Transcript Sample Presentation Headline

Markets and Financing
PV Power Plants 2009 - USA
December 10, 2009
Global Renewable Energy Team
Yujing Shu – Beijing
Ivan Chiang – Shanghai
Kevin Murphy – Singapore
Paul de Cordova – Dubai
Christian Hullmann – Berlin
Dirk Michels - Palo Alto
PL31963-v2
James Chen – Taipei
Choo Lye Tan – Hong Kong
Pallavi Mehta Wahi – India
Owen Waft – London
Eric Freedman – Seattle
Fred Greguras - Palo Alto
Maria Cull - London
Steve Rhyne – North Carolina
James O’Hare - Boston
David Brown – Austin
Mark Fleisher - Miami
Timothy Weston - Harrisburg
Kevin Burnett - Portland
Elizabeth Thomas - Seattle
Fred Greguras
Palo Alto Office
[email protected]
650.798.6708
Overview

Financing Policies in the U.S.

Financing Structures in the U.S.

RPS Policies in the U.S.

China Market and Policies

India Market and Policies

Other Markets
1
U. S. Market
Financing Polices and Sources of Project Revenue

No single federal or state policy is sufficient; a financing tool kit of policies is needed
that are available at the same time

U.S. has a comprehensive set of financing policies but is not a homogeneous market

Feed-in-tariffs (state)

Clean Renewable Energy Bonds (CREBs)

Federal 30% cash grant in lieu of investment tax credit or ITC

Bonus depreciation for 2009 (not cash)

Loan guarantee program

Renewable Energy Certificates

Power purchase agreement payments (project revenue)

PBI rebate (California) – commercial sales only not sales to utilities

Renewable Portfolio Standards (state)
2
Clean Renewable Energy Bonds

$2.2B in bond issuances approved in October, 2009 by U.S. Treasury for qualified
issuers such as local utilities, electric coops, etc.

Could help move many public sector solar projects into construction.

Federal tax credit to the investor in lieu of payment of a portion of interest on the
bonds.

42% solar – about $900M in allocations. Many small installations under 1MW; largest
solar project about 6MW

Buy American provisions not applicable

Press release and list of projects authorized for issuances at
http://www.ustreas.gov/press/releases/tg333.htm and at the links in the press
release.
3
Federal Cash Grant in Lieu of Investment Tax Credit
(I)

30% cash as opposed to investment tax credit available in 2009-2010; thereafter
reverts to ITC only unless cash grant is extended by Congress.

The simpler ITC may be acceptable to investors with tax liability

Investor owned utilities are eligible

Payments by Treasury (over $1B) is starting to provide some predictability for
financeability for project finance but not yet much pay out for solar projects

Payment is to be made by Treasury within 60 days after the later of when a complete
application is received or the project is placed in service. Current processing time is
more than 60 days.
4
Federal Cash Grant in Lieu of Investment Tax Credit (II)

Applications may be submitted as soon as a facility is under construction. This should
be done in order to receive the fastest payment.
 “Under construction” generally means that at least 5% of the total cost of the
facility has been incurred.

Must be “under construction” by December 2010
5
Federal Bonus Depreciation

Bonus depreciation of 50% applies only through 12/31/2009 unless extended by
Congress. This should be extended at least through 2010 so it has time to be a
financing tool

Deduction reduces taxable income; not a cash rebate

Solar energy project property is in the Modified Accelerated Cost-Recovery System
(MACRS) 5 year class

85% of the basis may be depreciated

5 MW, $25M facility will have more than $12M in depreciation in year one. Cash
savings of about $5M in California where combined federal and state corporate tax
rate is 40.7%.
6
DOE Financial Institutions Partnership Program
Loan Guarantee Program

Banks are the applicants. Lending committee of banks will evaluate whether the
underlying loan should be approved assuming there is no guarantee

Not all banks will participate

Guarantees not likely implemented until 3rd quarter 2010

Value is to reduce the cost of credit and make the financing math work better but
cost of complicated application process may offset

Guarantees are generally limited to 80% of project costs.

Borrower and other principals must make a significant cash investment in the project.

DOE may determine an appropriate collateral package among creditors.
7
Financing Structures (I)

Utility financed and owned
 Rate payer base limitations
 PPA with buyout option
 Purchase and sale agreement (Turn-key ownership)
 Joint development

Module manufacturer financed
 Financial statement limitations
 PPA with or without buyout option
 Purchase and sale agreement (Turn-key ownership)
 Joint development
8
Financing Structures (II)

Project developer project finance
 Working capital limitations
 PPA with and without buyout option
 Purchase and sale agreement (Turn-key ownership)
 Joint development

