2021