Introductions. Overview of Basic Financing Principals. Residential Conventional Financing. Break, Q & A, Networking. PACE & State Loan Programs

(1)

“Introduction to PV Financing”

Solar Living Institute: April 20, 2008, Los Angeles, CA,

9am-5pm

Contact: Solar Living Institute: www.solarliving.org, 707 744 2017 to register

Check-in (15 minutes before listed start time)

Introductions

Overview of Basic Financing Principals

Residential Conventional Financing

Break, Q & A, Networking

PACE & State Loan Programs

~12:00

Lunch, Q & A, Networking (~30 minutes if possible)

Lease Basics and Commercial Leases

Break, Q & A

PPA Basics and Commercial PPAs

Residential Leases & PPAs

~4:30

Formal Conclusion, Break, Q & A

We must be out by 5:00 (add’l questions outside)

Diligence:

Heights by great men reached and kept were not obtained by sudden flight, but

they, while their companions slept, were toiling upward in the night.

- Henry Wadsworth Longfellow

Andy Black

Solar Financial Analyst

(408) 428 0808x1

andy@ongrid.net

(2)

“Introduction to PV Financing”

Solar Living Institute: April 20, 2008, Los Angeles, CA,

9am-5pm

Contact: Solar Living Institute: www.solarliving.org, 707 744 2017 to register

Abstract:

This rigorous workshop is designed to help residential & commercial systems integrators (dealers,

installers, and salespeople) understand the basics of solar system finance. The class will cover the

various forms and format of financing systems, including PACE, Leases, PPAs, and traditional

lending. It will help the solar professional make the financial case for PV systems on a cash-flow

basis.

This class includes:

! Conventional Financing

! PACE and State Loan programs

! Leases: Understanding the major types, how and when they are used

! PPAs: Understanding the basics, subtleties, complexities, risks, and opportunities

! A short list of financing, legal, tax, and accounting providers who specialize in solar

All students will receive one-month free use of the OnGrid Tool (licensing agreement required) to try

additional scenarios.

Biography:

Andy Black is a Solar Financial Analyst and the founder of OnGrid Solar. OnGrid Solar provides

financial analysis and sales education & software to solar installers to help them make a strong sales

case for solar electricity to their customers. Andy has more than a dozen years of design, consulting,

teaching, sales, and research experience in solar. He specializes in demonstrating the financial payback

of solar electricity systems. He is a former NABCEP certified solar installer and the initiator of the

NABCEP Technical Sales Certification.

Andy Black is a recent member of the Board of Directors of the American Solar Energy Society and

served as Chapters Representative. He is a member of the Board of Directors of the California Solar

Energy Industries Association. He is also a member of the Advisory Board of the Northern California

Solar Energy Association.

Andy’s formal education includes a Bachelor’s in Electrical Engineering from Penn State University, a

Master’s in Electrical Engineering from University of Southern California, and a Marketing Certificate

at the University of California. His training in solar electricity includes Solar Energy International’s

intensive photovoltaic coursework and more than a dozen specialty courses in solar electric and related

fields. He presents regularly on the financial analysis of solar electricity to audiences nationwide.

Andy is also the groundskeeper and servant for a cat at his home in San Jose, CA.

Contact Info: Andy Black, CEO

OnGrid Solar

4175 Renaissance Dr #4, San Jose, CA 95134

(408) 428 0808x1

andy@ongrid.net

www.ongrid.net

Andy Black

Solar Financial Analyst

(408) 428 0808x1

andy@ongrid.net

(3)

Andy Black

Presented at:

Solar Power International Conferences ASES Solar Conferences

Solar Energy International Solar Living Institute

California Center for Sustainable Energy

Updated: Fall 2011

INTRODUCTION TO

SOLAR FINANCING

Quick Survey - Who’s Here?

! 

Existing integrators / dealer / installers

" 

Managers & Owners

! 

Salesperson for integrator / dealer / installer

! 

New or hopeful integrators / dealers / installers

! 

New or hopeful salespeople

! 

Government / Utilities

! 

Customers / consumers / end users

! 

Manufacturers

! 

Others?

! Who’s taken the Residential/Basic Payback Class?

Quick Survey -

Your Goals for Today?

! 

Learn about economics for general knowledge

! 

Want to use economics for selling / grow

business

! 

Want to learn about / have the

OnGrid Tool

! 

Want to increase your knowledge to develop

your own tool

Quick Survey -

Area(s) of Interest?

! 

Came to learn specifically about:

" 

Residential Conventional Financing

" 

Residential Lease & PPA Financing

" 

Commercial Lease Financing

" 

Commercial PPA Financing

" 

Use PPAs in selling

" 

Create new PPA offering to market

! 

Other interests?

! 

Networking list?

Instructor Background

! 

M.S. Electrical Engineering

! 

SEI graduate

! 

NABCEP Certified Solar PV Installer Emeritus

! 

Involved with Solar since 1991

! 

Studying, writing, & presenting about Solar

Financial Issues since 2000

! 

Solar Salesperson 2001-2006

! 

Now a

Solar Financial Analyst &

Creator of the “

OnGrid Tool

” solar sales software

Handout Resource List

Resources available at

www.ongrid.net

! 

Articles & papers on solar “Payback”

! 

Upcoming classes & events

" 

Sales & Marketing for Solar

! 

Slides from past classes

(4)

Decorum

! 

Questions: Please focus on Solar Economics &

Payback

! 

Good environment:

" Cell phones to fun mode " Side conversations: Yes or No?

" Questions & Comments or just Questions? " Please help each other

! 

Site Logistics & Breaks

" Facilities

" Lunch & 2 breaks: Networking

Agenda

! 

Overview of Basic Financing Principals

! 

Residential Conventional Financing with

Unsecured Loans & Home Equity

! 

PACE & State Loan Programs

! 

Lease Basics & Commercial Leases

! 

PPA Basics & Commercial PPAs

! 

Residential Leases & PPAs

Questions preferred at points marked:

" Please focus on Financing & Economics

Questions? Questions?

Basic Financing Principals

! 

Several ways to finance

! 

Financing enables sales to those who can’t or

won’t buy with their own cash

! 

Good customer credit important (lately, critical)

! 

Financing makes sense when the project basic

economics are favorable (good IRR)

Questions? Questions?

Ways to Finance Solar

! 

PPA

! 

Lease

! 

Loan

! 

Cash

! 

Bringing the financing keeps you in control

(as much as you can in this market!)

+Reduced Customer Risk

- Benefits Shared with more Parties

- Increased Cost to Some Consumers

+More Sales Control

Sales Benefits of Financing

! Offering Financing keeps salesperson in control of

the sale

" If the customer is out looking for financing, you’ve

lost control of the sale.

" If you offer it, you can continue to control the sale.

