Tax Equity Modeling: Model Familiarization

By Haydn Palliser | May 6, 2020

Tax Equity Modeling Model Familiarization

This is a video from our tax equity modeling course.


Tax Equity Modeling: Model Overview | Pivotal180

Video Transcript 

 Dan Welcome to the course. Before modeling, it’s nice to know where we’re going and what the final model itself will include. So we’re going to start with a quick orientation of the model structure and the contents of each sheet, just to orient you. The model is annual, which means that each column of the model represents one year with the exception of the construction sheet, which has been modeled quarterly. We believe that an annual model is much better than a quarter of the model for teaching and learning. Tax equity is already complicated enough. But we’re also providing a quarterly model template which you can download for future use once you become familiar with the concepts and the techniques. Our input sheet in gray includes all of the inputs required for the model. The input sheet will send information to the calculation sheets and those are the blue tabs within the model. The blue tabs also connect to each other but generally information flows in the order from the con sheet to the SPV sheet to the partnership sheet, to the sponsor sheet, and lastly to the HLBV sheet. Boy, that was a mouthful.

The output sheets including a summary of our capital accounts called Cap Acc for capital account and the dashboard sheet, consolidate all of the calculations on the blue tabs and they are colored in red. The gray L and N tabs include our best practice styles and the name ranges. So let’s take a deeper dive into the contents of each sheet. You’ll appreciate the huge amount of modeling that you’ll complete by the back end of this course.

Haydn The input sheet includes all of the assumptions for our project, including scenario management and the macros required to optimize the size of our tax equity investment. The modeling includes calculations for both a wind project as well as for a you base flip and a fixed time based, often called a calculated flip for a solar project.

The cons tab builds up the construction costs and calculates the funding required from the sponsor, from tax equity and from back leverage for our project.

The SPV tab is where all of our operational project calculations are included. This includes the timing calculations i.e what year operations were in the generation, the sale of energy, cost and the summary of all of our project cash flows. It also includes the project level benefits derived from depreciation and tax credits, as well as a total summary of all benefits from the SPV and our undelivered returns.

The partnerships tab includes the calculations allocating the different benefits between the sponsor and tax equity as well as the section 704 B tax capital accounts, and out outside basis tax capital accounts. It also includes a summary of the benefits to each partner after adjustments due to the capital accounts, the tax equity partner returns, and the analysis of the sponsored buyout option Finally, we include a balance sheet for the total partnership.

The sponsor tab includes everything from the whole core level up. This includes the benefits derive from the partnership, the back level loan, debt sculpting and sizing and our senior debt ratios. It also includes the sponsor tax calculations, for both a whole and a buyout scenario, as well as the returns to the sponsor.

The HLBV tab includes the hypothetical liquidation at book value that’s the HLBV, required in order to calculate the book value to each partner.

The Cap Acc sheet includes a summary of the section 704 B tax capital accounts, the outside basis tax capital accounts, and the HLBV accounts by partner. It also includes some important graphs of the capital account balances over time.

Finally, our dashboard page includes all of the important outputs required to make an investment decision. And that’s the purpose of them all after all.

Now, tax equity is not easy. It’s a really complicated subject. And we try and make it as easy as possible. But there’s still some assumed knowledge going into this course. It’s much harder than our renewable energy project financial modeling course. We assume in this course, that you already know how to size debt and sculpt debt, how to calculate net operating losses carried forward, how to run scenarios and how to create a basic macro to optimize a model. So if you don’t know that, we encourage you to look at the new energy project finance course.

Dan The order in which we’ll build this model is included in a PDF file called model checklist, which we strongly recommend that you download. The model checklist includes the order of each section that we’ll model with a checklist so you can tick off each item as you complete it. It also includes the name and number of the relevant lessons relating to the concepts required for that section to make it easier for you to find the corresponding videos if you wanna watch them. And it also includes each individual row that you’ll need to model in order. So it’s a fantastic guide if you want to rebuild the model yourself without guidance.

Note that the shortcuts that we’re typing will also appear in the top right hand corner of the spreadsheet right next to the formula bar.

Happy modeling.

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