historic rehabilitation tax credits, where credits are recognized over the holding period of the investment (five, seven, 10 or 15 years).
Like other tax equity investments, solar tax equity investments require complex deal structures, specialized project diligence and underwriting, and active ongoing monitoring. Specialty investment management firms like KeyState provide support to community banks hoping to make solar tax credit (i.e., “solar tax equity”) investments by syndicating the investments across small groups of community banks. Without support, community banks may struggle to consistently identify suitable solar project investment opportunities built by qualified solar development partners.
Not all solar projects are created equally, and it is critical for a community bank to properly evaluate all aspects of a solar tax equity investment. Investment in particular types of solar projects, including utility, C&I, municipal and community solar projects, can provide stable and predictable returns. However, a community bank investor should perform considerable due diligence or partner with a firm to assist with the diligence. Tere are typically three stages of diligence.
• Te bank should review the return profile and GAAP model with its tax and audit firms to validate the benefits illustrated by the solar developer and the anticipated impact of the investment on the bank’s earnings profile and capital.
• Te bank should work with regulatory counsel to identify the path to approval for the investment. Solar tax equity investments are permissible for national banks under an April 1, 2021, rule from the Office of the Comptroller of
the Currency (12 CFR 7.1025). Banks have been making solar tax equity investments based on OCC published guidance for more than a decade. In 2021, this new OCC rule codified that guidance. It provides a straightforward roadmap and goes so far as to encourage community banks to consider solar tax equity investments. Alternatively, under Section 4(c)(6) of the Bank Holding Company Act, holding companies under $10 billion in assets also may invest in a properly structured solar tax equity fund managed by a professional asset manager.
• Te bank must underwrite the solar developer and each individual solar project. Community banks should partner with a firm that has experience evaluating and underwriting solar projects, and the bank’s diligence should ensure that there are structural mitigants in place to fully address the unique risks associated with solar tax equity financings.
KeyState can provide your bank with a compelling return profile and stable and predictable cash flows offered by conservative, investment-grade solar projects that will help our communities achieve energy independence and reduce carbon emissions. Tis truly is a win-win for everyone!
Josh Miller is CEO of The KeyState Companies, which manages tax- advantaged investment and insurance structures for more than 130 community banks across the country. KeyState Renewables launched its solar tax equity fund platform, SOLCAP, in 2019. To date, SOLCAP has raised and deployed more than $220 million across 53 mid-size U.S. solar projects in seven states. Learn more
atkey-state.com. KeyState Captive Management is an MBA endorsed member.
Looking for a particular business to help with your bank’s
operations? Through MBA’s associate membership program, banks can access various businesses offering professional products and services for the banking industry.
Browse our directory at
mobankers.com to find a vendor for your bank. THE MISSOURI BANKER 19
M
BA A
ssoci
ate
Me
m
b
er
s
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32
