overview of rooftop solar pv “green bank” financing...

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Copyright © 2011 The Brattle Group, Inc. www.brattle.com

Overview of Rooftop Solar PV “Green Bank” Financing Model

Sponsored by The Connecticut Clean Energy

Finance and Investment Authorityand

The Coalition for Green Capital

Developed byBob Mudge & Ann Murray, The Brattle Group

January 17, 2013

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Disclaimer

Disclaimer:

As further described in the explanatory notes, this Excel financial model (the “Model”) was developed by The Brattle Group, Inc. under the auspices of the Connecticut Clean Energy Finance and Investment Authority (“CEFIA”) to highlight the potential impact of capital inputs and public incentives on the cost of “behind‐the‐meter solar” photovoltaic installations at a conceptual level. The Model is being released to third party users (“Users”) to facilitate calculations by such Users based strictly on their own stipulated assumptions.

The Model is provided “as is” without warranty of any kind, either express or implied, including but not limited to the implied warranties of merchantability and fitness for a particular purpose, and shall be used by Users at their own risk. Although the Model presents a framework for performing Users’ calculations, it is not intended, and should not be used as the basis for investment decisions. No User should rely on the Model’s results as a prediction of future outcomes; actual events may differ significantly from those produced by the Model.

Neither CEFIA or The Brattle Group, Inc. accept any duty of care to Users, including any responsibility for any User’s use of the Model. Although neither CEFIA nor The Brattle Group, Inc. are under any obligation to provide updates to the Model, CEFIA retains the right to change/amend the Model without notice to Users.

In no event shall CGC, CEFIA and/or The Brattle Group, Inc. be liable for any damages whatsoever, including but not limited to direct, indirect, incidental consequential, loss of business profits, or special damages, regardless of the form of action, whether in contract, tort, or otherwise.

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Contents

1. Background

2. Illustrative Base Case

3. Model Mechanics

4. Potential Impact of Green Bank Debt

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1. Background

• Focus on incremental benefits of Green Bank funding at project level

• Based on illustrative specifications provided by CT Clean Energy Finance and Investment Authority (CEFIA) and the Coalition for Green Capital (CGC)

• Model derives key metrics for behind-the-meter solar:

Specifications including:

• Installed costs

• Regional capacity factors [a]

• State policies and incentives [a]

• Capital structure including Green Bank Debt

Key metrics:

• Retail cost [b]

• Equity returns

• Installed capacity per dollar of Green Bank Debt

[b] In the form of a 2013 levelized cost of electricity, net of state incentives and RECs.

[a] Initially shown for Connecticut.

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1. Background (Contd.)

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2. Illustrative Base Case

Key Assumptions:

• Aggregate portfolio of 20MW

• Installed cost of $4.5/ Watt

• 25-year underlying project life

• Regional capacity factors applied per NREL data

• Operating costs modeled @ $27/ kW-Year

• Annual degradation modeled at 0.5%

• State incentives modeled at $0.225/ kWh for 6 years

• Renewable Energy Credits (RECs) modeled at $0.030/ kWh under financeable 15-year contract

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2. Illustrative Base Case (Contd.)

• 3rd‐party ownership (target return = 15%)

• Reliance on Tax Equity (target return = 12%)

• Precedent of CT Solar Lease Program

• Expectation of debt securitization (interest modeled at 6%)

CAPITALIZATION

Behind‐the‐Meter Host(s)

Project Owner (“Fund”)

Project Sponsor

Federal Govt.

State Govt.

ITC

Utility

REC Market

Tax incentives, grants*

Tax EquityInvestors

Commercial Lenders

(emerging)

Equity

PotentialBackleverage

* Subject to funding, legislation

* Assumed Structure Before Green Bank Loans

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12%

44%48%

13%

40% 42%

0%

20%

40%

60%

80%

100%

UpfrontCapitalization

Lifetime Cost(25 Years)

% of C

apita

l Costs

Percentage Cost Components

Commercial Debt

Green Bank Loans

Tax Equity

Developer Equity

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OPERATIONSBehind‐the‐Meter Host(s)

Project Owner (“Fund”)

1. O&M

2. Debt Service

3. Capex/Rsvs.

4. Tax Equity Allocation

5. Cash Equity Allocation

Commercial Lenders

(emerging)

Project Sponsor

Tax EquityInvestors

Federal Govt.

