Transcript Sample Presentation Headline

Project Finance Trends
Power Purchase Agreement Basics
German American Business Association
Cleantech Financing for the Future
November 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
PL31677
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
Project Finance Basics (I)

Deployment of proven commercial technology rather than development of
technology

Independent development of 2 MW rooftop solar project for a large business campus
in Southern California. Campus owner to buy the electricity under a power purchase
agreement (PPA) for 20 years.

Project finance is having adequate project revenue streams (plus equity) to cover
project costs plus an acceptable ROI for an investor(s)

Developer with proven track record of execution

Product deployed – proven commercial technology

Creditworthy offtakers (customer that buys the electricity)
 Most difficult issue for commercial distributed solar – credit level must be
investment grade or near investment grade
 Regulated utilities
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Project Finance Basics (II)

Financing model-how does the math work?
 Project startup and recurring (O&M) costs vs. sufficiency of revenue and equity
investment
 Project developer fees
 Debt service

Revenue Sources
 Stimulus incentives, PPA payments, PBI rebate
 Feed-in-tariff, Renewable Energy Certificates (RECs)

Financeability (bankability) is dependent on predictability of receiving the revenues
and benefits. Greater the certainty the lower the financing risk

Bottom line for making the math work is that some equity investment is likely
needed. Debt coverage and 30% cash grant are not likely sufficient
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PPA Basics

No standard PPA; each has to be carefully reviewed for financeability

Agreement terms must have only a remote risk of non-payment to provide
predictability for investors who may have different risk tolerance levels.

Any possible price volatility is an investor concern

Starting point for financeability is creditworthiness of the offtaker.

Price dependent on characteristics and location of offtaker
 Wholesale vs. retail (utility or distributed commercial)
 Feed in tariff (paid by utility)

Term – 20-25 years; 25-30 years for utility projects
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Federal Cash Grant in Lieu of Investment Tax Credits

30% cash as opposed to investment tax credit available in 2009-2010

Continuing track record of payout (over $1B) is starting to provide some
predictability for financeability for project finance.

Payment is to be made within 60 days after the later of when a complete
application is received or the project is placed in service.

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
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Financial Institutions Partnership Program (FIPP)
DOE Loan Guarantee Program
 Banks are the applicants for projects. Lending committee of most
banks will evaluate whether the underlying loan should be approved
assuming there is no guarantee
 Value of the guarantee is to reduce the cost of credit and make the
financing math work better
 Guarantees not likely implemented until 3rd quarter 2010
 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.
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Commercial Distributed Solar
Electricity Generation Project

Independent development of 2 MW rooftop solar project for a large business campus
in Southern California. Campus owner to buy the electricity under a power purchase
agreement (PPA).
 PPA is a 20 year agreement for the purchase of electricity
 Developer owns the solar facility which is on the rooftops of several buildings
 Initial purchase price of $0.15 per kWh
 California PBI rebate of $0.22 per kWh (not paid in utility project)
 Deployment of proven, commercialized solar technology

$10.5M installed cost

Business campus owner has a BBB credit rating
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Sources of Project Revenue and Financing
 PPA payments for electricity
 Federal 30% cash grant in lieu of ITC
 State PBI rebate
 Bonus depreciation for 2009 (not cash)
 Loan guarantee program?
 Venture capital?
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Sources of Project Financing

Project developer

Vertically integrated manufacturer
Sponsor equity
investment
Bank Debt
Cash grant in
lieu of ITC
20% - 30 %
40% - 50%
30%
7 year loan
8-9% Interest rate
Supplier to carry
module costs until
this payment is
received
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Summary

Predictability (certainty) of receiving project revenues and benefits is key to
the financing math

The predictability of the federal 30% cash grant is starting to help the
financeability of renewable energy projects.

Bonus depreciation should be extended through 2010 so it has time to be a
financing tool.

The FIPP loan guarantee program could eventually help get projects
funded by reducing the cost of credit.

Bottom line for making the project math work is that some equity
investment is very likely needed
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