Tuesday, June 29, 2010

FW: Treasury Cash Grant: When “Construction Begins”

Monty Bannerman
ArcStar Energy

From: Albert Pope [mailto:aapope12@gmail.com]
Sent: Monday, June 28, 2010 11:11 PM
To: Monty Bannerman; Allen Draa
Cc: Chick Wassell
Subject: Fwd: Treasury Cash Grant: When "Construction Begins"

Albert Pope
mobile: 914-475-6396

Begin forwarded message:

From: "Edmundson, Daniel C." <Daniel.Edmundson@troutmansanders.com>
Date: June 28, 2010 5:48:31 PM EDT
To: "Edmundson, Daniel C." <Daniel.Edmundson@troutmansanders.com>
Subject: FW: Treasury Cash Grant: When "Construction Begins" 

I should have known this wouldn't be long in coming!
Dan Edmundson

Tax / Project Development & Finance


Philip H. Spector  
Tax Practice 

Howard A. Cooper 
Tax Practice

Craig M. Kline 
Project Development & Finance Practice

Todd R. Coles 
Project Development & Finance Practice

For news and developments related to the considerations of renewable energy projects and investments, visit Renewable Energy Insights.


>> Tax Practice 
>> Project Development & Finance Practice 
>> troutmansanders.com

Treasury Cash Grant: When "Construction Begins"

June 28, 2010

Last week the Treasury issued new guidance in the form of questions and answers (FAQ) as to when "construction begins" for renewable energy projects that may be eligible for a cash grant in lieu of an investment tax credit under section 1603 of the American Recovery and Reinvestment Act of 2009. This alert summarizes the Treasury guidance to date on this issue, including the FAQ. You may access a copy of the new FAQ here, the Treasury Guidance document here and Treasury's earlier FAQ here. Our prior report on the cash grant program is available here and here.

The new guidance is important and timely because of the impending deadlines for the cash grant program. To qualify for a grant, qualified energy property must be placed in service in 2009 or 2010 or, if "construction begins" in 2009 or 2010, it must be placed in service by the applicable credit termination date (currently the end of 2012 for wind, the end of 2013 for biomass, geothermal and other resources, and the end of 2016 for solar). Whether Congress will extend the cash grant program to projects commenced after 2010 is uncertain. While extensions have been proposed by legislators, the likelihood of passage this year remains unclear. Because of the deadline and the uncertainty surrounding extension, we expect project developers to attempt to "begin construction" this year on those projects that have a practical chance of crossing that threshold in 2010.

There are two ways to show that construction has begun. One is to begin physical work of a significant nature. The other is to meet a 5% safe harbor.

[


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FW: Germany - Alternative Energy

Monty Bannerman
ArcStar Energy

From: Albert Pope [mailto:apope@xt-n.com]
Sent: Monday, June 28, 2010 11:02 PM
To: Monty Bannerman; Allen Draa; Chick Wassell
Cc: Ralph Pope III; Michael Bosworth
Subject: Germany - Alternative Energy


The German Experiment

The government sets a premium price on solar and other alternative power sources. The policy offers lessons in ways to encourage the use of renewable energy.

By Evan I. Schwartz

A decade ago, Germany launched a renewable-�energy plan on an unprecedented scale. Its parliament, the Bundestag, enacted a law obligating the nation's electric utilities to purchase green power at sky-high rates--as much as 60 cents per kilowatt-hour for solar--under fixed contracts lasting up to 20 years. (German market prices for electricity, largely produced by coal and nuclear plants, were about 12 cents per kilowatt-hour.) The idea behind this "feed-in tariff" was that anyone would be able to build a renewable-power plant--or install rooftop solar panels--and be guaranteed predictable profits by feeding energy into the grid, where utilities would buy it at premium prices. The higher costs would be passed on as monthly surcharges to ratepayers, spread out among all homes and businesses in a country of about 80 million people. Fossil and nuclear fuels amount to "global pyromania," said Hermann Scheer, the German politician who championed the policy. "Renewable energy is the fire extinguisher."

Credit: LAIF/Redux
Thing Reviewed:
The Renewable Energy Sources Act
Passed by the German Bundestag
February 25, 2000, Amended in 2004, 2008

Now, as the United States and other nations look toward creating their own policies for dealing with climate change, the effectiveness of the German experiment is a subject of debate. From one perspective, the Renewable Energy Sources Act of 2000 has exceeded its aims. Germany's first target was to get at least 10 percent of its electric power from renewable sources by 2010. The German grid now gets more than 16 percent of its electricity from these sources, and the government has raised its target for 2020 from 20 percent to 30 percent. The country avoided pumping about 74 million metric tons of carbon dioxide into the atmosphere in 2009. The German environment ministry also touts a side benefit: nearly 300,000 new jobs in clean power. As a result, the feed-in tariff has the support not only of the left-leaning politicians who originally backed it but also of most of the skeptics in the right-leaning parties that fought against it, says Claudia Kemfert, who heads the energy department at the German Institute for Economic Research in Berlin. "The skepticism is over," she says. "We're celebrating the success."