State Govt.

ITC and accelerated depreciation

Utility

REC Market

PPA/ Lease

Debt service

Performance Based Incentives

PotentialBackleverage

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Under above assumptions, reliance on:

• Tax Equity

• State Incentives

• RECs

would hold retail costs at $0.210/ kWh (without Green Bank Debt)

RECs

State Incent.

‐

0.050

0.100

0.150

0.200

0.250

0.300

0.350

$ pe

r kWh (201

3$)

Derivation of Retail Cost (over 25 Year Life)

Operations

Commercial Debt

Green Bank Loans

Tax Equity

Developer Equity

Net Retail Cost

Avg Residential Price(CT)

Avg Commercial Price(CT)

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3. Model Mechanics

• Users can stipulate financing cost assumptions• Base Case before adding Green Bank Debt is shown below:

% Maturity Target Returns(AT) 9.0%

Min Avg 2013$State Subsidies 0%

Debt

Commercial (not < 0) 40% 6 6.0% 0.121

Green Bank:

Subordinated 0% 15 0.0% -

Tax Equity 48% 12.0% 0.037 Developer Equity 12% 15.0% 0.127

Total 100% 0.286

Project Capital Structure

KEY FINANCING INPUTSLevelized Costs

($/ kWh)

KEY OUTPUTSTotal DSCR

1.35 1.37

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3. Model Mechanics (Contd.)

Users can stipulate revenue source assumptions:

Basic model calculation sets net PPA/ Lease rate sufficient to satisfy capital cost requirements.

% 2013 $/ MWh Escalation

2013$Capital 0.286 Operations 0.025

Gross 0.311 Less State Incentives 225.0 N 0.082

Less RECs 30.0 N 0.020

Net PPA/ Lease 210.1 Y 0.210

Project Revenue Sources ($/ MWh)

Levelized Costs

($/ kWh)

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Base Case Cash Flow Summary ($M; Nominal Basis)