! Creates more purchasing options, more chances at a

close

! Can use to overcome objections

! Gets salesperson closer to decision maker & their

real thinking

Commercial Selling Realities

! Only 3% of all commercial quotes turn to sale

" Most quotes are made to private companies

# Can’t make >5 year commitment

" Salesperson doesn’t know tax & accounting issues # Talks w/ building manager, facilities, etc

# Afraid to talk to CFO, Controller, CEO, Outside

Auditor & Banker

! Typically only large public companies can go long

(10-12 yrs) - even they hesitate 18-20 years

(5)

Common Characteristics

! 

Lower interest rate environment helps

! 

Can improve initial customer cash flow

! 

Requires good end-customer credit

" 

Stricter credit environment hurts

“Good” or “Strong”

Credit

! 

Three C’s of Credit:

" 

Credit scores & reports (Dun & Bradstreet)

" 

Collateral

" 

Capacity or Cash Flow

! 

Residential: FICO score

! 

Commercial: Investment Grade or Near IG

" 

>5 years in business

" 

>$50 million revenue

" 

Positive trends (increasing revenue & profits)

# Hard to find recently

" 

Standard ratios (cash flow, etc)

Risks in Solar Finance

! Compare to Real Estate

Add more from http://www.mayerbrown.com/public_docs/03-09-10_Green_Energy_Projects_Webinar.pdf

Requires Good IRR

! 

The basic economics must be attractive

! 

What about non-profits & gov’t facilities?

" 

Economics are generally weak – no ITC

" 

Use 3

rd

Party Financing (PPAs mostly)

" 

Need good IRR if analyzed as commercial

Residential Rates

of Return

Utility Pre-Solar Bill kWh Usage per Month PV System Size & Rating System Gross Cost

Final Net Cost w/ Tax Benefits & Rebate Pre-Tax Annual Return Lifecycle Payback Ratio Years To Payback TX--Oncor $87 800 kWh 5 kW STC $27K $12K 6.2% 1.2x 22.1 LA--EntergyLA $81 800 kWh 5 kW STC $27K $10K 18.9% 1.5x 19.3 CO--Xcel $87 800 kWh 5 kW STC $27K $16K 6.6% 1.1x 22.8 NM--SPS $72 800 kWh 5 kW STC $27K $8K 9.1% 1.4x 21.7 MO--KCP&L $85 800 kWh 5 kW STC $27K $12K 7.8% 1.2x 21.9 WI--WEPCO $111 800 kWh 5 kW STC $27K $17K 12.7% 2.0x 15.4 MA--NSTAR $130 800 kWh 5 kW STC $27K $16K 19.1% 2.4x 8.4 CT--UI $171 800 kWh 5 kW PTC $30K $15K 14.1% 2.3x 11.6 NY--ConEd $163 800 kWh 5 kW STC $27K $10K 28.1% 4.0x 7 NJ--JCP&L $132 800 kWh 5 kW STC $27K $19K 9.4% 1.5x 19.2 MD--BGE $112 800 kWh 5 kW STC $27K $18K 5.5% 1.0x 24.6 NC--Progress $83 800 kWh 5 kW STC $27K $10K 18.0% 1.7x 17.9 GA--GaPwr $101 800 kWh 5 kW STC $27K $12K 15.5% 1.6x 18.7 FL--FPL $83 800 kWh 5 kW STC $27K $19K 3.4% 0.9x >25 AZ--APS $103 800 kWh 5 kW STC $27K $15K 11.7% 1.8x 16.4 CA--PG&E $86 550 kWh 3 kW CEC $21K $14K 12.2% 1.8x 16.5 CA--PG&E $447 1,650 kWh 9 kW CEC $56K $37K 24.3% 3.9x 7.5 HI--HECO $272 800 kWh 5 kW STC $27K $16K 31.5% 4.9x 6.1

Commercially Attractive?

! IRR must exceed a hurdle rate

" > “Risk Free Rate” + ~1-2%

= Risk Free Rate + Sum of Risks

# Source: Photon International, Aug 2007, p114

! “Risk Free” interest rates:

" 1 Year LIBOR ~ 0.9% As of 10/5/2011

" Treasury: 10yr = 1.9%, 30yr = 2.9% As of 10/5/2011

(6)

Commercial Rates

of Return

Utility Pre-Solar Bill kWh Usage per Month PV System Size & Rating System Gross Cost

Final Net Cost w/ Tax Benefits &

Rebate After-Tax Annual Return TX--Oncor $850 10,000 kWh 50 kW STC $250K $52K 4.5% LA--Cleco $1,176 10,000 kWh 50 kW CEC $287K $97K 2.3% CO--Xcel $976 10,000 kWh 50 kW STC $250K $87K 0.9% NM--PNM $1,148 10,000 kWh 50 kW STC $250K $16K 7.1% MO--KCP&L-G $1,330 10,000 kWh 50 kW STC $250K $91K 2.6% WI--WPSC $1,213 10,000 kWh 50 kW STC $250K $88K 0.9% MA--NatlGrid $1,479 10,000 kWh 50 kW STC $250K $86K 10.9% CT--UI $2,017 10,000 kWh 50 kW PTC $276K $98K 5.4% NY--LIPA $1,848 10,000 kWh 50 kW STC $250K $36K 14.4% NJ--JCP&L $1,060 10,000 kWh 50 kW STC $250K $87K 2.0% MD--BGE $1,229 10,000 kWh 50 kW STC $250K $73K 5.5% NC--Duke $1,500 10,000 kWh 50 kW STC $250K $33K 13.1% GA--GaPwr $1,635 10,000 kWh 50 kW STC $250K $34K 12.8% FL--FPL $1,075 10,000 kWh 50 kW STC $250K $92K 2.1% AZ--APS $1,060 10,000 kWh 50 kW STC $250K $33K 9.6% CA--PG&E $354 2,000 kWh 10 kW CEC $62K $20K 5.6% CA--PG&E $1,732 10,000 kWh 50 kW CEC $287K $87K 6.5% HI--HECO $3,198 10,000 kWh 50 kW STC $250K $34K 25.6%

Residential Conventional

Financing with Unsecured

Loans & Home Equity

Cash Flow with Loan

! 

Compares the savings on the utility bill

with the cost of financing the system

! 

At today’s rates (~5-8%) and including

rebate benefits, cash flow is often

positive immediately

" 

Cost of borrowing is less than savings on

electric bill

" 

Stabilizes long term utility costs

Residential

Conventional Financing

! 

Unsecured Loan

" 

Addison Avenue FCU: 5.25%, 5 year, $5-50K

(SunPower only)

! 

Real Estate Secured Loan

" 

Lowest interest rates (usually)

" 

Tax deductible interest

" 

HUD EEMs - Energy Efficiency Mortgages

" 

“Home Equity Loans” & “Home Equity Line

of Credit” (HELOC)

# E.g. New Resources Bank

! 

Peer-to-Peer Lending

" LendingClub & Prosper

Cash Flow

!  Residential system

offsetting a large bill

!  8% 20 year loan

!  Many Systems are

cash positive from Year 0

!  Spike is Inverter

Replacement Cost

Solar Mortgage

! 

Like buying vs. renting, but better

! 

House costs more up front

" 

Pays off over time

! 

Solar costs less up front

" 

Pays off immediately & over time

! 