But from another perspective, the German policy is a government boondoggle. "It's not surprising that if you throw enough money at a certain technology, people will use it," says Severin Borenstein, codirector of the Energy Institute at UC Berkeley's Haas School of Business. Yes, the incentives triggered a frenzy of renewable-power installations, but at "very high prices," says Henry Lee, director of the Environment and Natural Resources Program at Harvard's John F. Kennedy School of Government. The spending on photovoltaics has been especially cost-inefficient in terms of producing power, Lee adds, because "Germany is the cloudiest country in Europe." Despite the weather, Germany now accounts for half the world's 20 gigawatts of installed solar capacity. "What that gets you," says Lee, "is high prices for electricity, locked in for 20 years, from technology that will be out of date within three years." Concludes �Borenstein: "That's a failure of public policy."

As for the job-creation benefit, it may turn out to be ephemeral. Solar panels and wind turbines can be manufactured nearly anywhere in the world. Now, partly because of competition from low-cost manufacturing in China (see "Solar's Great Leap Forward," p.52), many German manufacturers of this technology are struggling. Q-Cells, Conergy, and Solarworld have seen their stock lose much of its value since the start of 2008. Anton �Milner, the founding CEO of Q-Cells, resigned in March after the company reported an annual loss of 1.36 billion euros ($1.67 billion). In May, to keep pace with the plunging cost of solar panels, the Bundestag cut the rates it set for selling solar power to the grid by 11 to 16 percent on top of a scheduled annual decrease of 10 percent. To try to compete with imports, solar companies have fired hundreds of workers, and the nation's solar trade association has warned of even more layoffs.

Meanwhile, some of the countries that copied key features of the German policy have also seen their booms start to fizzle. In 2008, Spain set an all-time record for photo�voltaics, installing 2.46 gigawatts' worth of solar panels in a single year--41 percent of all new installation worldwide, according to Solarbuzz, a research and consulting firm. But in Spain, buying all that high-priced power became a burden to the utilities. That, along with a longer contract term and aggressive pricing, caused the tariffs to be drastically cut. Without the high incentives, in 2009 Spain installed only 6 percent of the world's new solar-power capacity. 

Nevertheless, interest in feed-in tariffs is growing in the United States. At least two cities--Sacramento, CA, and Gainesville, FL--have enacted local plans. California, Hawaii, and Vermont have passed laws that would create their own feed-in tariffs, and at least 15 other states have considered it.

What might these policies cost? In Germany, electricity prices have soared more than 60 percent over the past decade. But Germany's environmental ministry says the tariff system is responsible for less than a 10th of that increase, or about $3 per month for a typical household. Since German households consume about half as much electricity as U.S. homes, the extra cost for renewable energy has not been a deal-breaker for the public, says Kemfert, who contends that a majority of Germans support it. Overall, the tariff cost Germany an estimated $11 billion in 2008 alone, about a third of 1 percent of its GDP.

But why even bother with feed-in tariffs? Many economists favor either a carbon tax or a cap-and-trade system in which electricity plants buy permits to burn fossil fuel. "It would be better to tax brown power than subsidize green power," says Borenstein. Coal is the biggest carbon emitter among all energy sources, and it currently accounts for about half the electricity produced in the United States as well as in Germany. Phasing out coal should be the main goal, and pursuing that goal by putting a price on carbon, he says, allows the market to decide which renewable sources are most cost-effective. That's more efficient than letting the government set prices.

However, neither cap-and-trade nor a direct tax may be politically feasible in the United States. So would a national feed-in tariff be an acceptable alternative? Or would it also be politically doomed, since it, too, would raise electricity prices? To make a case for it, politicians would need to convince the American public that renewable power is worth it, pointing to Germany as the example. Indeed, the German experiment does show that a large industrial society can reach ambitious goals for scaling up new sources of clean electricity, with users paying the way. Germany expects to produce most of its electricity from renewable sources by 2030. Meanwhile, the United States produces only about 7 percent of its electricity from such sources, most of that from long-standing hydroelectric plants.

