Tax ruling could make solar project finance easier
Renewable Energy Trust Capital Inc. has asked tax officials at the U.S. Internal Revenue Service to classify solar farms as the type of “real property” that may be included in real estate investment trusts, or REITs.
A San Francisco company may become the first firm allowed to raise money for solar-power projects as a REIT, the financing vehicle used in $640 billion of U.S. property ventures, according to Bloomberg News.
Renewable Energy Trust Capital Inc. has asked tax officials at the U.S. Internal Revenue Service to classify solar farms as the type of “real property” that may be included in real estate investment trusts, or REITs. A ruling is expected within weeks, Kelly Kokan, an attorney with Chadbourne & Parke LLP, which advises financiers on REITs, told Bloomberg.
Standard REITs own and generally operate income-producing property that pays investors dividends. While they’re marketed as more stable than many investment classes, REITs fell along with most equities in the last financial crisis.
A solar REIT would own and operate power plants that convert sunlight into electricity, just as standard REITs acquire buildings and other assets.
A favorable decision may open the U.S. photovoltaic power industry to retail investors at a time when it needs about $6.9 billion a year, according to Bloomberg. REITs, typically formed to develop commercial property like shopping centers and warehouses, returned an average 28 percent in 2012, data on 208 U.S. REITs compiled by Bloomberg show. The format would offer tradable stakes while cutting the cost of capital for developers, according to Felix Mormann, a research fellow at Stanford University Law School’s Steyer-Taylor Center for Energy Policy & Finance.
“REITs will significantly reduce the financing cost of solar energy projects and with it, the overall cost of solar electricity,” Mormann told Bloomberg. “They will bring the solar industry a big step closer to subsidy independence.”
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