- Which developers and projects are able to attract financing? - Will loss of 1603 Treasury Grants disrupt the market? - Is the Tax Equity market back? - Are REC markets making a different?

1. PV Project Financing: Federal & State
Initiatives Designed to Support Development
Photovoltaics 2011
Scottsdale, AZ
January 20, 2011
Michael Mendelsohn
Senior Financial Analyst
Strategic Energy
Analysis Center
NREL is a national laboratory of the U.S. Department of Energy Office of Energy Efficiency and Renewable Energy operated by the Alliance for Sustainable Energy, LLC

2. Agenda
• NREL Finance Team activities
• Market Developments
• Federal Initiatives
• Tax Extenders bill
• Treasury Grants
• BLM Solar Study Areas
• DOE Loan Guarantees
• State Initiatives
• Financing Options
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3. NREL’s Strategic Energy
Analysis Center (SEAC)
Finance Team
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4. Tools - System Advisor Model
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5. Tools, cont’d. – CREST model
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6. RE Finance Tracking Initiative (REFTI)
Form of Depreciation
Taken
MACRS depreciation applied in
roughly half of projects reported
(32 participants responding)
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7. FIT Policies and Proposals in the U.S.
2010
2010
Sacramento 2010 2010
2009
Rhode Island
2010
2008 (2008)
2009
Gainesville
San Antonio 2010
3 states enacted FIT policies based on RE project cost
(VT, HI, ME (but with a rigid payment level cap))
1 state/ 1 federal agency enacted FIT policies based on avoided cost
(CA, Tennessee Valley Authority)
10 states proposed FIT legislation based on RE project cost (CA, FL, IL, IN, MI, MN, NY, RI, WA, WI)
(Year last proposed)
Solar FIT policies approved by municipal utilities Source: Adapted from Gipe 2010, Oregon PUC 2010.
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8. Financial Information Portal
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9. So Financing Matters? $1/W at diff. financing scenarios
Differences driven by project financing innovations, investor risk
perception and market forces.
Cash purchase
unlikely due to
opportunity cost
of capital
Common assumptions include: 2,000 kW dc nameplate capacity;18.5% net capacity factor in year one; 77% DC-to-AC conversion efficiency; 0.5% annual
production degradation; 20 year useful life; $6.50/kW-yr dc O&M expense; $0.235/Watt dc inverter replacement in year 10; no ITC, 30% cash grant, or
state incentives; 97.5% of costs depreciated using 5-year MACRS, 1.2 minimum DSCR; 1.45 average DSCR. High financing costs include: 40% debt;
60% equity; 10% debt interest rate; 18% after-tax equity rate; 10-year debt tenor; 3% lenders fee. Low financing costs include: 50% debt; 50% equity; 6%
debt interest rate; 10% after-tax equity rate; 18-year debt tenor; 1% lenders fee. No discounting of cash flows or energy in no financing scenario. Source
of capital cost structure assumptions (debt to equity ratio, debt interest rate, and equity rate) is California Energy Commission’s “Comparative Costs of
California Central Station Electricity Generation,” at: http://www.energy.ca.gov/2009publications/CEC-200-2009-017/CEC-200-2009-017-SD.PDF
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10. MARKETS
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11. Markets - Development
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12. Markets - Financing (as of Q3 2010)
• Tax “Equity” (16 active participants)
• But some are only interested in financing the cash grant
• Close in annual $ value to the $5.4 billion from 2007
• Debt
• Banks (30 participants)
• Lower rates (3.25 – 4.5%)
• But shorter durations
• mini-perms starting at 8 years out to 15 years
• Plus lenders fee (can be up to 3% of debt amount)
• Institutional (insurance cos.)
• Higher rates (5.5% - 6.0%)
• But longer terms – up to 25 years (crystalline), 15 years (CdTe)
• as long as covered by the PPA
• And no lenders fee
• But… early payoff “make whole” penalty
Sources: Chadbourne, Parke; REFTI
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13. “Tax Extenders” Bill
• 1603
– 1 year extension
– 30% of eligible plant costs (consult your tax lawyer!)
• For plant that falls under 5 year MACRS definition
• Default value for solar CREST – 94% falls under 5 yr. MACRS
• 30% * 94% = 28.2%
• New Markets Tax Credit
– 2 year extension, $5.3 billion per year
– Recently announced 2010 awardees
• Bonus depreciation – 100% (85% if you take 1603/ITC)
– From 9/8/2010 – 12/31/2011
– Valued at $0.045 - $0.18 cents per dollar of capital costs*
– But can tax equity investors take advantage of it?
– 50% bonus depreciation thru 12/31/12
* Source: Chadbourne & Parke (2011)
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14. Tax Equity
• How will 100% bonus depreciation impact TE
requirement?
• Fully usable by TE investor?
• 1603 does not eliminate TE requirement ass. with
ITC / PTC
• Still have to get through construction
• 1603 awarded 60 days after commercial operation
• Developers still go to “tax equity” market for bridge finance
until 1603 grant received
• TE associated with 1603 less expensive than ITC or PTC.
Late in 2010, rates were roughly:
• 8.25% - TE 1603 bridge finance
• 9.25% - TE ass. w. ITC
• 9.50% - TE ass. w. PTC
• Project level debt will increase these #s by approx. 200 bp
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15. Tax Equity Required – back of envelope
2009 Total Value of Potential
Installed Installed Invested Federal Tax Equity
Capacity Cost ($ Govt. Required ($
RE Technology (MW) ($/kW) billions) Benefits billions)
Wind 10,010 1,906 $19.08 56% $10.68
Solar (elec only) 481 6,332 $3.05 56% $1.71
Biomass 739 1,860 $1.37 56% $0.77
Geothermal 175 4,051 $0.71 56% $0.40
Total 11,405 $24.21 $13.56
Based on ‘09 investment level, TE market could reach $13+
billion. Significantly higher as state RPS requirements increase
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16. Federal Initiatives
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17. 1603 Treasury Grants
Total as of
January 3rd,
2011:
$5.795 billion
awarded
1,650 projects.
