Distributed
Generation Financing
NWPPA Meeting
Turn-key approach for residential and commercial solar
Design Permitting Installation
Utility interconnection
Monitoring and Maintenance Financing
Power Purchase Agreement
Pay for the energy produced on site at a fixed rate for the term of contract.
Solar Lease
Fixed Monthly Payment
Keep system overproduction
Purchase Outright
Vendor Financing for
Customer Sited Solar
Utility borrows funds from a lending institution
Utility then loans these funds to individual consumers to make an energy
improvement to their home/business
The consumer then repays the loan through a monthly charge on the utility bill
The monthly loan payment is less than the savings achieved by the improvement
Considerations:
Secured/Unsecured loan to the consumer Credit determination regarding each loan
Regulatory requirements associated with lending Risk for non-payment
Administrative costs of filing and releasing liens G&T provides program for all distribution members
Utility develops partnership with banking partner to make loans to consumers for improvement projects
Utility markets the loan program to consumers under that partnership
Considerations
Does utility guarantee the consumer loan? Bank determines credit worthiness of borrower
Bank has responsibility of regulatory compliance as a lender Bank has responsibility for collecting payments
Generation cooperatives develop program and provide guarantee for all distribution utilities
Lender can provide traditional loan to utility for projects
These loans can be secured or unsecured
The length of the loan may match the useful life of the asset purchased
Utility has the total freedom to develop the program to suit their specific needs
USDA Provides guaranteed loan financing and grant funding to agricultural producers and rural small businesses to purchase or install renewable energy systems or make energy efficiency improvements.
Loan guarantees on loans up to 75% of total eligible project cost.
Grants for up to 25% of total eligible project costs.
Combined can not exceed 75% of the project cost.
Funds may be used for small and large solar generation.
Renewable energy system grants from $2,500 to $500,000.
More information can be found at:
http://www.rd.usda.gov/programs-services/rural-energy-america-program-renewable-energy-systems-energy-efficiency
Clean renewable energy bonds (CREBs) may be used by certain entities --
primarily in the public sector -- to finance renewable energy projects. The list of qualifying technologies is generally the same as that used for the federal
renewable energy production tax credit (PTC).
Participants must first apply to the Internal Revenue Service (IRS) for a CREBs
allocation, and then issue the bonds within a specified time period.
The bondholder receives federal tax credits in lieu of a portion of the traditional
bond interest, resulting in a lower effective interest rate for the borrower. The issuer remains responsible for repaying the principal on the bond.
Each transaction is unique and the application process can be challenging.
Clean Renewable Energy Bonds –
Notice 2015-12
The initial IRS allocations totaled $2.4 billion split equally amongst public power providers, governmental bodies and electric cooperatives, but large portions went unused.
On February 3, 2015 the IRS announced the opening of an application period for
the following volume caps available for reallocation:
Public Power Providers - $516,565,691.35 Governmental Bodies - $597,134,963.60 Electric Cooperatives - $280,778,469
Applications for the reallocation to public power providers must be received by
June 3, 2015.
Governmental bodies and cooperative electric companies can begin submitting
applications on March 5, 2015.
Details and the application can be found at:
http://www.irs.gov/pub/irs-drop/n-15-12.pdf
Clean Renewable Energy Bonds
(Cont.)
What Is a Lease?
A lease is simply an agreement between an owner (lessor)
and a customer (lessee) to pay for use of the equipment in
the form of rental payments for a specific amount of time
with an option to purchase or return the equipment at the
end. The customer is responsible for insurance,
True Lease Benefits
Ease of Execution: Straight-forward, commonly used financing with simple
documentation under Master Lease Agreement, outside Indenture / Mortgage.
Capital Cost: Financing is economically priced, supporting 100% of the project
cost, and enables the lessee to monetize the 30% Investment Tax Credit on qualified costs.
Asset Control: Ability for lessee to control the solar facility.
Financing Flexibility: Construction financing available, converting to permanent
financing with no out of pockets costs, or down-payments.
Cash Flow: Fixed payments through lease term, with a fixed Purchase Option.