NRG Energy/First Solar take out model
 21MW solar project in Blythe, California
 “Largest utility scale PV solar generation facility” in California
 NRG’s first solar facility but others in the pipeline
 Large energy output, late stage of development; lower risk
 First Solar will operate and maintain the facility
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WV
WI
WA
VT
VA
UT
SD
RI
20
15
20
15
20
15
20
21
20
20
20
25
20
20
20
22
20
20
20
19
20
17
20
25
20
20
20
20
20
21
20
15
20
20
20%
PA
OR
OH
NY
NV
NM
NJ
NH
ND
20
17
20
15
15%
NC
MT
MO
MN
MI
ME
MD
MA
IL
HI
DE
DC
20
20
20
25
20
25
20
13
20
25
20
25
20
21
20
25
20
25
20
25
20
20
25%
CT
CO
20
25
20
20
35%
CA
AZ
20
30
RPS Policy in the United States
45%
40%
30%
10%
5%
0%
North Dakota, South Dakota, Utah, Vermont, Virginia and West Virginia are goals
Source: www.dsireusa.org
10
RPS Impact on Solar Project Financing

RPS growing at the state level; national level RPS still in discussion stage

RPS by itself will not enable financing because consequences for failure to meet
RPS are not meaningful

Key factors in achieving RPS targets that states can influence
 Meaningful feed-in-tariff for large projects
 More financing friendly standard PPAs – What will banks finance?
 Transmission line improvements
 Faster and lower cost interconnect process
 Expedited permitting approvals
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PG&E’s New “Hybrid” PV Program

5-Year program starting in January 2010

500 MW of 1 to 20MW photovoltaic distributed generation installations in northern
and central California
 Up to 250MW utility-owned generation, with an anticipated capital cost of $1.45B
 Up to 250MW of PPAs with renewable resource developers

Projects developed and owned by PG&E would be built on land already owned by
the utility or near its substations to minimize the cost and delays of interconnecting
them to the power grid

The terms and pricing of the PPAs will be pre-approved by the CPUC
 Developer will execute the form contract with streamlined regulatory review,
avoiding the need for negotiations, and immediately commence development
Source: PG&E
12
Challenges to Meeting Current and Future California RPS Goals
Project-level Issues
Portfolio-level Issues


Large-scale transmission lines need to
reach remote areas

System integration of intermittent
resources

Competition for renewable projects
from other utilities/states/countries
Financial crisis
 Project financing difficulties
 Lack of appetite for tax credits

Technology risk

Developer performance

Transmission upgrades
 Need upgrades that can be
identified, approved and
developed by PPA operations
date

Project permitting
 Need expedited permitting
approvals for contracted projects
Source: PG&E
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Feed-in-Tariff Basics

Payment per kWh

Impact on ratepayer price

Project limit

Aggregate limit under the program

Length of guaranteed payment

Application process – simplicity, timing

kWh price itself under FIT can make a project financeable by PPA revenue but FIT is
not sufficient in the U.S.
14
Feed-in Tariffs in the United States

Limited impact on utility scale projects to date

Examples
 California
$0.15 – .17 per kWh (project limit 3MW)
 Florida
$0.26-.32 Gainesville RU; aggregate annual limit of
4MW
 Wisconsin
Several utilities with aggregate limit of up to 1MW
 Vermont
Green Mountain IOU project limit of 250kWh
 Washington
Project payout limited to $2K per year
 Oregon
$0.12 Eugene WEB; no project limit
15
China, India, Other Markets
China
India
Japan
Canada
(Ontario PA)
Brazil
* RPS: Likely target of 20GW by 2020
* FIT: US $0.16 – 0.22KWh (projected). Utility scale projects permitted
* Participation by joint venture – Duke Energy (technology
development), First Solar (2GW MOU with Ordos City)
* Government subsidized financing up to 50% in some cases
* RPS: 20GW by 2020
* Titan Energy “first utility scale solar power plant” of 1MW
* No government subsidized financing yet; FIT under discussion
* RPS: 14GW PV by 2020
* FIT: only for surplus from homes or businesses
* RPS: Phase out coal generated electricity by 2014
* FIT: $CG.443 to 0.539 (project size up to 10MW)
* Domestic content requirement
* Yingli Solar – MPX joint venture model
16
Summary

No single U.S government policy is sufficient; a financing tool kit of policies is needed
that can be applied at the same time

The federal 30% cash grant is the single most important policy incentive in the U.S.
but is not sufficient by itself

Utility scale project FITs in the U.S. will develop cautiously because of the concern
over the pricing impact on ratepayers

There will be more utility financed and owned projects as well as projects financed by
module manufacturers but ratepayer and financial statement impacts will require
other financing structures

Solar projects need to be larger in order for RPS requirements to be met and to
attract a buyer like NRG Energy

Independent project developers need some equity investment in order to make the
project math work

Consequences of failing to meet RPS need to be more severe in order to have a
meaningful impact on financing
17
Sources

Database of State Incentives for Renewables and Efficiency (www.dsireusa.org)

DB Climate Change Advisors, Global Climate Change Policy Tracker: An Investors
Assessment (October 2009)

Ontario Power Authority web site (fit.powerauthority.on.ca)

Volume 2, Renewable Power, A Blueprint for Green Energy in the Americas, 2009
(prepared by Garten Rothkopf) gartenrothkopf.com/publications,asp

Couture and Cary, State Renewable Energy Policies, Analysis Project: An Analysis of
Renewable Energy Tariffs in the U.S. (June 2009) (sti.gov/bridge)

Doris, McLaren, Healey and Hockett, State of the States 2009: Renewable Energy
Development and the Role of Policy, NREL Technical Report, October 2009
(nrel.gov/features/20091120_states.html)
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