IRR Invest. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

1 Inflation Index 1.025 1.051 1.077 1.104 1.131 1.160 1.189 1.218 1.249 1.280 1.312 1.345 1.379 1.413 1.448

2 PPA/ Lease $/kWh 0.215 0.221 0.226 0.232 0.238 0.244 0.250 0.256 0.262 0.269 0.276 0.283 0.290 0.297 0.304

3 Elec. Sales GWh 22.4 22.3 22.2 22.1 22.0 21.9 21.8 21.6 21.5 21.4 21.3 21.2 21.1 21.0 20.9

4 PPA/ Lease Revs. $M 4.8 4.9 5.0 5.1 5.2 5.3 5.4 5.5 5.7 5.8 5.9 6.0 6.1 6.2 6.4

5 State Incentives $M 5.0 5.0 5.0 5.0 4.9 4.9 - - - - - - - - -

6 RECs $M 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6

7 Total Revenues $M 10.5 10.6 10.7 10.8 10.8 10.9 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.9 7.0

8 Operations $M 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.7 0.7 0.7 0.7 0.7 0.7 0.8 0.8

9 EBITDA $M 10.0 10.0 10.1 10.2 10.2 10.3 5.4 5.5 5.6 5.7 5.8 5.9 6.0 6.1 6.2

10 Debt Service $M 6% (36.4) 7.4 7.4 7.4 7.4 7.4 7.4 - - - - - - - - -

11 Tax Equity

12 Pre-Tax $M (43.7) 2.1 2.2 2.2 2.2 2.3 0.1 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3

13 Tax Impact $M 27.1 3.0 6.6 2.5 (0.0) (0.2) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1)

14 After tax $M 12% (16.7) 5.1 8.7 4.7 2.2 2.1 0.0 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

15 Developer Equity

16 Pre-Tax $M (10.9) 0.5 0.5 0.5 0.5 0.5 2.7 5.2 5.3 5.3 5.4 5.5 5.6 5.7 5.8 5.9

17 Tax Impact $M - - - - - - (1.7) (2.1) (2.1) (2.1) (2.2) (2.2) (2.2) (2.3) (2.3) (2.4)

18 After tax $M 15% (10.9) 0.5 0.5 0.5 0.5 0.5 1.1 3.1 3.2 3.2 3.3 3.3 3.4 3.4 3.5 3.5

To Year 25

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Under forgoing assumptions, Green Bank Debt could complement commercial debt…

% Maturity Target Returns(AT) 9.0%

Min Avg 2013$State Subsidies 0%

Debt

Commercial (not < 0) 20% 6 6.0% 0.060

Green Bank:

Subordinated 20% 15 2.0% 0.042

Tax Equity 48% 12.0% 0.035 Developer Equity 12% 15.0% 0.102

Total 100% 0.239

Project Capital Structure

KEY FINANCING INPUTSLevelized Costs

($/ kWh)

KEY OUTPUTSTotal DSCR

1.75 2.44

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…with significant reduction in retail cost:

% 2013 $/ MWh Escalation

2013$Capital 0.239 Operations 0.025

Gross 0.265 Less State Incentives 225.0 N 0.082

Less RECs 30.0 N 0.020

Net PPA/ Lease 163.5 Y 0.163

Project Revenue Sources ($/ MWh)

Levelized Costs

($/ kWh)

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To Year 2520% Green Bank Debt Case Cash Flow Summary ($M; Nominal Basis)

IRR Invest. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

1 Inflation Index 1.025 1.051 1.077 1.104 1.131 1.160 1.189 1.218 1.249 1.280 1.312 1.345 1.379 1.413 1.448

2 PPA/ Lease $/kWh 0.168 0.172 0.176 0.180 0.185 0.190 0.194 0.199 0.204 0.209 0.214 0.220 0.225 0.231 0.237

3 Elec. Sales GWh 22.4 22.3 22.2 22.1 22.0 21.9 21.8 21.6 21.5 21.4 21.3 21.2 21.1 21.0 20.9

4 PPA/ Lease Revs. $M 3.8 3.8 3.9 4.0 4.1 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.9

5 State Incentives $M 5.0 5.0 5.0 5.0 4.9 4.9 - - - - - - - - -

6 RECs $M 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6

7 Total Revenues $M 9.5 9.5 9.6 9.6 9.7 9.7 4.9 5.0 5.0 5.1 5.2 5.3 5.4 5.5 5.6

8 Operations $M 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.7 0.7 0.7 0.7 0.7 0.7 0.8 0.8

9 EBITDA $M 8.9 8.9 9.0 9.0 9.1 9.1 4.2 4.3 4.4 4.4 4.5 4.6 4.6 4.7 4.8

10 Debt Service $M 3% (18.1) 5.1 5.1 5.1 5.1 5.1 5.1 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4

11 Tax Equity

12 Pre-Tax $M (43.6) 2.1 2.1 2.2 2.2 2.2 0.2 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2

13 Tax Impact $M 26.9 3.0 6.6 2.6 0.2 0.1 (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1)

14 After tax $M 12% (16.6) 5.1 8.7 4.8 2.4 2.3 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

15 Developer Equity

16 Pre-Tax $M (10.9) 1.7 1.7 1.7 1.7 1.8 3.8 2.7 2.7 2.8 2.9 2.9 3.0 3.1 3.1 3.2

17 Tax Impact $M - - - - - - (1.3) (1.6) (1.6) (1.7) (1.7) (1.7) (1.7) (1.8) (1.8) (1.8)

18 After tax $M 15% (10.9) 1.7 1.7 1.7 1.7 1.8 2.5 1.1 1.1 1.1 1.2 1.2 1.3 1.3 1.3 1.4

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4. Potential Impact of Green Bank Debt

For Illustration, Green Bank Scenarios defined per capital structure scenarios shown below:

0%

20%

40%

60%

80%

100%

120%

0% 10% 20% 30% 40%

Percen

t of C

apita

l

Green Bank Debt as a Percentage of Capital

Capital Structure

CommercialDebtGreen BankDebtTax Equity

DeveloperEquity

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4. Potential Impact of Green Bank Debt (Contd.)

