Transcript MMA RV Company Meeting

U.S. Solar Market Overview
New Mexico Energy Investment Initiatives
July 2008
MMA Renewable Ventures Overview

MMA Renewable Ventures is the leading owner and financing source for
renewable energy and energy efficiency assets in the U.S.
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—
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27 MW of solar PV projects in operation;
13 MW of projects currently under construction
30+ customers, 10 integrators/installers

Recently entered into wind, biomass, and large-scale energy efficiency deals
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Pipeline of $1 billion of identified opportunities for 2008-09
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Delivering reliable and affordable clean energy
with proven
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Project finance
Due diligence
Physical asset management
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Financial Sponsorship
U.S. market will develop around strong financial partners that can
manage risks for developers, customers, investors, and manufacturers.
DEVELOPER
MANUFACTURING
Financing Risk
Implementation Risk
EPC Risk
Real Estate Risk
Regulatory/Rebate
Technology Risk
Brand Protection Risk
Regulatory Risk
INVESTOR
CUSTOMER
Implementation Risk
Relationship Risk
Regulatory/Rebate Risk
Maintenance Risks
Operating Expense
Credit Risk
Regulatory Risk
Production Risk
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High Potential U.S. Market
Germany
United States
Source: Solar Energy
Industries Association
(SEIA)
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Growing Market Potential for PV
• Rising electricity prices
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U.S.
2007
2005
2003
2001
1999
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Hawaii ($ .00)
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1997
– Renewable Portfolio Standards
– Net metering and interconnection
– Federal cap-and-trade system’s
distribution of allowances / auction
proceeds to renewable energy
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14
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1995
• Favorable trend in policy, e.g.,
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1993
• Falling tech and project costs
Avg. Retail Electricity Prices
U.S. ($.00)
– Global demand for coal and
natural gas
– Popular opposition to coal plants
– Cap-and-trade system may
increase electricity prices by 20%
(assuming $40/ton carbon)
Hawaii
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U.S. PV Installation Growth
MW installed
2000: 17 MW
2006: 141 MW (+31%)
2007: 259 MW (+83%)
2008: 491 MW (+90%)
2009: 913 MW (+86%)
2010: 1590 MW (+74%)
• More than 60% large
commercial
Sources: US PV grid-tied module use 2006
IREC and Larry Sherwood, PV News, July 2007
Greentech Media and Prometheus Institute, 2008
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U.S. Non-Residential PV Installations
• California remains over half the U.S. market
• Power Purchase Agreements (PPA) growing quickly
By Financing Model
140
60
120
California
New Jersey
Rest of States
2003
Source:
Greentech
Media
2007
0
2006
0
2005
20
2004
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Source: Greentech Media
PPA
Non-PPA
2009*
40
2008*
20
60
2007
30
80
2006
40
100
2005
50
2004
Megawatts (AC)
70
2003
Megawatts (AC)
By State
*Forecast
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U.S. PV Industry Market Trends
•
Utilities entering owner –
operator space
•
Policy uncertainties are
becoming a barrier to
sustained development
•
Rapid expansion (or
everyone’s got the “solar
bug”)
•
Emerging dominance of
Power Purchase
Agreements (PPAs)
•
Utility-scale projects
becoming commonplace –
hundreds of MWs
100%
0%
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Power Purchase Agreement:
Opening Markets for Solar
• Complicated financial
incentives than Europe
require PPA + third
party ownership
– Capital conservation:
no up-front capital
expenditure
– Limited operational
risk for customer –
key differentiator from
lease buyback model
– System purchase
options for the energy
end-user
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The Power Purchase Agreement: A Long Marriage
The PPA is a long term contract in which the customer buys the electricity
from the system owner on a set price schedule
CUSTOMER RESPONSIBILITIES
Buys System Electricity
10—25 year span
Provides System Site
(for retail systems)
Site lease agreement
SYSTEM OWNER RESPONSIBILITIES
Develop & Finance
Permitting
Design
Procurement
Installation
Own & Operate
Operations
Maintenance
Insurance
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PV Projects with Third Party Ownership:
Competing Interests on the Path to Standardization
DEVELOPER
INVESTOR
CUSTOMERS WANT TAILORED SOLUTIONS
“Just keep it simple and
cover all the bases”
“Just this once
and then we can
replicate.”
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Use new technology
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Secure tax benefits
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Commitments before $
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Minimize risk
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Make customers happy
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Sell high
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Credits, Technology, Operations
Buy low
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Differing Views: Return Expectations
DEVELOPER
“Lower risk than wind”
INVESTOR
“Where’s the money?”
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“If I deliver, you fund”
“Sure…just make sure
you deliver”
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“No moving parts,
…..solar lasts forever”
“Get me out in six”
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Return Expectations
IRR vs. money
Valuing the PPA Provider
Residual Value
Financing Risk
State regulatory timing issues
Who bridges delays?
Credit market meltdown
Operating Risk
Less than perfect installations
Taxes and changing incentives
Erosion and peeling on modules
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A Typical U.S. Solar Fund Syndication