Protects against inflation

(7)

Cash Flow Analysis

! 

Calculate net cash required to buy

" 

This is the amount to be financed

! 

Calculate monthly loan payments

" 

Based on loan rate, term & amount

! 

Subtract tax savings if loan interest is tax

deductible. This is net monthly loan cost.

! 

Compare net loan cost to after tax value of

net electric bill savings (incl. maintenance)

How Much To Borrow?

! How much should customer borrow?

! Alt. 1: Net Cost after Rebate & Grants?

" Once ITC is received, have cash sitting around

" Inefficient & expensive

! Alt. 2: Net Cost after All Incentives (including tax

credits, depreciation, PBIs, etc.)?

" Requires a bridge loan until tax benefits & PBIs are

received

" Optimistically low monthly loan cost

Alt. 3: “Smart Financing”

!  Efficient pay-down of principal using tax benefits when

received (using Line Of Credit - business or home equity)

!  Find ‘payment’ amount that pays off evenly over term

" Lower payments than amortizing full “after-rebate amount”

" Higher payments than only amortizing the net “after-rebate,

after-tax-benefits amount”

!  No cash out of pocket waiting for ITC

" Doesn’t require ‘bridge loan’

" Realistic presentation of customer costs

!  No excess interest paid on “un-used” money

" Doesn’t weaken sales presentation

Commercial Cash Flow Options

!  Alt 1: High Cost Loan:

Starting Principal = “Gross - Rebate”

!  Alt 2: Optimistic* Loan:

Starting Principal = “Gross - Rebate - ITC - Depreciation” *Customer needs bridge

loan until tax savings realized Net Costs w/ Solar with High Cost Loan Utility Costs w/ o Solar

Net Costs w/ Solar with Optimistic Loan

Utility Costs w/ o Solar

Smart Financed

Commercial Cash Flow

Net Annual Savings / Cost

Utility Bill w/o Solar New Net Cost: Loan, New Bill, Maintenance, etc.

!  Alt 3: “Smart Financed” Loan Timeline ! No bridge loan needed ! Not optimistic -

fair to the customer

! Assumes customer

will be efficient w/ tax benefits

! Interest Tax Benefit

Drops so Net Cost Rises

“Smart Financing” Timeline

LOAN: Year:

0 1 2 3 4 5 6 7 8 9 10 11

Loan Balance 70,182 45,816 36,723 30,165 25,045 19,515 14,996 11,594 7,919 3,951

Payment (monthly) (356) (356) (356) (356) (356) (356) (356) (356) (356) (356)

Paid Interest (portion of payment) (356) (305) (245) (201) (167) (130) (100) (77) (53) (26)

Unpaid Interest (added to loan principal) (112)

Tax Deduction Benefit (monthly) 205 134 107 88 73 57 44 34 23 12

Net Monthly Loan Cost (150) (222) (248) (267) (282) (298) (312) (322) (332) (344)

Net Tax Benefit Received (put towards paying down

the next year's principal) 25,714 8,493 5,230 3,267 3,267 1,814 336 336 336 336 336 336

Net Annual Electric Bill before Solar (with tax effects & including Lifestyle changes, but not Energy Efficiency)

2,388 2,507 2,632 2,764 2,902 3,047 3,199 3,359 3,527 3,704 3,889 4,083

New Net Annual Energy Cost (with tax effects, including new electric bill, maintenance, inverter

replacement) 755 800 847 897 950 1,006 1,065 1,127 1,193 1,262 1,336 1,414

Net New Annual Cost (Loan plus New Net Energy

Cost) 2,560 3,459 3,825 4,105 4,337 4,587 4,805 4,986 5,181 5,391 1,336 1,414

Cash Flow (annual) (Old less New Net Costs) (172) (952) (1,193) (1,341) (1,435) (1,540) (1,605) (1,627) (1,654) (1,687) 2,553 2,670

Cash Flow (monthly) (14) (79) (99) (112) (120) (128) (134) (136) (138) (141) 213 222

ACCUMULATED LOAN CASH FLOW: (172) (1,124) (2,317) (3,658) (5,094) (6,633) (8,239) (9,865) (11,519) (13,206) (10,653) (7,983)

.

LOAN: Year: 0 1 2 3 4 5 6 7 8 9 10 11 Loan Balance 70,182 45,816 36,723 30,165 25,045 19,515 14,996 11,594 7,919 3,951 Payment (monthly) (356) (356) (356) (356) (356) (356) (356) (356) (356) (356) Paid Interest (portion of payment) (356) (305) (245) (201) (167) (130) (100) (77) (53) (26) Unpaid Interest (added to loan principal) (112)

Tax Deduction Benefit (monthly) 205 134 107 88 73 57 44 34 23 12 Net Monthly Loan Cost (150) (222) (248) (267) (282) (298) (312) (322) (332) (344) Net Tax Benefit Received (put towards paying down

the next year's principal) 25,714 8,493 5,230 3,267 3,267 1,814 336 336 336 336 336 336 Net Annual Electric Bill before Solar (with tax effects

& including Lifestyle changes, but not Energy

Efficiency) 2,388 2,507 2,632 2,764 2,902 3,047 3,199 3,359 3,527 3,704 3,889 4,083 New Net Annual Energy Cost (with tax effects,

including new electric bill, maintenance, inverter replacement)

755 800 847 897 950 1,006 1,065 1,127 1,193 1,262 1,336 1,414 Net New Annual Cost (Loan plus New Net Energy

Cost) 2,560 3,459 3,825 4,105 4,337 4,587 4,805 4,986 5,181 5,391 1,336 1,414 Cash Flow (annual) (Old less New Net Costs) (172) (952) (1,193) (1,341) (1,435) (1,540) (1,605) (1,627) (1,654) (1,687) 2,553 2,670 Cash Flow (monthly) (14) (79) (99) (112) (120) (128) (134) (136) (138) (141) 213 222 ACCUMULATED LOAN CASH FLOW: (172) (1,124) (2,317) (3,658) (5,094) (6,633) (8,239) (9,865) (11,519)(13,206) (10,653) (7,983)

(8)

“Smart Financing” Timeline

LOAN: Year:

0 1 2 3 4 5 6 7 8 9 10 11

Loan Balance 70,182 45,816 36,723 30,165 25,045 19,515 14,996 11,594 7,919 3,951

Payment (monthly) (356) (356) (356) (356) (356) (356) (356) (356) (356) (356)

Paid Interest (portion of payment) (356) (305) (245) (201) (167) (130) (100) (77) (53) (26)

Unpaid Interest (added to loan principal) (112)

Tax Deduction Benefit (monthly) 205 134 107 88 73 57 44 34 23 12

Net Monthly Loan Cost (150) (222) (248) (267) (282) (298) (312) (322) (332) (344)

Net Tax Benefit Received (put towards paying down

the next year's principal) 25,714 8,493 5,230 3,267 3,267 1,814 336 336 336 336 336 336

Net Annual Electric Bill before Solar (with tax effects & including Lifestyle changes, but not Energy Efficiency)

