An Investor's Guide to Tax Equity in Clean Energy

For corporations with significant federal tax liabilities, Tax Equity Investment (TEI) represents one of the most compelling and efficient asset classes available today. It offers attractive, risk-adjusted returns, direct and predictable tax advantages, and a tangible impact on the nation's transition to clean energy. However, the mechanics of these investments can seem opaque from the outside.

This article demystifies the entire TEI process, providing a clear, detailed roadmap for prospective investors considering a partnership in Helios Charging's portfolio of EV charging and solar projects.

The "Why": Core Benefits of Tax Equity Investment

At its core, a tax equity investment is a partnership that allocates the tax benefits from a clean energy project to an investor who can use them most effectively. For a corporate investor, the value proposition is multi-faceted:

• Attractive, Predictable Returns: TEI deals are structured to target a specific after-tax Internal Rate of Return (IRR), often in the double digits, with returns front-loaded in the first year.
• Direct Tax Liability Reduction: The primary returns come from federal tax credits and accelerated depreciation, which directly reduce your corporation's tax bill dollar-for-dollar and lower its taxable income.
• Tangible ESG Impact: Your investment directly enables the construction and operation of new clean energy infrastructure, providing a clear and measurable environmental, social, and governance (ESG) benefit.
• Low Correlation to Markets: Returns are driven by the U.S. tax code and the operational success of the project, not by the volatility of public equity or debt markets.

The "Who": The Key Players

A tax equity partnership has two primary roles:

1. The Sponsor/Developer (General Partner): This is Helios Charging. We handle the entire project lifecycle: development, engineering, construction, and long-term operations. We have the expertise but may not have the tax appetite to efficiently use the benefits generated.
2. The Tax Equity Investor (Limited Partner): This is the corporate investor. You provide a portion of the project capital in exchange for the majority of the tax benefits and a minority of the cash flow, structured to meet your target return.

The "How": The Partnership Flip Structure

The most common structure for these deals is the "Partnership Flip." It is designed to be highly efficient, allocating benefits to the TEI upfront and returning long-term ownership to the developer after the investor's return is met.

Step 1: The Partnership is Formed

A new Limited Liability Company (LLC) is created for the project, acting as a Special Purpose Vehicle (SPV). Helios Charging is the General Partner (GP), and you are the Limited Partner (LP). This isolates the project's finances and liabilities.

Step 2: Capital is Invested and Benefits are Allocated

The TEI invests capital into the SPV. The partnership agreement then allocates the economic and tax items asymmetrically:

• Tax Benefits (ITC & Depreciation): 99% are allocated to you, the TEI.
• Cash Flow (from operations): A smaller portion, typically 5-20%, is allocated to you. The remaining 80-95% goes to Helios Charging.

Step 3: The "Flip"

This allocation remains in place until you, the TEI, have achieved your contractually agreed-upon target IRR. Once this "flip date" is reached (typically after the 5-year tax credit recapture period), the allocations "flip."

• Post-Flip Allocation: You, the TEI, will now receive a much smaller share of the economics (e.g., 5%), and Helios Charging will receive the majority (e.g., 95%).

Step 4: The Exit

After the flip, Helios Charging typically has the option to buy out your remaining 5% interest in the partnership at its current Fair Market Value, providing a final cash return and a clean exit from the investment.

The Critical Milestone: "Placed in Service" (PIS)
For a TEI to be eligible to claim any tax benefits, they MUST be a partner in the entity that owns the asset at the exact moment it is commissioned and declared "Placed in Service." This is a non-negotiable IRS requirement that drives the timing of the entire transaction.

The Financials: A Simplified $1 Million Project Example

Let's walk through a hypothetical project to see how the returns are generated. Assumptions:

• Project Cost: $1,000,000
• TEI Investment: $500,000
• Investment Tax Credit (ITC): 40% ($400,000)
• Depreciation: 5-Year MACRS schedule, Corporate Tax Rate: 21%

Year	Key Event	TEI's Financial Benefit	Cumulative Return
Year 1	Project Placed in Service. TEI receives 99% of tax benefits.	ITC: $400,000 x 99% = $396,000 (Direct tax reduction) Depreciation Savings: ~$166,320 (Taxable income reduction) Cash Distribution: ~$3,600 (5% of cash flow)	~$565,920
Year 2	Ongoing operations. TEI receives 99% of depreciation benefits.	Cash Distribution: ~$3,726	~$569,646
Year 3	Ongoing operations.	Cash Distribution: ~$3,856	~$573,502
Years 4-5	Ongoing operations. Recapture period ends after Year 5.	Cash Distribution: ~$8,122	~ $581,624
Year 6+	Partnership "flips." Helios buys out TEI's remaining interest.	Buyout Payment: Fair Market Value cash payment	Final Total Return

Note: This is a simplified illustration. Actual returns include small annual cash distributions and are modeled precisely to achieve the target IRR.

Risk and Mitigation

Like any investment, TEI carries risks, but they are well-understood and mitigated through structuring:

• Recapture Risk: If the project is sold or ceases operation within 5 years, the ITC can be "recaptured" by the IRS. This is the primary risk.
  • Mitigation: The partnership agreement includes a strong **indemnity** from Helios Charging, contractually obligating us to make you whole for any losses incurred due to our actions causing a recapture. We also carry robust insurance.
• Operational Risk: The project could underperform, affecting cash flow.
  • Mitigation: Helios Charging uses best-in-class technology and has an experienced operations team. Further, the majority of your return comes from the tax benefits, which are fixed once the project is in service, not from variable cash flow.