Forbearance Agreements in Renewable Energy Financing Transactions

With the expiration of the legislation which provided the 1603 grant in lieu of the energy investment tax credit, renewable energy developers must now “sell” the investment tax credit to a tax credit investor. Recapture of the investment tax credit to a tax credit investor occurs if the energy property is foreclosed by a lender during the 5 year tax credit compliance period. As a result, tax credit investors routinely require a lender to forbear exercising its rights against a borrower during the 5 year tax credit compliance period to avoid recapture of the investment tax credit. Obviously forbearance is contrary to the goals of a lender which wants the right to exercise any and all remedies in the event of a default by the owner of the energy property. As a result of the stress between the positions of the tax credit investor and the lender a variety of alternatives to absolute forbearance have evolved. These alternatives include limiting forbearance to solely the energy property, providing the lender with a security interest in the equity interests of the borrower and permitting the lender to exercise its pledge of the equity interests of the borrower, and the exercise of rights against the energy property only in the event of a major default and after notice and an opportunity to cure to the tax credit investor as well as providing the tax credit investor with a purchase right of the energy property. The syndication of the energy investment tax credit to the tax credit investor creates a conflict between the interests of the investor and the lender which can only be resolved by a negotiated forbearance agreement between the parties.

Renewable Energy Opportunities in Puerto Rico and the Virgin Islands

Caribbean islands such as Puerto Rico and the U.S. Virgin Islands have historically been dependent upon imported energy for their energy needs. As a result electricity prices in these Caribbean islands are more than five times the average in the United States. The high cost of electricity makes renewable energy sources such as solar and winds a cost effective alternative. Duane Morris has been active in Puerto Rico and the Virgin Islands representing both governmental agencies as well as clients doing business in both Islands. With the recent dramatic decrease in the cost of solar technology and the availability of a renewable investment tax credit for both solar and wind projects, there should be execellent opportunities for the development renewable energy projects in both Puerto Rico and the Virgin Islands.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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