2,388 2,507 2,632 2,764 2,902 3,047 3,199 3,359 3,527 3,704 3,889 4,083

New Net Annual Energy Cost (with tax effects, including new electric bill, maintenance, inverter

replacement) 755 800 847 897 950 1,006 1,065 1,127 1,193 1,262 1,336 1,414

Net New Annual Cost (Loan plus New Net Energy

Cost) 2,560 3,459 3,825 4,105 4,337 4,587 4,805 4,986 5,181 5,391 1,336 1,414

Cash Flow (annual) (Old less New Net Costs) (172) (952) (1,193) (1,341) (1,435) (1,540) (1,605) (1,627) (1,654) (1,687) 2,553 2,670

Cash Flow (monthly) (14) (79) (99) (112) (120) (128) (134) (136) (138) (141) 213 222

ACCUMULATED LOAN CASH FLOW: (172) (1,124) (2,317) (3,658) (5,094) (6,633) (8,239) (9,865) (11,519) (13,206) (10,653) (7,983)

Utility Pre-Solar Bill kWh Usage per Month PV System Size & Rating Amount Financed

Net Monthly Cash Flow Compared to 8% 10-yr Loan in First Year

Cash Flow In Fifth Year

TX--Oncor $850 10,000 kWh 50 kW STC $52K $-160/mo $-279/mo

LA--Cleco $1,176 10,000 kWh 50 kW CEC $97K $-359/mo $-672/mo

CO--Xcel $976 10,000 kWh 50 kW STC $87K $-418/mo $-655/mo

NM--PNM $1,148 10,000 kWh 50 kW STC $16K $-13/mo $-292/mo

MO--KCP&L-G $1,330 10,000 kWh 50 kW STC $91K $-349/mo $-608/mo

WI--WPSC $1,213 10,000 kWh 50 kW STC $88K $-373/mo $-653/mo

MA--NatlGrid $1,479 10,000 kWh 50 kW STC $86K $531/mo $217/mo

CT--UI $2,017 10,000 kWh 50 kW PTC $98K $-207/mo $-491/mo

NY--LIPA $1,848 10,000 kWh 50 kW STC $36K $250/mo $128/mo

NJ--JCP&L $1,060 10,000 kWh 50 kW STC $87K $-94/mo $-512/mo

MD--BGE $1,229 10,000 kWh 50 kW STC $73K $45/mo $-294/mo

NC--Duke $1,500 10,000 kWh 50 kW STC $33K $492/mo $122/mo

GA--GaPwr $1,635 10,000 kWh 50 kW STC $34K $446/mo $97/mo

FL--FPL $1,075 10,000 kWh 50 kW STC $92K $-388/mo $-641/mo

AZ--APS $1,060 10,000 kWh 50 kW STC $33K $143/mo $-33/mo

CA--PG&E $354 2,000 kWh 10 kW CEC $20K $-43/mo $-102/mo

CA--PG&E $1,732 10,000 kWh 50 kW CEC $87K $-110/mo $-415/mo

Commercial

Cash Flow

Smart Financed

Residential Cash Flow

! 4 kW residential system ! 8% 20 year “Smart Financed” Loan ! No bridge loan needed

Utility Bill w/o Solar New Net Cost: Loan, New

Bill, Maintenance, etc.

Net Annual Savings / Cost

Examples

Residential

Cash Flow

Utility Pre-Solar Bill kWh Usage per Month PV System Size & Rating Net Amount Financed

Net Monthly Cash Flow Compared to 7.5% 30-yr Loan in First Year

Cash Flow In Fifth Year

TX--Oncor $87 800 kWh 5 kW STC $12K $-11/mo $-17/mo

LA--EntergyLA $81 800 kWh 5 kW STC $10K $28/mo $-4/mo

CO--Xcel $87 800 kWh 5 kW STC $16K $-13/mo $-23/mo

NM--SPS $72 800 kWh 5 kW STC $8K $-6/mo $-30/mo

MO--KCP&L $85 800 kWh 5 kW STC $12K $-4/mo $-12/mo

WI--WEPCO $111 800 kWh 5 kW STC $17K $23/mo $15/mo

MA--NSTAR $130 800 kWh 5 kW STC $16K $91/mo $75/mo

CT--UI $171 800 kWh 5 kW PTC $15K $32/mo $26/mo

NY--ConEd $163 800 kWh 5 kW STC $10K $78/mo $68/mo

NJ--JCP&L $132 800 kWh 5 kW STC $19K $18/mo $-11/mo

MD--BGE $112 800 kWh 5 kW STC $18K $-10/mo $-36/mo

NC--Progress $83 800 kWh 5 kW STC $10K $27/mo $4/mo

GA--GaPwr $101 800 kWh 5 kW STC $12K $23/mo $-3/mo

FL--FPL $83 800 kWh 5 kW STC $19K $-39/mo $-49/mo

AZ--APS $103 800 kWh 5 kW STC $15K $16/mo $7/mo

CA--PG&E $86 550 kWh 3 kW CEC $14K $14/mo $5/mo

CA--PG&E $447 1,650 kWh 9 kW CEC $37K $238/mo $235/mo

HI--HECO $272 800 kWh 5 kW STC $16K $151/mo $143/mo

Cumulative Cash Flow

Examples

Agenda

! 

Overview of Basic Financing Principals

! 

Residential Conventional Financing with

Unsecured Loans & Home Equity

! 

PACE & State/Utility Loan Programs

! 

Lease Basics & Commercial Leases

! 

PPA Basics & Commercial PPAs

! 

Residential Leases & PPAs

(9)

Property Assessed Clean

Energy (PACE) Financing

PACE / Community

Financing Programs

! PACE: Property Assessed Clean Energy

! PV system financing thru property tax assessment

" Paid by increased property tax liability

" Liability attached to the property, not the individual

" Transferrable to future owners

# Removes concerns about resale value

# Possible issue regarding ITC recapture vs. increased

resale value within first 5 years

PACE / Community Financing

Programs (Berkeley FIRST, AB811)

! 

PACE early attempts:

" 20 year, fixed interest rates, tax deductible interest

# Berkeley FIRST: ~7.75%

" Early/special locations: Palm Desert CA, Santa Fe,

Albuquerque, Austin, Babylon NY, Sonoma CA !  Interest nationwide - U.S. D.O.E. PACE Initiative

!  Listed in DSIRE: http://www.dsireusa.org

PACE Status

! 

Currently stalled almost everywhere

" 

FHFA currently blocking PACE activities

! 

Federal legislation introduced to allow PACE

to continue

! 

… Stay Tuned. Follow & support at:

" PaceNow.org

" The DSIRE database: www.dsireusa.org " VoteSolar.org

(10)

NJ - PSE&G Utility Loan Program

! 

Typically 40-60% of system value

! 

Residential: 6.5%, 10 year term

! SREC Value >=$.40/kWh

! 

Non-Residential: 11.3%, 15 year term

" SREC Value >=$.33-$.36/kWh

! 