• Diverse Financial Products
– Aggregation of PV projects – diversification of risk
– Leveraged structure with senior debt at the project level
– Majority of returns come from federal tax benefits
– Partnership structure – not a lease
– Proven technology
• Exit for Investor
– Clear exit path, terms, and overall deal
• Yields
– Matching risk & return. Consider fund-level risk, leverage, and credit
protection from each party
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Uncertainty in Federal Policy
• No long-term Federal policy is established.
• Delay in extending the 30% Solar Investment Tax Credit (ITC)
undercuts installation. Industry believes another one year extension
is likely, though timing is uncertain. Current ITC restrictions include:
– Not available to utilities
– Residential credit capped at $2000
– Not available to Alternative Minimum Tax (AMT) payers
• Several carbon emissions schemes are currently under debate in the
Senate. Discussion of national Renewable Portfolio Standard too.
• The leading Presidential candidates all favor a federal cap-and-trade
system for carbon emissions.
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Solar Investment Tax Credit
•
Extension is held up due to lack of compromise between Senate Republicans and
House Democrats over funding
•
Fundamentally, ITC caught up in larger political issues and election
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Industry impact from delay
– Temporary demand spike to
qualify for 2008 driving up prices
– Orphaned projects
– Layoffs at project firms
– Domestic firms (and jobs!) going
offshore
– Accelerate industry
consolidation?
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The Solar Alliance
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An Alliance of
– PV Manufacturers
– Systems Integrators
– Financiers
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Working at the state level to
adopt cost-effective solar
policies and programs
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State Rebate Programs
D.C.
Both state & utility/other programs available
State programs available
Utility/other programs available
DSIRE: www.dsireusa.org
March 2008
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Solar Policy Puzzle
RPS
Net Metering
Interconnection
Insolation
Tilt &
Orientation
Utility Rates
State
Incentive
TOU
Demand
Fixed/Tracker
Total System
Cost =
Modules +
BOS
ITC
MACRS
Decoupling
Property &
Sales Tax
Exemptions
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Track Record at Scale vs Price
TRACK RECORD
2010—2012
Wind
Solar
Photovoltaic
Crystalline
Geothermal
Biomass
Solar –
Parabolic
Trough
Solar Thin Film
Solar –
Concentrating PV
Solar – Stirling
Dish
PRICE
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Creating the Next Nellis
• The two biggest PV projects in U.S. are located in Nevada
(Nellis) and Colorado. Both states have:
– Good solar insulation – not nearly as good as New Mexico
– Stable, long-term policy regimes – state Renewable Portfolio Standard
with a solar carve-out – enabling long-term contracts with utilities
• Building similar projects in New Mexico will depend on:
– Certainty on federal ITC extension through 2010-2011
– Motivated communities and stakeholders to help bring all the required
pieces into place (expedited permitting, additional financial support,
etc)
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Nellis Air Force Base
Nellis Air Force Base – 14.2 MWs
Ground mounted tracking
system that covers 140 acres
Using over 70,000 solar
modules with tilted trackers
Largest PV system in Americas
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Nellis Air Force Base
MMA RV: Financed, Owned & Operated
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~$100MM project on Nellis Air Force
Base (AFB) property, eight miles
northeast of Las Vegas, Nevada
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All electricity sold to U.S. Air Force
under 20 year Power Purchase
Agreement contract
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All Renewable Energy Certificates
(RECs) sold to Nevada Power under
contract under State Renewable
Portfolio Standard w/solar carve out
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Saves Nellis ~$1 Million annually
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Nellis Construction Funding Schedule
Total Third Party Construction Cost ~ $100 million
12/21/07 – Final Completion Date and Perm Debt Funded
$120,000,000
$100,000,000
$80,000,000
$60,000,000
$40,000,000
$20,000,000
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Construction Debt Outstanding
Letters of Credit from MMA
* A typical solar project construction takes approx. 8 – 9 months.
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Final Thoughts
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U.S. is the most promising solar market in
the world today
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U.S. solar industry competing with
European firms
– Third party ownership facilitates entry
of European firms
– ITC risk pushing U.S. firms overseas
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But, U.S. solar industry still playing catchup with Europe, due to weaker policy
environment
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Project financier and third party capital
necessary for U.S. market growth due to
incentives structures
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Seeking a Level Playing Field for Solar
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Congress considering permitting
utilities to receive ITC (currently not
permitted)
– Utilities starting to enter the
North America PV generation
market
(SCE, Duke)
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Utilities can bring scale to industry
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But utilities are already receiving
federal subsidies and regulatory
advantages
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Incentives should encourage all
market participants to make the
solar marketplace
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Thank You!
Matt Cheney
[email protected]
415.229.8801
www.renewableventures.com
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