The real significance of the German plan, though, may not be as a model for other countries but as a source of permanent change in the world's energy economy. In this sense, Germany can be compared to early adopters of new gadgets, who often pay outrageous prices even though they know that others will get improved technology for much less a few years later.

Consider the changes in the market for wind power. By 2006, Germany had by far the largest wind-power base in the world, with 20.6 gigawatts of capacity. The massive scale brought the cost down, and wind began approaching grid parity in many parts of the world. In 2009, the United States and China were able to surpass Germany in capacity, but at far more attractive prices.

Thanks in part to the Germans, the same thing now appears to be happening in solar, with prices of photovoltaic panels plunging 40 percent last year alone. Yes, the critics are right that Germany's spending was wildly inefficient. But what Germany did was prime the global markets, showing that renewable technologies can be a big business worthy of investment. As a result, the United States may not need to copy Germany's experiment to reap the rewards.

Evan I. Schwartz is an author and journalist. He produced and cowrote Saved by the Sun, a PBS/NOVA documentary featuring a segment about the German solar policy.

Albert Pope
XTn Group, LLC
245 Park Avenue
NY, NY 10167
Tel: 212-372-8877
Fax: 212-792-4001

Friday, June 25, 2010

ArcStar blog address http://arcstar.blogger.com

Monty Bannerman
ArcStar Energy

test mbannerman1.watts@blogger.com

Monty Bannerman
ArcStar Energy

FW: Summer Solstice Survey Shows U.S. Consumers Want More Solar Energy; Americans Also Willing to Pay More for Renewable Energy A new survey conducted by Applied Materials, Inc.


Summer Solstice Survey Shows U.S. Consumers Want More Solar Energy;
Americans Also Willing to Pay More for Renewable Energy A new survey
conducted by Applied Materials, Inc. reveals that two-thirds of Americans
believe solar technology should play a greater role in meeting the country's
energy needs. In addition, three-quarters of Americans feel that increasing
renewable energy and decreasing U.S. dependence on foreign oil are the
country's top energy priorities.Today is the summer solstice, the day the
sun shines in the northern hemisphere for the longest period of time all
year. In recognition of this day and the ongoing debate concerning energy
reform legislation, Applied Materials, the world's leading supplier of solar
panel manufacturing equipment, conducted its second annual survey to gauge
the public's current knowledge and opinion of solar energy usage in the
U.S.According to the survey, 67 percent of Americans would be willing to pay
more for their monthly utility bill if their utility company increased its
use of renewable energy and 49 percent of consumers polled would be willing
to pay $5 or more each month for an increased amount of renewable energy-a
14 percent increase from the results of Applied Materials' 2009
survey."Americans are becoming more aware of the need for responsible energy
solutions, like solar power, and increasingly want their government to drive
policy and investment aimed at finding alternative ways to power our homes
and economy," said Dr. Charles Gay, president of Applied Solar, a division
of Applied Materials. "With the right energy legislation in place, the U.S.
could reap the benefits of one of the biggest economic job engines of this
century - the clean energy revolution."For more detailed information on the
survey results, visit: http://blog.amat.com/solstice .Survey
MethodologyApplied Materials engaged Ketchum Global Research Network to
design and analyze a telephone survey of a nationally representative sample
of 1,000 American adults. For purposes of the survey, renewable energy was
defined as energy generated from sources that are naturally replenished,
such as sunlight, wind, tides and geothermal heat. The survey was fielded by
ORC, a research company, during the period June 10-13, 2010. The margin of
error for the base sample is +/- 3.0% at the 95% confidence level.Applied
Materials, Inc. (Nasdaq:AMAT) is the global leader in Nanomanufacturing
Technology(TM) solutions with a broad portfolio of innovative equipment,
service and software products for the fabrication of semiconductor chips,
flat panel displays, solar photovoltaic cells, flexible electronics and
energy efficient glass. At Applied Materials, we apply Nanomanufacturing
Technology to improve the way people live. Learn more at
www.appliedmaterials.com . Copyright 2010 Business Wire, Inc. Business
Wire Photovoltaics World Article Categories: Photovoltaics   Test and
Reliability Silicon Photovoltaics   BOS Components Thin Film Solar Cells  
Wire News CPV   PV World Magazine Current Issue Equipment and Materials PV
World Archives Advertisement

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FITs: The ecstasy and the agony - Photovoltaics World


Tuesday, June 22, 2010

FW: FP Top Stories - Canadian inflation 'going nowhere fast'

Monty Bannerman
ArcStar Energy

From: Financial Post [mailto:newsletters@lists.financialpost.com]
Sent: Tuesday, June 22, 2010 8:00 AM
To: mbannerman
Subject: FP Top Stories - Canadian inflation 'going nowhere fast'

Financial Post

National Post


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Canadian inflation 'going nowhere fast'

The core inflation rate advanced at an annual rate of 1.8%, up slightly from economists' expectations

Breaking news: U.K. unveils emergency budget

BP boss retreats from spill's front ine

Yuan drops on signs China will curb gains

The theory and politics of the HST

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Cenovus upgraded on aggressive new growth estimates

Calgary-based oil sands energy company Cenovus Energy Inc. unveiled an “aggressive but achievable” growth plan for the next 10 years at its first investor day recently,  impressing an ...