Repayment via either:

" 

SRECs at or above minimum value

" 

Cash

" 

Can change once per year

Example State Loan Programs

! 

Texas

Schools, Local Government, State

Government, Hospitals

" 

3%, Must have ~10 year average term

! 

Oregon: All Sectors

" 

$20K to $20 Million, 5-15 year terms

! 

For loans in other states see the DSIRE

database: www.dsireusa.org

Agenda

! 

Overview of Basic Financing Principals

! 

Residential Conventional Financing with

Unsecured Loans & Home Equity

! 

PACE & State/Utility Loan Programs

! 

Lease Basics & Commercial Leases

! 

PPA Basics & Commercial PPAs

! 

Residential Leases & PPAs

3

rd

_{Party Financing of}

Solar Projects

Sales Tip

! Failure to “sign” is not likely due to price

! Suggest don’t even quote a system price

" Only quote a monthly payment

! Ask if they are, or will become subject to AMT if

they go solar

" If so, only consider Lease or PPA

" And only discuss monthly payments

(11)

3

rd

_{Party Financing}

Options For Solar

! 

Leases

- Ways of paying for ownership and/or use

over time, having tax and/or cash flow benefits during term, usually with intention of purchasing or renewing at the end

" Renting system with intent to purchase, while allowing transfer of tax benefits

! 

PPAs

-

Power Purchase Agreements

-

Paying for just the energy if/when delivered with possible intent to purchase

Disclaimer: I’m not a CPA or lawyer, and am not providing tax advice. Seek qualified professional help

Leases

Returns for Lessors

! 

Was in ~6%-9% range before financial crisis,

now in the low- to mid-teens

! 

Less money now available, so higher returns

for those willing to deal

! 

Requires:

" 

Lessees with best credit

" 

Limited project risk

" 

Low transaction costs via standard terms and

“conforming” projects

CHECK W/ Baker & Dave Clamage

Check examples for Typical cases too

Ask for real examples

Leases

! 

Several Types:

" 

Finance / Capital Lease

" 

True / Tax / Operating Lease

" 

Tax-Exempt Lease Purchase

! 

Thanks:

" Gene Beck, EnviroTech Financial

" Baker Davenport, Davenport Group

" Scott Young, Sentry Financial

What is a Lease

! 

Finance contract between 2 parties

" 

Lessor & Lessee

" 

Vendor connects the 2 parties

! 

Looks like either a loan or a rental

! 

Ability to transfer ownership benefits

" 

For Tax or Accounting purposes

! 

Specified term & payment

Widely Used

! 

Solar Leases similar to other asset leases

! 

Well established market

" 

80% of companies and gov’t agencies use

leasing, rather than owning, for at least some

of their equipment

" 

Some companies only use leasing, rather than

purchasing

! 

Lessor = Owner of system

(12)

Lease “Flow” & Parties

Lessee

Lessor

Vendor

Purchase Payment PV System

Initial “sales” interaction Info on leasing resources

Use of System

Lease Payments

Benefits of a Lease

! Terms more flexible than a purchase

! Allows for 100% financing

" Covering freight, maintenance, fees, …

# Which might not be allowed in a loan

! Doesn’t tie up capital and/or effectively stretches

line of credit

" Currently considered “Off Balance Sheet”

" Keeps bank line of credit free

! Solves AMT problems

! Can include Energy Efficiency measures

AMT - Alternative Minimum Tax

! Corporate AMT occurs for business with large “tax

preferenced” items

" Depletion, state income tax, real estate tax, non-solar

Tax Credits, Accelerated Depreciation

! Some businesses are or will become subject to

AMT if they go solar due to: " MACRS Depreciation

" Note: Solar ITC no longer causes AMT problem

! Tax Equity Investors (banks) not usually affected

by AMT, so have a tax “appetite” and can offer investment $ to get tax benefits others can’t use

Lease vs. Loan

Bank Loan/Line of Credit Leasing Interest

Rates

Floating interest rates, but effectively lower

Fixed rate with Fixed payments

Terms Usually 2-3 years, _{Often year-to-year} Up to 10 years

Opportunity Costs

Reduces Bank

Line of Credit None

Upfront Payment

Typically 20% to 30%

customer equity required 0% (100% financed)

Financial

Reporting On balance sheet as debt

Some are off-balance sheet Total Cost Less than Lease unless tax _limitation _{(More risk to lessor)}More than Loan

*courtesy Conergy Commercial Financing presentation by Baker Davenport & Tim Pedersen, Rockwell Financial Group

Lease vs Loan Cost:

! Loan/Cash: 100% Principal

" + Interest (or Time Value of Money if Cash Purchase)

" - ITC (30% if available)

" - Depr (~30% if available)

" = Net cost = 45-50% depending on interest rates

! Lease: Total payments ~= 60% of principal

(interest cost included), but no ITC or Depreciation, therefore total cost is 60% net

! The difference in net costs is the Lessor’s profit

Lease Term Set By:

! 

Price of project - larger is better

! 

Credit of customer

(13)

Finance / Capital Lease

! 

Same as bank loan

! 

Fully amortizing or with balloons

! 

Lessee gets tax credit & depreciation

! 

Interest is deductible

! 

Most commonly utilized for energy projects

" 

Not useful for solar projects needing to

transfer tax benefits to Tax Equity Investor

Capital Lease Typical Terms

! 5 year, $100-150K

! 7 year, $500K

! Over 8yrs will have a longer amortization period,

but with a 7 year due date

" Banks don’t lend over 7 yrs unsecured

# Ie. w/o cash, real estate, or marketable securities

! 8 year, $1MM, 5-7 year due date (7 w/ balloon)

! 10 year typical max, 7 year due date

! Limits: Longer = higher risk

! Easiest lease to create wrt due diligence

" Typically 2 page agreement plus boilerplate

CHECK W/ Gene & Dave Clamage

Check examples for Typical cases too

Ask for real examples

Accounting vs. Taxes

wrt True & Operating Lease

! Two perspectives when reviewing leases

" Tax vs. Accounting

" Two different sets of books & calculations

! Accounting: must meet FASB 13 rules

" FASB - Financial Accounting Standards Board

! Tax: must meet IRS rules

! Most solar leases are

" Operating Leases for accounting purposes

" True Lease / Tax Leases for tax purposes

Operating Lease

(Accounting Perspective)

! Rental contract w/ fixed terms & conditions

! Lower effective interest rate than capital lease

" Lessor gets depreciation & tax credits

" Payments ~40% lower for solar than capital lease

! Lessee expenses monthly payments

! Lease considered “off balance sheet”

" Likely changing due to proposed FASB revisions

" Will need to be disclosed in footnotes or considered

a Finance Lease

! This is the typical accounting treatment of a True

Lease / Tax Lease

True Lease / Tax Lease

(Tax Perspective)

! Rental contract w/ fixed terms & conditions

! Lessee expenses monthly payments

! Available to non-profits & gov’t entities

" Can do, but no transfer of tax benefits " Use Tax Exempt Lease Purchase

! This is the one used for solar projects suffering

from AMT limits on tax benefits

! This is how Operating Leases are treated from Tax

perspective

True / Operating / Tax Lease

Typical Terms

! E.g.: $500K+, 80kW+ system (as of 5/23/09)

