Transcript Document 7199819

Case Study: Distributed Generation
through Residential Solar Leasing
Adam Stern
EVP
The Gemstone Group, Inc.
IPED
Financing Solar Energy Conference
May 2009
About Gemstone
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Founded in 1993
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Generalist - Investment and
merchant banking
Specialization in renewable
energy since 2002
Develop and finance
commercial projects
SREC Aggregation
Develop and operate
residential finance programs
Specialize Public/Private
partnerships
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developing niche programs with
states, utilities, PUCs, non-profit
sponsor groups as well as leading
manufacturers and contractors
Sample - Relevant Projects:
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Bear Creek/Atlantic City Wind
projects in PA and NJ
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Keystone HELP Program – state
sponsored residential energy
efficiency loan program
(www.keystonehelp.com)
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CT Solar Lease Program – state
sponsored residential solar finance
company for moderate income
homeowners
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CT Solar Lease Program
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How It Started
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Connecticut rebate program successful in implementation of
several hundred residential systems- primarily on large homes
in affluent neighborhoods- high upfront cost of solar leaves
most homeowners out
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State desired loan program to help moderate to low income
homeowners pay for balance of system cost
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After evaluation, lease was deemed to be the preferred
financing vehicle
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In return for sponsorship and support, State was allowed to
write some of the “rules” so that program met their stated
objectives (qualifying income limits, etc.)
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CT Solar Lease Program
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How it ended up
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$47MM program for approximately 1,000 systems over 3 years
Homeowner chooses installer and equipment; negotiates price
System Cost: typical system costs $47,000
Rebate: same as available to CT homeowners (approx. 50%)
Term: Initial lease term is 15 years, optional 5 year extension
“No Money Down” required from homeowner
Lease payment of approximately $120/month
End of 15 years:
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Extend lease for another 5 years
FMV purchase
Return to leasing company
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CT Solar Lease Program
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How it Works
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State fund provides rebate and support for debt
Gemstone manages leasing company and underlying assets for
investor and utilizes AFC First, the third party administrator
(TPA), for program administrator/lender/servicing functions
US Bank provides equity
Leasing allows:
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Immediate use of ITC and effective use of other tax benefits
Aggregation and diversification for
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Consumer credit quality (portfolio loans)
Effective monetization of renewable energy credits
Asset management, monitoring and state reporting
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Choose Your Partners Carefully
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Third party administration is key
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Set Sponsor
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In CT program, Gemstone splits operational and management duties
with AFC. Gemstone manages leasing company including asset
management and system relocations, REC aggregation and sales,
accounting and tax functions
AFC provides installer training, consumer credit underwriting, lease
origination, servicing, collections and consumer protection compliance
A good manager and TPA team is vital to create attractive terms and
economics for all parties. Poor credit underwriting drives up program
costs- collections, potential ITC recapture, system relocations, etc.
(eg: State) objectives and expectations carefully
What is best for the homeowner might not meet IRS requirements
Use professionals (legal, accounting, etc.) with experience
in leasing, tax credits and related structures
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Need to evaluate many alternatives to meet needs of the public and
private sector interests. For example, all leverage vs. no leverage
structures and partnership flips vs. master lease structure
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Credit Quality Will Rule
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Managing credit quality drives down costs; increases
competiveness; and reduces risk to all parties
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Credit quality is much more than just a good credit score. An
experienced TPA can achieve far better results from a pool of
sub-700 credit scores than a pool of higher scores
Strong initial underwriting with personal contact with each
lessee who thoroughly understands details and importance of
transaction before a lease is signed
Strong credit profile – Leasing collateral generates its own
cash flow to support the lease payment – pay LC and reap
energy profit or pay Utility more!
Long term investment vs. short term savings decision
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Lease allows effective fix of electric rates for 15-20 years but
might not always be lower than offset utility cost in year 1
Avoid investing $50,000 on a roof where the primary
motivation is to save $10-20 on next month’s utility costs
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Credit Quality Will Rule (Cont.)
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Indicative default and charge-off rates provided by
AFC on unsecured energy efficiency loan portfolio
2008
Update
National
Avg. :
4.22%
AFC :
.83%
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Is Third Party Ownership Still Viable?
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Lifting ITC cap does little to help typical middle to lower
income family
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Still need to “write a big check” for balance of system cost and
wait for many state rebates and tax refund
Home equity loan and mortgage refinancing market on thin ice
Most homeowners not equipped to manage proper
monetization of incentives such as REC’s and perform required
reporting and verifications
Sale of home within 5 years could create thorny tax recapture
issues
Third party ownership simplifies contractor sales process
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Simple monthly cost can easily be compared to utility savings
Removes key objections and obstacles (“no money down”)
Expands market. Moderate income homeowners who were
“lookers” can now be “lessees”
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What’s the Latest?
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From true start at end 2008, CT Solar has approved rebates
and signed leases for nearly 15% of the total portfolio and a
pipeline (post credit/pre rebate) over 25%.
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Installation process in CT is takes nearly 140 days vs. other states
like CA
In discussions with other eastern states for both a general
product offering and specialized program;
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Questions and Contact Information
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Gary Kleiman
610.254.4110
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[email protected]
Adam Stern
610.293.2507
[email protected]
37 West Avenue – Suite 105
Wayne, PA 19087
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