Sherritt chairman buys shares – Insiders

China’s yuan move weakens U.S. bargaining position: Economists

African demand tightens metal markets

Alberta oil sands look pretty next to BP oil spill

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G20YES: Fireside chat with Tom Jenkins

National Post small business columnist Rick Spence took some time Monday night to sit down with Tom Jenkins, executive chairman for Canada’s largest software firm, Open Text. The two held a ...

FP Marketing: Smirnoff puts “icing” prank on ice

G20YES panel talks about MBAs, Millennials

Romania to fight deficit with spare change

Madoff has US$9-billion secret stash, inmate says

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Ottawa to take up Quantum case

Ottawa is set to raise the issue of a Canadian copper mining company whose assets have been expropriated by the government of the Democratic Republic of Congo when the G8 and G20 nations convene ...

Mock goth store expands to Canada

'Biovail'to disappear, grow with Valeant deal


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Monday, June 21, 2010

FW: confirming partner parameters we discussed + comment on fees+ reply on fees.


From: Monty Bannerman [mailto:mbannerman@arcstarenergy.com]
Sent: Saturday, May 15, 2010 12:41 AM
To: 'David Guest'; 'Allen Draa'; 'David Guest'; 'Robert Willes'; 'Paul Fitzgerald'
Subject: RE: confirming partner parameters we discussed + comment on fees+ reply on fees.


I am glad you raised this as it's really important for us all to understand the standard solar industry fee structure and the functions and parties that participate in it

In our business there are three primary fee categories:

1. Development Fees

If a solar developer like ArcStar develops a complete project (from site identification through to system production & acceptance) on behalf of investors the standard developer fee is 5% of installed cost. This is commonly discounted to reflect the degree to which the project is marginal in quality and cost to buildUp to half of the fee (2.5%) takes the project up to the point of investor approval and finance closing. This front end of the ArcStar business is what Allen and I transplanted into our partnership, ArcStar Development Services. I will point out that we hand off to AEC and EDF just at the point the project enters investor due diligence and packaging, so they both overlap a bit into the front-half of the overall process today.
So you probably see why the primary valuation mechanism for ADS will be management's ability to drive pipeline and the pipeline's qualitative and quantitative values.

The other half (2.5%) is paid if the developer manages the EPC process and takes the project through to acceptance and turn-over to the operator. This half of the development process remains where it started, in ArcStar, LLC. There are varying opinions in our larger group of companies about where this should reside, but it wont move until Allen and I see the best place to to put it in terms of valuation (and for now, nobody else is capable of taking it on).
The developer fees are not shared with anyone unless they provide part of the developer's process directly. For example, when we pay referral fees to people who bring us deals up to opportunity/site identification stage ($5000) or all the way to site acquisition ($10,000) stage. Because they are doing part of our job for a share of our fees.
2. Finance (transaction) Fees
In our model you will commonly see a 2% debt fee and a 2% equity fee. These percents vary with source and market circumstances, but they are always there to cover the costs of processing the financial documents and the rewards to the financial origination and multiple source parties that bring the money to the deal. The lions share usually goes to sources (of cash and debt). Some of these fees are paid pre-close, some at closing and some are deferred to keep the cash flow within debt service coverage limits. If you bring no debt or equity directly to the deal you don't get to share in these fees.
The only other financial fee is if you are acting in an advisory role to help a project owner find finance, like Allen and I in California or Swire on behalf of Genesis. In these cases we both get paid a success fee if we find a finance partner for the deal owner. In some cases advisors are also retained to find projects for the money, but the mechanism is the same; they would be paid a success fee by the money. Because in each case that is where the contractual relationship resides. And that is why there should be no expectation that Swire be paid by our side as no agreement to do so exists.