! Preferred: $3MM, 500kW+ system

" 5-7-10yrs on strong credit for smaller projects

" ~10-15yrs on very strong credit & larger projects

# Credit requirements have gone up in 2009

! End of lease:

" Purchase equipment at Fair Market Value (more later)

" Extend lease for add’l 12-60 months at fixed rental rate

# Repeat indefinitely or sell

" Return equipment to Lessor in good condition

CHECK W/ Gene & Dave Clamage

Check examples for Typical cases too

Ask for real examples

Get examples of Common lease paperwork and processing costs

To set up a deal

(14)

Operating Lease Docs

! More difficult, more due diligence than Capital Lease,

Less than PPA

! 8-15 pages basic lease:

" 5% custom language, 95% boilerplate

" Roof lease

" Waivers

" Terminal Value Schedule & Purchase

" Master Lease, Equipment Schedule

" + other docs

" = total of ~15-30 pages

CHECK W/ Gene & Dave Clamage

Check examples for Typical cases too

Ask for real examples

Get examples of Common lease paperwork and processing costs

To set up a deal

Cash Benefits of

True & Operating Leases

! 

Lessor offers lower monthly cost of solar

system to end user because of enjoyed tax

benefits

! 

Lessor gets lower taxes

! 

Lessee gets lower cost PV system (lower

payments)

Loan

Electric Bill Loan

Lease Payment

Options

Electric Bill Various Leases

~50% are Cash Positive in 2009 w/ Lease

Larger more likely to be cash positive if over 10 years

True & Operating Lease Term

! 

Typically >= 6 years to get all depreciation

benefit and vest all of the tax credit

! 

End of Lease options:

" 

Purchase at greater of Fair Market Value

(FMV)* or predetermined price

" 

Return to Lessor upon notice

" 

Auto-renewal for shorter term

*Critical to avoid tax violation

Purchase Options

! 

Strict IRS Rules for Sale at End

! 

Fair Market Value (FMV)

" Best IRS clarity: Determined by independent appraiser at time of exercise

" May be okay to come to agreement among parties at time of exercise

" Should not be bargain fixed price

! 

Best IRS clarity: purchase >6 years for FMV

" 

May be okay to have limited purchase options

at set anniversaries at FMV

(15)

Typical Lease Terms

! Lease can’t exceed 80% of life of asset

" Must have a residual value (in future 75%?)

! Lessor owns, but takes no operating risk

" Hell or high water - Lessee must pay for system

regardless of performance

" Incentive on Lessee to maintain system

! Property tax, insurance, maintenance is

responsibility of lessee

! May require tax indemnity if tax benefits aren’t

transferable to Lessor

Tax Exempt Lease Purchase

! Primarily for State & Local governments

" Includes public schools & universities

" Longer terms: 10-20 yrs by project size (>20kW)

! Current debt obligation for lessee

! Non-profits qualify for larger projects (

> $1MM)

" Must have gov’t sponsor

! Special structuring - more “complicated” lease

! “Tax Exempt” means the lessor doesn’t pay Fed tax

on income: Reduces interest ~ 300 basis points

Non-Profits w/o Gov’t Sponsors

! 

Non-Profits not eligible for True / Operating

Leases

" 

Can’t pass tax benefits to lessor

" 

Instead - Capture via a 3rd party ownership

structure: PPA

Get Lessor, Lender or

Broker Involved Up Front

! 

They can help present and sell the deal -

include them early on

! 

Helps and increases sales person’s control

! 

Helps get the right questions asked up front

" 

Speeds the sale

" 

Or determines early that this is a no-go

" 

Determine which type is best

Financing Options For Solar

! 

Leases

- Ways of paying for ownership and/or

use over time, having tax and/or cash flow benefits during term, usually with intention of purchasing or renewing at the end

! 

PPAs -

Power Purchase Agreements

-

Paying for just the energy if/when delivered

(16)

Power Purchase Agreement - PPA

! 

A Type of Offering or Proposal

" 

Contract for the sale of energy (kWh)

" 

Not sale of a PV system

! 

A financing alternative to leasing

! 

Recently very popular (75%+ of large)

! 

Thanks:

" Keith Martin, Chadbourne & Parke, LLP

" Colin Murchie, SunEdison

Parties to the Transaction

! 

Agreement between

" 

PPA Provider / Vendor aka “Developer”

" 

Off-Taker / End User of Energy

" 

Building Owner (might be End User)

" 

System Vendor / Installer / Integrator

" 

3rd Party Investor / Financier (might be

installer and/or Developer)

PPA “Flow”

PPA Developer / Vendor System Vendor/Installer Occupant / Off-Taker / Energy User PPA Financier / Investor Building Owner PV System kWh Energy Monthly Energy Payments Building Access / Maintenance Permission Purchase Payment Investment Cash ROI & Tax Benefits

Lender Debt & Debt Payments … multiple off-takers

Party Responsibilities

! Developer (might also be installer) oversees:

" Construction

" Operation & maintenance of equipment

" End User & Investor relationships & payments

" Execute the 80-100 ‘To Do’ items

! End-User

" Receives energy from system

" Makes predetermined payments for energy if/as it is

produced

Financier-Developer Relationships

! 

Financier is Tax Equity Investor

" 

Has Tax appetite

" 

Doesn’t want to build or operate projects -

needs developer/operator

! 

Three common structures:

" 

Sale-Leaseback

" 

Partnership-Flip

" 

Inverted Lease (aka Pass-thru Lease or

(17)

Sale-Leaseback

! 

Property Sold to Tax Equity Investor &

Leased back to Developer/Operator

" 

Important that this lease is back to the same

party that placed the property in service

" 

Tax benefits stay w/ Tax Equity Investor

Partnership-Flip

! Tax Equity Investor & Developer/Operator are

partners with unequal ownerships

" For initial period, Tax Equity Investor owns 99%

(max) and receives 99% (ideally, not really) of benefit (tax and income) until “target” return is achieved

# Must be >5 years for full vesting of ITC

" Entering second phase, ownership “flips” so that

Developer/Operator owns up to 95%.

" Developer/Operator can buy remaining share at FMV

(or more, FMV decided at that future date)

Sale-Leaseback

Time Flexibility

! Allows “Place-In-Service” date up to 3 months

before closing Sale-Leaseback

" More time flexibility in getting financing

! To qualify, delay In-Service as needed:

" Construction completion

" Asset conveyance

# Sale to Tax Equity Investor

# Use of asset by site user

" Permits signed off

" Testing and customer signoff

Sale-Leaseback

Benefits & Drawbacks

+ 3 extra months to close financial of deal

+ 100% Tax Benefit Capture (vs. 99% minus leakage w/ partnership flip)

- No “Limited Use” property (can’t become worthless)

- 80% of useful life limit on lease term (soon 75%?) - Repurchase at end of term more expensive

- Tax Indemnity required

- Developer/Operator can’t be a non-profit

Inverted Lease

!  Aka Pass-Through Lease or Master Tenant Lease

!  Developer is the owner and Lessor

!  Tax Equity Investor (TEI) is the Lessee

!  Developer (lessor) ‘elects’ to pass ITC to TEI

!  TEI (lessee) pays rent similar to what depreciation would

have been and expenses the rent (and enjoys ITC)

!  TEI sells the electricity for 6-15 years

!  Developer uses depreciation to offset taxable rent income

!  No cost to Developer to get ownership at termination

!  No explicit cash purchase price, since developer is also

builder and owner

" What is the ITC ‘basis’ & Depreciation ‘basis’?