Assuming 1603
covers 28% of
total plant, TGs
supporting
$20.5 billion of
investment
Source: Treasury Dept.
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18. 1603 – Awards & Avg. Grant Size by Technology
as of 1/3/11
Source: Treasury Dept.
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19. 1603 – Awarded $ by State (top 20)
As of 1/3/11
Source: Treasury Dept.
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20. BLM - Solar Programmatic EIS
• Identified solar energy zones on public in six western
states deemed “most suitable” for utility-scale
development
• Covers 677,000 acres for solar energy zones and 22
million acres for right of way applications
– BLM manages 120 million acres in these 6 states
– 104 solar applications that would cover 1,000,000 acres
representing 60,000 MWs have been made
– under Preferred Alternative – not yet finalized
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21. BLM Solar Energy Study Areas
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22. DOE Loan Guarantees – 8 Solicitations
** currently open
1) August 6, 2006 Innovative Technologies
• October 4, 2007 - Invites 16 Pre-Applicants to Submit
Applications for Federal Support
• Included Solyndra, Tesla, Beacon Power
2 – 4) June 30, 2008 - Three Solicitations
2) Innovative EE, RE, and Advanced T&D
3) Nuclear
4) “Front-end” nuclear
5) September 22, 2008 – Innovative Clean Coal
6 – 7) July 29, 2009 – Two Solicitations
6) Innovative EE, RE, and Advanced T&D **
7) Transmission
8) October 7, 2009 Financial Institution Partnership
Program (FIPP) **
Source: DOE
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23. RE Loan Guarantees (all 1705)
Award Awarded or
Loan Guarantee Announce Loan Amount Conditionally
Awardee Date ($millions) Offered Description
Offered
3/20/09 For manufacture of cylindrical solar PV
Solyndra, Inc. $535 Awarded
Awarded panels
9/4/09
Nordic Windpower, Conditionally For manufacture of two-bladed wind
7/02/09 $16
USA offered turbines
Conditionally 3 utility-scale solar CSP plants at
BrightSource Energy 2/22/10 $1,370
Offered Ivanpah (392 MW total)
First Wind - Kahuku 30 MW wind generation facility and
3/5/10 $117 Awarded
Wind Power, LLC battery storage system
Conditionally
U.S. Geothermal 6/10/10 $102 22 MW geothermal generation facility
offered
Nevada Geothermal 49.5 MW geothermal generation facility
6/15/10 $98.5 Awarded
Power at Blue Mountain - first FIPP award
250 MW Solana CSP solar facility (+ 6
Abengoa Solar 7/3/10 $1,450 Awarded
hours thermal storage)
For manufacture of CdTe thin-film solar
Abound Solar 7/3/10 $400 Awarded
panels in Longmont, CO and Tipton, IN
Guarantee on
For 845 MW Shepherd Flats, OR
Caithness 10/10/10 80% of $1.3 Awarded
generation facility
billion loan
Source: DOE 2010a – DOE 2010g
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24. STATE INCENTIVES
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25. State RPS
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26. 3rd Party PPAs
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27. Rebates – State / Utility / Both
Source: Treasury Dept.
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28. FINANCING OPTIONS
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29. Project Financing Options: Utility-Scale
(Developer perspective)
All-Equity Partnership Flip
• TE investor provides a majority (e.g., 60%) of equity. Allocations specific to
project.
• Pre-Flip Point, there are bi-furcated allocations:
• Cash: initially 100% to developer (for either fixed duration or until return of investment);
then 100% to TI until flip target reached
• Tax Benefits: 99% to TI from COD until flip target reached
• After Flip Point is reached, virtually all allocations go to developer.
Leveraged Partnership Flip
• Requires very small sponsor investment
• Pro rata sharing of tax benefits and cash to equity investors
• Improves return and lowers costs via leverage
• But debt has senior lien on property – makes TE investors nervous
• Also, requires bigger, more secure deals to include debt
Source: Deacon Harbor Financial
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30. Project Financing Options, Utility-scale, cont’d.
(Developer perspective)
Sale-Leaseback
• Structure unique in that lessor and lessee have very different interests (as
opposed to sharing benefits in other structures)
• Developer constructs project and sells 100% to Tax Investor.
• Developer (Lessee) leases the project back from Tax Investor (Lessor).
• Lessee operates the project and pays Lessor an annual lease payment. Lease
payment sized to provide Lessor with target return.
• Lessee retains free cash flow after lease payments and operating costs.
Single Owner
• One equity owner; project level debt (if obtained by owner).
• 100% of each benefit stream flows to Owner:
• Distributable cash
• Tax Benefits: (a) taxable losses and gains, and (b) ITC/Cash Grant
• With just one Owner, there is no “flip” in the allocation of cash and Tax Benefits
Source: Deacon Harbor Financial
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31. Solar Financing Structures
1)Single Developer / 2)Equity Partnerships, 3)Leases
Investor w/ or w/o debt
Corporate / Flip Structures Sale Leaseback
Balance Sheet
Senior Lender Develop
er
Develop Tax
Leaseback
Sale
er Investor
Tax
Corporate Owner Project Owner Investor &
Owner
Power & REC sales Power & REC sales Power & REC sales
Power Power Power
Purchaser Purchaser Purchaser
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32. Thank you
Michael Mendelsohn
National Renewable Energy Lab
michael.mendelsohn@nrel.gov
303/384-7363
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