Lease Structure: Renewable Energy Credits and Carbon Credits may be
Lessee Negotiates The Construction Contract
o Lessee decides on a solar contractor
o Lessee negotiates the construction contract
o Lessor reviews the construction contract to review ITC compliance
o Construction contract is assigned to lessor prior to being placed in service
Construction Process
o Lessor provides the construction financing
o Lessor provides the progress payments as requested by the Lessee
o The construction financing converts to perm financing when the project is put into service
Operations And Maintenance Of The Solar Facility
o Lessee provides the operation and maintenance of the solar array throughout the lease
End Of Lease Options
o At the end of the lease the lessee has two options. Purchase the solar installation for the stated residual amount or renew the lease for up to an additional two years
Life Of The Lease
True Lease financing, which has been commonly used for commercial solar installations:
o“True Lease” to taxable entity, which would operate solar project (Option 1)
o“True Lease” to taxable entity, which may sell power to another entity (Option 2)
True Lease:
o Lessor purchases and owns the equipment throughout the life of the lease. This entitles the lessor, as the owner, to the ITC and depreciation benefits associated with the solar array. o The lessor utilizes 30% Federal Tax Credit (currently available through 2016) and asset
depreciation to pass the savings back to the lessee in the form of a lower lease payment (resulting in a negative implied interest rate).
o Typical lease structure for a taxable entity:
• 120 months
• At end of lease, Lessee has the option to purchase the system for a residual value payment or renew the lease for an additional term
• 20% Fixed Purchase Option (Residual Payment)
True Solar Lease
Purchase or Renew Only (PRO)
o 1st Amendment Lease
o Lessee is required to either purchase or renew the equip at lease expiration. o Renewals for 12 or 24 months.
o After renewal term, lessee may purchase at FMV, renew, or surrender equipment. o Used with a FMV or FPO to transfer residual risk to credit risk.
o Longer lease term, higher residuals than FPO’s. o Predominantly used for non-rolling stock
o Lessee benefits:
• Facilitates a larger residual during base lease term.
• Back-ended cash flow structure and known renewal option structure.
Tax Credit Equity Solar Leasing Program
Lessor
Financing Option Description Degree of Difficulty
Solar True Lease Taxable entity (lessee) leases equipment from lessor; Tax economics are realized due to lessor’s tax appetite. Lessee maintains control.
Lessor monetizes ITC and deprecation benefits, passing through to customer owner through a negative implied lease rate. Easy Equipment Lease Lease Payments Taxable Entity
Lease Option #1
Tax Credit Equity Solar Leasing Program
Lessor
Lease Option #2
Financing Option Description Degree of Difficulty
Solar True Lease Taxable Entity / Subsidiary (“T-Sub”) leases equipment from Lessor; T-sub may enter into a PPA to sell the power to another entity, including a tax-exempt entity. Tax economics are realized due to lessor’s tax appetite. Lessor owns the equipment but lessee maintains control.
Lessor monetizes ITC and depreciation benefits, passing through to customer owner through a negative implied lease rate. Moderate Sale of Electricity PPA Payments Equipment Lease Lease Payments Tax-Exempt Entity Taxable Entity / Subsidiary
Lease Terms
o 10 - 12 year lease term / 15 - 20% Residual Value.
o End of lease options include purchase or renewal. If the lease is renewed, the lessee may have the option to return the equipment.
o T-sub must be an eligible entity
o Note: Interim financing available during construction, prior to permanent lease financing
PPA Terms
o PPA may be structured with capacity and / or energy payments o PPA Term up to 9 years (shorter tenor than lease)
o PPA may have unlimited renewal options
o PPA Term must be within useful life of equipment o Lessor likely to take an assignment
Brendan Ronayne
CoBank Farm Credit Leasing 1478 Stone Point Drive, Suite 380
Roseville, CA 95661 Phone (916) 380-3536 Cell (530) 848-6076 [email protected]
Contact Info
Doran DennisCoBank Electric Distribution Lending 900 Circle 75 Pkwy, Suite 1400
Atlanta, GA 30309 Phone (770) 618-3220 Cell (843) 687-1732