3. Management(GP) and Admin Fees
These are paid to the party who is responsible for ensuring production is maximized, O&M is performed properly and accounting/billing/reporting/taxes etc are done properly under contracts. This role belongs to the party who holds overall management and fiduciary responsibilities on behalf of the  investors. In our structure this is AEC and that is why they need to be the GP. They will typically take a management fee that is at least 1% of the managed assets. The admin fees are used to contract attorneys, accountants and other admin service providers and are not a profit center for the GP, but they are all paid under contract by the GP on behalf of the investors.
AEC will build its valuation over several years on their share of the assets and free cash flow. And will cover most of its operating expenses from finance and management fees.
So how does all the above stack up in relation to the Fritz deal?
Given that Genesis is "bringing the deal" only, I think they are being paid quite a lot since they will receive approx. $4,500,000.00 in their split of the cash flows and 50% of the Limited Company share ownership value when the assets are ultimately flipped, without putting in a dime. AEC is giving up a lot  to help get this first big deal done, just as XT did to help us in the first opportunity with Walker before AEC existed. This structure was never intended to be a standard offering. And that's why I feel especially strongly that Genesis shouldn't take anything from the developer fees unless you want it to come out of our skins. Or the finance fees where they played no role whatsoever in bringing the money.
And that's why you clearly sense that the further their side gets pushed, the less enthusiasm you (and they)  are getting from your money partners and some of your development partners. And if you are worried that Genesis walks, I will ask that you also consider the larger implications if the money walks because they simply don't want to be partners with Genesis or they think this deal is too far out of balance.
Monty Bannerman
ArcStar Energy

From: David Guest [mailto:ddguest@rogers.com]
Sent: Friday, May 14, 2010 1:53 PM
To: mbannerman@arcstarenergy.com; 'Allen Draa'; 'David Guest'; 'Robert Willes'; 'Paul Fitzgerald'
Subject: RE: confirming partner parameters we discussed + comment on fees

Monty – I agree with your points as outlined but would like to comment that I don’t think point number 5 was discussed.  I could have zoned out however. 


As an aside for the record for all the discussion regarding fees in the Genesis/Fritz deal did not originate as a “sharing” of any ArcStar fees.  The other side told me that Spire Sharwood was getting 1.5% of the deal as per there agreement with Genesis/Fritz and that Genesis Capital would expect a fee of 0.5%.  To this I simply said that to the extent that these fees were going to be coming out of the 50/50 partnership then ArcStar would expect at least  a reciprocal fee (good for the goose, good for the gander – to be negotiated).  Hence the 2%/2% shown in the pro forma.  As part of the agreed upon transparency I told them that as customary in these type of deals (they are very familiar with large financings) there would be a fee paid as part of the debt funding (I did not say who would get this).  It was agreed that all fees would have to be discussed by the principals (Jack and Chick).   I am going to presume that they(Genesis/Fritz) will, in the spirit of the 50/50 deal ,ask for a share of the debt fee.  We also at a high level discussed the ability of additional fees to be paid out at the start of the deal.  This is a side issue as we currently are working to make the deal work as-is without adding additional costs.  At this point there was no discussion around any “development fee” this would be between AECL and ADSL. 


From: Monty Bannerman [mailto:mbannerman@arcstarenergy.com]
Sent: May 14, 2010 1:07 PM
To: 'Allen Draa'; David Guest; 'Robert Willes'; 'Paul Fitzgerald'
Subject: confirming partner parameters we discussed


If we had company minutes I would place these there, but since we don't I'd like to suggest we all concur or disagree for the record.


Using a 250kw rooftop as example:


1. The reward for the property owner comes in the form of rent/lease/cash payment. If it exceeds $15K with no escalator  it is an exception and needs a model review as something else is going to have to offset the overage.  Asset ownership is not normally considered or offered and would require agreement of AEC.

2. The standard reward for the delivering deals is $5K bounty for qualified leads and $10K bounty for signed deals. The bounty can be translated into an annual annuity payment of equivalent value coming out of our cash flows, but cannot be translated into asset ownership unless approved as an exception by AEC.

3. Equity investment is normally rewarded by a preferred return with no asset ownership. Asset ownership can be considered IF equity investment is present in the deal but is an exception that requires AEC review and agreement.

4. If AEC is prime for finance then they are required by the lenders to be the general partner and hold fiduciary responsibility and liability. Most equity (cash) investor needs can be accommodated within the GP/LP partnership docs but the general management function and primary financial responsibilities reside with the GP.

5. There is no sharing of financing fees without direct (cash) investment by the party and AEC approval.

6. Sharing of development fees for any purpose is an exception requiring partner approval as it is our primary source of company revenue.


The review/exception primary point of contact for review of exceptions is designated as Allen.


Please confirm your understanding and agreement to add these items to our company records.







Monty Bannerman

ArcStar Energy