mission peak renewable llc for stanford 11 2010 draft
TRANSCRIPT
November 2010Prepared by: Pyramyth Liu
Managing Director, Fremont Peak Renewable, LLC
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Purpose and GoalBuilding Solar PV Projects – Large Commercial Projects vs. Utility Scale
Solar PV Value ChainSolar PV Project FinancingDiscussion - Question and Answer
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Building Solar PV PlantLocation – Solar Radiation (kWh/sqM/day)Technology – PV, CPV, CSP, Thin Film: a-Si,
CIGSInitial Design – Performance, panel, mounting,
tilt, monitoring, and O&M considerations Planning – Exemptions, Licenses, Special
Permits, Interconnection and environmental Studies
Construction Loan and Project FinanceFinal Engineering Design and ConstructionCommissioning, Operation and Maintenance
Paying for Solar Energy FieldCash PurchaseLoan – Equity Loan Capital Lease Power Purchase Agreement (PPA)Solar Project Finance – Monetizing
ITC, Cash Grant (30%) - Section 179 Tax CreditsAccelerated DepreciationState Mandates: Performance Based Incentives
(PBI), SRECsFeed-in Tariffs, Tax abatements (waivers of
sales/property taxes
Benefits from Solar….Customers whose pays high rate tiersCustomers who can avoidable demand
chargesCustomers who can benefit from Time-of-Use
(TOU) ratesCompany’s with tax equity appetitesCompany’s with good credit facilitiesCompany’s looking for more predictable
operating cost – electricity utility as over 30% of variable operation cost
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Better ClientsLocationNet MeteringTime-Of-Use (TOU) rate Structure UsersFed - Renewable Energy Credits State
California Solar Initiative (CSI)Arizona – Performance Base Incentive (PBI)New Jersey _ Solar Renewable Energy
Credits (SRECs)
Performance ConsiderationComponent performance
Module efficiency (15-24%) degradation, mismatchesInvertors (94-98%)
Production Test Condition vs. Standard Test Condition
Manufacturer production tolerance (+x%, -y%)System design factors (grading/penetration, wind,
seismic, tilt, orientation, shading, air flow ) – less than 6” clearing could reduce 10% efficiency
Wire lossesSoilingSystem uptime and reliability
US PV System Market Size
2007 2008 2009 2010* 2011* 2012*
Commercial 110 210 260 390 503 900
Residential 70 125 145 200 308 502
Utility 9 16 25 110 500 1100
Federal 15 5 20 100 301 640
Total (MW) 204 356 450 800 1,512 3,142
% Growth 45% 75% 26% 78% 89% 73%
• Sources: Photo (Feb 2009) Deutsche Bank (Feb 2009)• UBS March 2010
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PV Value Chain Components Service
Modules Mounting BOSProject
Dev Financing Construction O&M
Residence/Owner
Bankers/Investment bankers
Financial Intermediaries
Project Developer
System Integrator
EPC Contractors
Module Mfg's
Mounting Mfg's
Inverter Mfg's
Independent Engineering Co's
Roofers/Electricians/GC's
Monitoring Co's/Technology
Financial“Brokers”
INVESTOR
Electrici
ty UserHOST
Special Purpose Vehicle
(SPV) LLC
Solar Integrators
ElectricityRevenue
Installation, O&Mon location service
PV System Sales
EPC Contract
Equity Investment
Returns
Fees and Returns
InvestmentDebt & Equity
O&Mcontract
PPA Contract
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Investment Management ServiceFund Management Agreement• Financial optimization• State incentive rebate management• Billing and administration• Financial reporting• Operation and Maintenance Contract
Solar Tax Credits (ITC)Solar Asset Depreciation100% early stage revenue10-20% late stage revenue
No outlay up front, does not own systemProvide easement for developer, Sign 20-25year PPACan purchase RECs
Solar PV Business Role
SPV
FinancialIntermediaries
(PPA Firms)
3rd PartyFinancier
IOUMOUIPPs
CountyCity Federal Government
ITC/RPS
State
RECState UtilityCommission
Payment
Debt & Equity
Payment
Interconnect andNet metering
standards
Policies
RECs
Revenue Contract - Payment
Financial and tax inceptive
Payment
Site Plan Review Special Use Permits
Building CodesInfluence PVSystem design Applications filled out, permits obtained
Payment
Attributes
ElectricUserElectricity Bill
Commissioning
Loan Agreement, Depositary Agreement, Security Agreement
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Design &Engineering
FinancialModeling
monitoringO&M
EPC
ComponentVendor
ModulesInvertersMounting
BOS
Value Added Service Provider Project Developer
SEF
Project Develope
r
Financial
Intermediaries
SPV
Design &Engineering
FinancialModeling
monitoringO&M
EPC
ConstructionLoan
Permanent Financing
(SEF Owner)
IOUMOUIPPs
CountyCity Federal Government
ITC/RPS
State
RECState UtilityCommission
ComponentsModulesInvertersMounting
BOS
Debt & Equity ( 70/30 )
Set Interconnect &Net metering
standards
Set Policies
Buy RECs
Provide Financial& tax inceptive
Incentive 20 yrsPayment $$$$$
Site Plan ApprovalSpecial Use Permits
Building CodesInfluence PVSystem design
Applications filled out permits obtained
Pay off Vendors take Ownership
Green Attributes
ElectricUser
Commissioning
Loan AgreementDepositary AgreementSecurity Agreement
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$$
BANKSAND
INVESTORS
Legal Rep.