• Base Case $0.210/ kWh retail cost shown at upper left in table below

• Alone, or with help from reductions in installed costs, Green Bank Debt could achieve parity with retail rates:

Cells with retail cost < average 2011 CT retail price escalated to 2013 ($0.190/ kWh) are shaded

Retail Cost ($/kWh) as a Function of Green Bank Debt and Installed Cost

Other Assumptions:

0% 10% 20% 30% 40% Developer equity return: 15%

4.5 0.210 0.187 0.163 0.140 0.117 Tax equity return: 12%

4.0 0.174 0.154 0.133 0.112 NA Total leverage: 40%

3.5 0.139 0.121 0.103 0.085 NA Commercial debt int.: 6%

3.0 0.103 0.088 0.072 0.057 NA 15-Year RECs: $0.030/ kWh

6-Year State incentives: $0.225/ kWh

Installed Cost ($/W)

% Green Bank Debt in Capital Structure

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Green Bank Debt could help take pressure off State incentives…


Retail Cost ($/kWh) as a Function of Green Bank Debt and State Incentives

Other Assumptions:

0% 10% 20% 30% 40% Installed cost: $4.5/W

0.300 0.172 0.149 0.126 0.103 NA Developer equity return: 15%


0.150 NA 0.224 0.201 0.177 0.155 Total leverage: 40%

0.075 NA NA 0.238 0.215 0.192 Commercial debt int.: 6%

15-Year RECs: $0.030/ kWh

State Incentives per kWh


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…as well as REC prices:


Retail Cost ($/kWh) as a Function of Green Bank Debt and REC Prices

Other Assumptions:

0% 10% 20% 30% 40% Installed cost: $4.5/W

0.045 0.199 0.175 0.152 0.129 0.106 Developer equity return: 15%


0.015 0.221 0.198 0.175 0.152 0.129 Total leverage: 40%

- 0.233 0.209 0.186 0.163 0.140 Commercial debt int.: 6%


REC Prices per kWh


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At given levels of retail cost, Green Bank Debt can help developers achieve target returns:

Cells with developer return > assumed target (15%) are shaded

Developer Return (%) as a Function of Green Bank Debt and Retail Cost

Other Assumptions:

0% 10% 20% 30% 40% Installed cost: $4.5/W

0.230 17.0% 20.2% 24.7% 30.8% 38.6% Tax equity return: 12%

0.180 12.0% 14.2% 17.4% 22.4% 29.5% Total leverage: 40%

0.130 NA 8.1% 9.9% 12.9% 18.5% Commercial debt int.: 6%

0.080 NA NA NA NA NA 15-Year RECs: $0.030/ kWh


Retail Cost per kWh


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Depending on dollars deployed and role in capital structure, Green Bank Debt could support significant MWs of solar pv installation:


MWs Installed as a Function of Green Bank Debt Deployed

Other Assumptions:

0% 10% 20% 30% 40% Installed cost: $4.5/W

Retail Cost 0.210 0.187 0.163 0.140 0.117 Developer equity return: 15%

100 - 220 110 74 55 Tax equity return: 12%

75 - 165 83 55 41 Total leverage: 40%

50 - 110 55 37 28 Commercial debt int.: 6%

25 - 55 28 18 14 15-Year RECs: $0.030/ kWh


Green Bank Debt Deployed ($M)


overview of rooftop solar pv “green bank” financing...

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