Jupiter Renewables                                             

Jupiter PTC Sale-Leaseback - accretive and tax equity is off-balance sheet

In substance this is the same as a sale-leaseback.  In order to work for PTC’s we replace the parent support with structural support. Each material project risk is insured. The support decreases the risk in the project.  This creates a lower cost of capital, which decreases sponsor investment while actually increasing sponsor cash. The transaction uses the form of a Service Contract since the this qualifies for the renewable energy “safe harbor”. It is classified as a lease for book and bank regulatory accounting.

Jupiter is the only firm with this patented and patent pending structure[1]. The net result is superior to traditional US wind financings in several important ways:

  1. Accounting is accretive to the Sponsor from day 1
  2. Tax Equity invests in >100% of the project cost and receives 100% of the tax benefits
    1. Sales price determined by DCF using a 7.75% AT discount rate (in practice the NPV’s are [ 115% - 150%] of cost)
    2. Excess over 100% of cost is paid to the Sponsor as a deferred development fee over 10-years
  3. The Tax Equity Investment is off-balance sheet and off credit for the Sponsor
  4. The NPV is often a multiple of the NPV from a “flip” because Jupiter has  lowered the risk of the asset, and thus the WACC, and the Tax Investor is able to pay a premium for the asset, and that premium goes into depreciable tax basis[2].

The conventional lease is straight forward. But the Tax Investor does not qualify for Production Tax Credits. Most people in the wind industry do not know that a lease is possible with PTCs. The Jupiter structure uses the accepted “safe harbor” for a service contract for a renewable energy project for tax. It is documented as a service contract. The transaction is then reclassified as a lease for book and bank regulatory purposes.

We achieve this advantage by replacing the Sponsor Support with arms-length risk transfer contracts with highly rated entities. This supports the Sponsor Affiliate/Lessee. The insurance proceeds are injected into the project if the project cash flow suffers shortfalls due to specified risks. The net impact decreases the Sponsor equity requirement while increasing the value of the project for the Sponsor.

This replacement strengthens the project. It enables us to achieve favorable:

  • book accounting
  • bank regulatory accounting (as applicable)
  • tax treatment, and
  • general project economics.

Although Sponsors may be the most knowledgeable, they may be best served by bringing in reinsurers. The reinsurers have a broader spread of risk. For this reason, they are the cheapest source of risk capital. The end result is increased benefits for the Sponsor as outlined below.

Financial Accounting

Tax Equity is off-balance sheet for the Sponsor:

  • Sponsor is only responsible for paying “rent” when there is production, the insurance is structured to pay all other times. This makes the Sponsor’s obligation to pay “rent” effectively a contingent obligation
  • There are no minimum payment obligations
  • Decreases the Sponsor’s corporate D:E ratio

The Service Contract is treated as a lease for financial accounting:

  • The Sponsor purchases 100% of the power
  • The project is specified
  • The offtake has two tiers which makes the energy rate variable as opposed to fixed and determined

Earnings are accretive:

  • The transaction is accounted for as a lease, and
  • The 10 yr. Deferred Development Fee, which is guaranteed by the tax investor, provides a high level of recurring income
  • This Dev Fee is booked to income as it is paid
  • The NPV and earnings are higher with less equity investment.

Bank Regulatory Accounting

Banks can classify their (tax) investment as a Net Lease under OCC guidelines. As such, the investment will be counted as a loan and can be held in the bank holding company. There is no limit to the amount of leases a bank can enter into. Foreign banks may have limits to the amount they can invest in “flip” structures.


There is a safe harbor for service contracts (PPA’s that provide service) that may be accounted for as leases for financial accounting and bank regulatory accounting. If the transaction meets four straight forward criteria, then the Sponsor would not be the tax owner and the tax benefits flow to the tax investor.

IRS Code Section 7701(e)(3) Special Case (also known as the “Safe Harbor”)

(Sponsor is the “Service Recipient”)

Safe Harbor Criteria



(a) If the service recipient operates the facility.


Service Recipient does not operate the facility, a 3rd party Asset Manager does. The Asset Manager can sub-contract specified tasks to the Service Recipient in a manner that is in accord with this subsection.

(b) If the service recipient risks  a significant  financial loss when there is non-performance under the contract.


Loss is mitigated by insurance (Turbines and also Wind).

(c) If the service recipient risks a significant financial gain when operating costs are less than the standards of performance under the contract.


No significant financial gain. Structured such that 3rd party asset manager benefits.

(d) If the service recipient has a purchase option or is required to buy all or part of the facility at a fixed price other than the FMV


The option does not have a fixed price.

[1] US Patent Number 7,853,461 and to Application US 14/871,314