Ownership
Credit Purchase AgreementPower Purchase Agreement O&M Agreement
NDA, CDASite OptionsLand Purchase AgreementRental/Lease AgreementEPC Agreement
$
$$$$
$$$
$
$$
$$$
Environmental Study
Interconnection Study
Solar PV Business Structure
SEF
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IOUMOUIPPs
Federal Government
ITC/RPS
State
RECState UtilityCommission
ElectricUser
OWNER
NDA, CDASite OptionsLand Purchase AgreementRental/Lease AgreementEPC Agreement
Lawyers
Design &Engineering
FinancialModeling
monitoringO&M
EPC
CountyCity
ComponentsModulesInvertersMounting
BOS
$$
Incentive 20 yrsPayment $$$$$
Interconnect andNet metering
standards
Policies
Site Plan Review Special Use Permits
Building CodesInfluence PVSystem design Applications filled out, permits obtained
Project Developer
4-5 Milestone Payments $$$$$
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2010 Sept. Rocky Mountain Institute
Project Development
Construction Phase
Operation and Maintenance Phase
Developers’ Equity
• Design and Engineering• Independent Review• Construction • Project Management • Commissioning• Construction Debt
• Project Finance and Syndication• Investment Tax Credit (ITC) / Cash Grant• Tax Equity, Equity and Debt• PBI, SREC, and TREC• Depreciation
Commercial
Operations
Date (COD)
Notice Of
Release
Developers’Equity
PROJECT VALUE
• Site Control• Land/Lease Agreement• Environmental & Interconnection Study & Queue• License & Permits • Site/Build Plan
• Operation and Maintenance• Legal and Accounting
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Permanent Finance Structure
Special Purpose Vehicle Syndicated 20 year Financed Solar PV
Project Return on Tax Equity – 6-12%
Return on Equity – 10-12%Long Term Debt Interest – 4-8%
Construction Loan 8-12%
$3.25-$4.50/W
Business Process
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15-20-extendable to 30 yearsSolar Energy Field Ownership
Sales
Future ConsiderationsExchanges for RECCarbon tax State Feed-In-Tariff
$ 3/W
$0.6/W
The Sources of FinancingTaxable Entity:
Balance Sheet Operating LeasePPA
Tax-Exempt EntityBalance SheetMunicipal BondsClean Renewable Energy BondTax-Exempt LeaseService ContractPre-Paid Service Contract
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Consider PV FinancingValue of Tax EquityLease vs. PartnershipValue vs. Risk Exposure
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Individual Investors, Angels (projects < 1MW - $3-5Million)
Regional Banks – Union Bank of CaliforniaNational Banks – West Fargo, Bank of
AmericaSovereign Wealth Fund – ChinaVC, Buyout, Hedge Fund, Mess Fund,
Infrastructure Fund, Public Pension, Sovereign Wealth Fund
Commercial Solar PV ProjectsFinance vs. PurchaseBenefit and Challenges Finance Purchase
Solar Project Knowhow Not Required Important
Transaction Fee High Lower
Immediate Cash Outlay Not Required High
SEF Responsibility and Liability
Total None
Maximize Solar Production
Yes Maybe
Ownership changes Possible None
O&M Expenditure, Others
None $8-10 dollar per MWh
REC Claims No Yes
Future Energy Saving No Yes
Total Cost of Ownership04/08/23 Mission Peak Renewable LLC 21
Five Phase of Large Scale Solar PV Project Development (MW)Site Control - Rooftop lease, Land Option or
purchase Agreements ($3-24k per acre-6 acre per MW)
Permitting, Environmental and Interconnection Queue 6-18 months – ($60 to $250k)
Construction and Commissioning 4-6 weeks per MW – (Construction Loan 4.5-8-10% interest)
Syndication/Permanent Financing – Special Purpose Entity (legal and Syndication Fee $200k-800k <10MW)
Asset Management - O&M $8-20 per MWh (20 years, option, plus EBO 6th and or 15th year)
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Key Successful FactorShorten Project Development Cycle –
Creditable Project PipelineAccess to Flexible Project Financing for
Permanent Financing – Right Structure for the Off-TakerTax equity participantLow cost long term debt
Access to Construction Loan Facilities – Equipment Bankable and Available
Development Back by Strong Balance SheetGood Credit Rating Off TakerStrong SREC or PBI IncentivesTurnkey Design and Project Management
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Definition Tax Equity—Source of capital that seeks returns from tax
benefits generated by tax credits and deductions. Leases—Tax Investor owns leased assets. Sponsor buys back
assets either by fixed price early buy-out option (EBO) or at fair market value at lease end. Sponsor retains profits in excess of rent.
Partnerships—Sponsor and Tax Investor jointly own assets. Sponsor buys back Tax Investor post-flip minority share at fair market value of the share. Profits shared.
Cash Grant—Option to receive cash in lieu of 30% Investor Tax Credit (ITC).
Key Variable – In-Service Timing, Leverage; Financing Choice (Lease/Partnership); Buy Out timing; Flip Timing; Cash Grant (Lessee/Lesser; Sponsor/Tax Investor)
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Financing Contacts PPA Solar Power Partners, MMA Renewable Ventures, Tioga
Energy, Recurrent Energy, Soltage, MP2 Investment Bank
Goldman Sach/Coengtrix – Dan Bautch Barclays Capital – Carl Weatherly Piper Jaffrey, JP Morgan,
Banks NORD/LB – Vinod Mukani Union Bank of California – Lance Markowitz HSH-Nordbank – Apolka Totth US Bank – Darren Vanthof
Corporation GE Com Finance – Maria Klutey Honey well – William Johnston Boeing – Ronald Patterson
Insurance Company John Hancock Financial Service – Gavin Danaher Met Life - Jeetindra L Balchandani
Lease - fixed price during lease term and FMV of system at the end of lease term04/08/23 26