Renewable Energy Structures: Partnership Flip

What is a Partnership Flip?

A partnership flip structure is used to provide funding for a renewable energy project which takes advantage of the federal tax credits. Partnership accounting rules allow one owner, the Tax Equity Investor, to take a majority of tax benefits, including the Investment Tax Credit (ITC) and project Depreciation, while the other partner takes the majority of project cash flows.

Historically, the ITC has been more popular for solar deals due to the upfront value of a one-year tax credit, and it is less sensitive to the project’s ongoing performance.

How Does a Partnership Flip Work?

Standard Solar and Battery Energy Storage System (BESS) tax equity transactions have 2 Phases, with a “Flip” separating Phase I and Phase II.

Phase I

In Phase I, the tax equity investor receives most of the tax benefits, usually 99%, while taking a much smaller share of project cash flows. After a predetermined period, ownership will “Flip” so that ownership percentages of tax benefits and project equity are aligned. The Flip Date can be defined by a fixed amount of time, or it can be determined by an Investor Return goal, but it must always last at least 5 years for IRS compliance purposes.

Phase II

After the Flip Date, the transaction moves to Phase II. In this second phase, the Tax Equity Investor becomes a 5% owner of both cash and tax characteristics of the project, while the Sponsor/Developer becomes a 95% owner. The Tax Equity Investor holds a right to exit the investment through a Buyout Option, which is almost always exercised.

Why Use This Structure?

Benefits for Investors:

A Partnership Flip investment structure is the most concentrated on tax credits and depreciation benefits. For tax investors, this provides focus and an enhanced return by participating in a less efficient capital market.
Partnership Flip Investors receive benefits from both Tax Credits and Depreciation, whereas Transfer buyers and Hybrid Investors generally receive one or the other.
Multiple benefit streams allow for Tax Expense reduction and management of the Corporate Effective Tax Rate.
Investing in these energy projects allows companies to enhance their corporate story as it relates to supporting a clean American energy supply.

Benefits for Developers:

Of the options available to Sponsors/Developers, Partnership Flips generally provide the most efficient capital for the tax and depreciation benefits of a project, enabling the most renewable energy projects to succeed.

Invest With Us

Since our inception in 2012, National Trust Energy Capital has helped investors navigate renewable energy investments to reach their impact and financial goals. We work to pair investors with the right renewable energy projects that will bring cost-effective energy options and growth to low-income communities, improve tax efficiency, and create a greener future.

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