FMV

Fair Market Value

! 

Should not be bargain fixed price

! 

Determined by independent appraiser at time of

exercise

" Method 1 - Cost-Based: Actual cost to build, including profit & soft costs including only eligible property*

" Method 2 - Market Based: Estimated thru comparable sales of eligible property

" Method 3 - Income Based: Discounted value of future cash flow – not considered reliable

(18)

Treasury 1603

Cost Basis Analyses

!!! "#$%&#'()*!"#$%&#'()*+!,-)**! ./--#01%)*! ./--#01%)*! 2)03#! ./--#01%)* +!4(*%56! ,%7#!")'3#! 89:!;<! 9:=9::!_;<! 9::!=!9>:::!_;<! ?9!@<! A6B%1)*!,%7#! C!;<! DC!;<! DC:!;<! D!@<! AE0';#6! F0%1#!B#0!

<)G! H+=!IJ! H+=!IK! H+=!IC! H+=!IL!

End-User/Off-Taker Benefits

! 

No up-front costs, down payment or deposit

required

! 

Lower initial energy costs

! 

Potentially lower long term energy costs

! 

Future discounted purchase of system

! 

Reduced PV cost even if no tax appetite

Energy Expense Comparison

2011 2021 2031 Year

Cost Per kWh

PPA Electric Rate including contracted escalation at 3%

Utility Electric Rate including estimated escalation at 5% 15¢

14¢

Investor/Owner Benefits

! 

Guaranteed stream of income from energy

sold

! 

Tax benefits

! 

No inflation/escalation risk

! 

Keep or sell Green Tags / RECs

User Energy and

Capacity Payments

! 

Most are Energy Payments only: $/kWh

delivered

" 

Sometimes indexed to electric or gas markets

! 

Some also include a “Capacity” payment

" 

Fixed $/kW/month based on average

“availability” of PV equipment

" 

Comparable to Demand Charges

# Depends on profile

# Recover some lost hidden value

Performance Terms

! 

Performance Guarantees

" 

Annual & Project life

" 

Actual Energy / Power delivered

" 

Efficiency & Availability of Equipment

! 

Liquidated Damages for failure to perform /

(19)

Performance Terms cont’d

! 

REC / Green Tag ownership

" 

Usually retained by system owners

" 

Potentially valuable as AB32 kicks in

! 

Metering

" 

Costs & Billing Systems

! 

Rights to Excess Power

" 

Use of and Value

" If rates don’t rise, might cost more

!  Might not get Green Tags/RECs

" Additional cost if desired

End User Risks

2011 2021 2031 Year

Utility Electric Rates may not rise or stay above PPA Contract Rate

15¢

14¢

Upside Down Deals?

2007 2017 2027 Year

Utility Electric Rates assumed to rise at 5% and eventually go above PPA Contract Rate 13¢

14¢

!  Why take 10 years of guaranteed losses to maybe get 10

future years of savings (consider Time Value of Money)? !  Is the hedge worth that much?

" Chances of rates not rising at 5%?

" U.S. Average: Rates Grew 3.8% /yr from 2001-2010; 2.1%

over 20 years

" Large 2009 U.S. Natural Gas discoveries may limit escalation

2010 Average

Residential Electric Rates &

Escalation (West, partial)

Source: DOE Energy Information Administration.

2008 U.S. Average Retail Price per kWh is 9.74 Cents

Average Retail Price (Cents per Kilowatt-hour)

© 2011 OnGrid Solar, All rights reserved. Intro to Solar Financing - 101 =! DM:! LM:! KM:! NM:! 9:M:! 9DM:! 9LM:! 9KM:! Residential 1982 !" #$ %& '" (&)* +, -./ 01 ,2 (& F#);#&!O!LPQ! ! ! !! ! ! A%#0!L!R!C>!L:Q! ! ! A%#0!S>!DPQ! ! ! ! ! !! ! ! A%#0!D>!9SMCQ! A%#0!9>!99MPQ! FTRU!D:9:! asa s asf sf asdf f f df asf a sdf 3456&7889& A%#0!C>!DKQ! A%#0!L>!DLQ! A%#0!S>!9JQ! A%#0!D>!9SQ! A%#0!9>!99Q!

•  Deregulation in 1995 froze Tier 1 & 2 •  AB1X during 2001 Power Crisis created Tier 3-5, which have risen 5x faster than ‘average’ rates needed to rise to compensate for Tier 1&2 •  SB 695 (Kehoe) unlocks and raises Tier 1 & 2 rates 1% faster than ‘average’, up to 5% per year •  Tier 3,4,5 might now drop

Residential 1970 to 2001 plus 2001 to 2010 tiers

California Electric Rates

Source: California Public Utilities Commission, EIA, PG&E "#$%&#'()*!

!DMDQ! !JMJQ! !99MKQ! !99MSQ!!

9:;8& 9:<7& 9::=& 9::<& 3456&7898&

A%#0!C>!LPQ! A%#0!L>!L9Q! A%#0!S>!DJQ! A%#0!D>!9SQ! A%#0!9>!99MCQ! Be cautions about future rate hikes – 2-3% max

Investor/Owner Risks

! System Performance

" Maintenance over 15+ years

! End-User default or vacancy of property

" Good credit end-users required

" Require host supply another site or pay term. Fee

" Lots of “due diligence” required - high transaction

costs

! Incentive Receipt Certainty

" Must have confirmation of qualification/allocation

! Project Documentation Risk

(20)

Complications - Legal & Tax

! 

High initial transaction costs

" 

Reduced with standardization

! 

Building access / maintenance costs

! 

Repossession / aftermarket value

Complications - Terms

! 

Power Contract Form:

" 

Selling kWh?

# At what price?

# TOU & Demand saving / costs

# Who takes remaining utility bill?

" 

Simpler but vague sales presentation

" 

May leave lots on table in customer’s

benefit

Avoid Tax Mistakes to Ensure

Investor Access to Tax Benefits

! Tax Equity investor must have “unfettered” use of

valuable asset after deal is over

" Will panels still be valuable in 15+ years?

" Value can’t be stated now - must be set at that time

" Term can’t go over 80% of “useful life” (must not be

“Limited Use” property)

! Must be “attached” and not easily moved, but is not

Real Property – use UCC filing to secure

! Purchase Options: >= Fair Market Value (FMV)

Common Mistakes

! Rebates are taxable to Host?

