Tax equity partnership flip

model "Tax Equity Partnership Flip" {
  currency  USD
  unit      kUSD = 1_000 USD
  display   thousands
  data      "tax_equity_inputs.xlsx"
}

timeline {
  start           2024-01-01
  construction    13m
  operations      30y
  ruler monthly   month              // partnership operations
  ruler quarterly quarter            // distributions and capital accounts
  ruler annual    year  ends Dec     // tax returns
}

inputs "Project" {
  capex         = 1_700 kUSD                 // before IDC and fees
  ebitda        = 90 kUSD/y
  degradation   = 0.5 %/y
  spend_curve   = option normal | weibull     // S-curve: normal(6.5, 3) or weibull(4, 3)
}

table seasonality: %                          // Month | Share of the year

inputs "Tax" {
  federal_rate   = 21 %
  state_rate     = 0 %                        // Texas
  itc_rate       = 26 %
  itc_boriole_cut  = 50 %                       // half the ITC comes off the depreciable base
}

inputs "Partnership" {
  investor_capital  = 60 %
  flip_yield        = 5 %/y
  pre_flip          = 95 %
  post_flip         = 15 %
  dro               = 0 kUSD                  // deficit restoration obligation
  structure         = option partnership_flip | sale_leaseback | inverted_lease
}

/// Amounts live on the Back leverage sheet of the data workbook
inputs "Back leverage" sheet "Back leverage" {
  back_leverage_amount: kUSD  "Amount"
  back_leverage_rate:   %/y   "Rate"
  back_leverage_tenor:  y     "Tenor"
  back_leverage_dscr:   x     "DSCR"
}

module ops "Partnership operations" on monthly {
  spend: kUSD = spread(inputs.capex, over: construction,
                       profile: match inputs.spend_curve { normal  => normal(6.5, 3),
                                                           weibull => weibull(4, 3) })

  // 90 a year, shaped by month and degrading 0.5% a year
  ebitda: kUSD = inputs.ebitda * seasonal(inputs.seasonality)
               * decline(inputs.degradation)            | during operations
}

module tax "Tax" on quarterly {
  itc:          kUSD = inputs.itc_rate * sum(ops.spend)          | at operations.start
  basis:        kUSD = sum(ops.spend) - inputs.itc_boriole_cut * sum(itc)
  depreciation: kUSD = depreciation(additions: basis | at operations.start,
                                    method: macrs_5).charge       // 20%, 32%, 19.2% …
  taxable_income: kUSD = ops.ebitda - depreciation
  rate = inputs.federal_rate + inputs.state_rate
}

module flip "Partnership flip" on quarterly {
  /// Cash, income and credits are split the same way; the sponsor takes the rest
  split partnership among tax_investor, sponsor {
    capital = ops.spend             tax_investor inputs.investor_capital
    cash    = ops.ebitda            tax_investor inputs.pre_flip until flip, then inputs.post_flip
    income  = tax.taxable_income    tax_investor inputs.pre_flip until flip, then inputs.post_flip
    credits = tax.itc               tax_investor inputs.pre_flip until flip, then inputs.post_flip
  }

  investor_after_tax: kUSD = partnership.tax_investor.cash - partnership.tax_investor.capital
                           - partnership.tax_investor.income * tax.rate
                           + partnership.tax_investor.credits

  /// Flips the quarter after the investor has earned 5% after tax
  event flip = first(earned(investor_after_tax, inputs.flip_yield))

  sponsor_after_tax: kUSD = partnership.sponsor.cash - partnership.sponsor.capital
                          - partnership.sponsor.income * tax.rate + partnership.sponsor.credits

  investor_irr = xirr(investor_after_tax)          // 7.5% in the workbook
  sponsor_irr  = xirr(sponsor_after_tax)           // 6.1%

  investor_account = capital_account(partnership.tax_investor,
                                     dro: inputs.dro, itc_basis: inputs.itc_boriole_cut)
}

module sponsor "Sponsor and back leverage" on quarterly {
  /// The sponsor borrows against its share of partnership cash
  back_leverage = sculpted_loan(
    draws:  inputs.back_leverage_amount | at operations.start,
    rate:   inputs.back_leverage_rate,
    window: operations.start for inputs.back_leverage_tenor,
    cfads:  flip.partnership.sponsor.cash,
    dscr:   inputs.back_leverage_dscr
  )
  levered_cash: kUSD = flip.sponsor_after_tax - back_leverage.debt_service
                     + back_leverage.draws
  levered_irr = xirr(levered_cash)
}

/// The same project financed three ways, chosen on the Inputs sheet
when inputs.structure == sale_leaseback {
  lessor = lease(cost: sum(ops.spend), term: 20y, residual: 20 %, yield: 7 %/y,
                 tax_benefits: tax.itc + tax.depreciation * tax.rate)
  sponsor_cash: kUSD = ops.ebitda - lessor.rent
}

when inputs.structure == inverted_lease {
  /// The investor leases the plant, pays rent, keeps the revenue and the ITC
  investor_lease = lease(cost: sum(ops.spend), term: 20y, residual: 0 %, yield: 6 %/y,
                         lessee_takes: [ops.ebitda, tax.itc])
}

results "Structures compared" {
  across  inputs.structure = [partnership_flip, sale_leaseback, inverted_lease]
  show    flip.sponsor_irr, flip.investor_irr, sponsor.levered_irr
}