" Host signs over rebate, but is stuck w/ tax liability?

! Usually no “Tax Indemnification” (unlike leases)

! Host can’t share in upside

! Host can’t be charged for electricity not received

PPA Contract Documents

! 

Total: 100-200+ pages

! 

Standard Off-taker Contract Segments:

" 

The PPA: 20-35p

# Sale of Power/Energy: Output vs. Requirements

# Metering & REC ownership

" 

Installation Contract: 20-50p w/ exhibits

# Equipment Supply & Construction

" 

Operations & Maintenance Agreement: 10-15p

" 

Site Lease gives provider rights & protections

# O&M Access; Transfer to new site owners

PPA Contract Costs

! 

High (long & complicated) but dropping

rapidly for “generic” & standard

" 

Basic Standard Agreements: $3K-20K

including tailoring w/ desired terms

! 

Moving to pre-approved deal checklists

! 

SolarTech.org “Standard PPA”

" 

$395; free to members

! 

SEIA “PPA Template” free for members

! 

Per-Deal (legal) costs are now low(er):

" 

Quick review (if standard & good basic

(21)

PPA Developer &

Investor Contract Documents

! Additional agreements for Developer & Investors

" LLC w/ Partnership Flip: 40p + 15p exhibits

" Purchase Agreement: 24p + 7p of “definitions”

! Covers the multi-year legal structure to allow Tax

Equity Investor to reap tax benefits as 99% initial owner, then “flips” ownership to Developer to reap long term operating benefits.

! Flips occur anywhere from Year 6 to Year 17

" Rebates/PBI, Host Payments, Tax Benefits (vesting)

Equipment Supply &

Construction Agreement

! Product Supply

! Installation terms, timeline, etc

" In-Service Date not earlier than 3 months before

closing Sale-Leaseback or not before closing Partnership Flip

! Warranty (5-10 yrs, useful terms to satisfy)

! Performance Guarantee or Warranty

" Based on independent data & measurable parameters

! Can installation be subcontracted?

PPA Deal Sizes

! 

Tax Equity Investors looking for big deals

" 

$25-$40 million minimum

" 

Keith Martin’s typical: $75-$150 million

" 

Desirable $100-$200 million

" 

? 5 to 50MW PV systems ?

! 

Aggregation

" 

Collect $3-$5million+ size projects

" 

Portfolio approach limits risk:

# Max $ per project and per customer

Aggregation

! 

Collect 5 to 50 $3-$5million+ size projects

! 

Master Agreements: “All Deals …”

" 

In by X date

" 

Meet 10-12 item checklist

! 

Standard checklist reduces due diligence &

legal costs per deal

PPA Typical Terms

! 

$2.5Million+ (>350kW+)

! 

15-20-25 yr commitment

! 

End of term:

" 

Renew PPA

" 

Purchase of system

# 

At greater of FMV or pre-determined price

" Pay termination & have system removed ! 

Significant due diligence on customer req’d

Tax Equity Investors & Lenders

" Union Bank of CA

" US Bank (U.S. Bancorp)

" Deutsche Bank " John Hancock " Rabobank " Morgan Stanley " Wells Fargo " PG&E (utility)

" National City Bank

(leaving the business?) " Bank of America " Citigroup " JP Morgan " MetLife " Credit Suisse " Google

" Other corporate coming?

! Goldman Sachs invests in PPA companies to buy

& flip for profit

(22)

NREL RE Project Finance

! 

Summary & survey info on latest data on

trends in project financing

! 

Quarterly reports & webcasts

! 

http://financere.nrel.gov/finance/

Layers of Debt

Return R isk Developer Equity Mezzanine / Subordinated Debt Tax Equity Non-Recourse Debt

! Described well by Paul Schwabe in “Peeling the

Onion: The Layers of Capital Structures”

"  http://financere.nrel.gov/finance/content/peeling-onion-layers-capital-structures

Money:

Costs & Returns

! Financial Returns for Tax Equity Investors:

" Was High 6% to Low Teen % after tax

" Now: ~10-12-15% for mid-large PV, declining " Shortage of money, so demanding higher returns " 1603 expiration will cause shortage of equity " Volker rule could eliminate bank TE

! Developer Equity return ~14+%

! Leverage (Debt) - Used by Some

" Increases risk & complication " Helps get cost down or returns up " Requires larger deals to make sense " Cost/Term: ~4-8%, for less than 15 years

! 1% increase in cost of capital increases cost 10%

Funding Examples

!!! V'W#$5_{-#'5! X#Y5!} X#Y5!./$5!

)5!CZ! "#5E0'! F0/[5! "#5E0'!/'!V'W#$5#&!.)B%5)*! U\E%56!

]'*6! I9::! I:! I:! I99:! I9:! I9:+I9::!^!9:Z! U\E%56!

H!X#Y5! ID:! IN:! IL! I99:! IK! IK+ID:!^!S:Z!

Funding Sources

at Various Phases

F_)$#! F0#=,)*#! ./'$50E1(/'!XE0%'3! ./'$50E1(/'!`E$5!ab#0!

]B#0)(/'! ,_/05!A#0-! ]B#0)(/'! @%&!R!2/'3! A#0-!c)b#0! d%Be! ,/E01#$! /f!gE'&$! ! ! ! !! $ X#W#*/B#0! h,)*#$!"%$;i! ,5)05EB! V'W#$5-#'5! $ X#W#*/B#0! U\E%56j!h$;%'! %'!5_#!3)-#i! kD:Z!/f!fE**! 1/$5! $ X#Y5j! ./'$50E1(/'! A#0-!2/)'! kN:Z!/f!fE**! 1/$5!c%$!)*$/! Y0%&3#!5/! A0#)$M!T0)'5e! $ A0#)$E06! T0)'5! $ ,5)5#+2/1)*! "#Y)5#$!/0! T0)'5$! $ A)l!U\E%56! kS:=L:Z!/f! '#5!1/$5! $ X#W#*/B#0! U\E%56!kD:Z! $ X#Y5!kLCZ! $ g#&!VA.!c%f! '/5!A0#)$E06! T0)'5e! $ ,5)5#!VA.! $ X#B0#1%)(/'! $ A)l!U\E%56! kS:=L:Z!'#5! $ X#W#*/B#0! U\E%56!kD:Z! $ X#Y5!kLCZ! $ X#B0#1%)(/'! $ FmV$! $ ,"U.$! $ F/n#0!,)*#$! $ X#Y5!5/!#'&! /f!@%&!A#0-! $ X#W#*/B#0! YE6/E5!1)$_! )5!5_#!d%B!

Alternative Funding Methods

! 

Tax Equity only (no debt)

" Simpler – fewer parties involved

" TE cost is lower – not subordinated to debt

! 

Debt & Developer Equity only (no TE)

" Debt is cheaper than Tax Equity

" Easier for smaller projects (TE not avail.) " Requires Developer to have tax appetite

! 

Developer Equity only

" Simpler, flexible, but has above limitations and is capital inefficient