overview of rooftop solar pv model 11713v2
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Antitrust/Competition Commercial Damages Environmental Litigation and Regulation Forensic Economics Intellectual Property International ArbitrationInternational Trade Product Liability Regulatory Finance and Accounting Risk Management Securities Tax Utility Regulatory Policy and Ratemaking ValuationElectric Power Financial Institutions Natural Gas Petroleum Pharmaceuticals, Medical Devices, and Biotechnology Telecommunications and Media Transportation
Copyright 2011 The Brattle Group, Inc. www.brattle.com
Overview of Rooftop Solar PV Green Bank Financing Model
Sponsored by The Connecticut Clean Energy
Finance and Investment Authorityand
The Coalition for Green Capital
Developed byBob Mudge & Ann Murray, The Brattle Group
January 17, 2013
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2Disclaimer
Disclaimer:
Asfurtherdescribedintheexplanatorynotes,thisExcelfinancialmodel(theModel)wasdevelopedbyTheBrattleGroup,Inc. undertheauspicesoftheConnecticutCleanEnergyFinanceandInvestmentAuthority(CEFIA)tohighlightthepotentialimpactofcapitalinputsandpublicincentivesonthecostofbehindthemetersolarphotovoltaicinstallationsataconceptuallevel.TheModelisbeingreleasedtothirdpartyusers(Users)tofacilitatecalculationsbysuchUsersbasedstrictlyontheirownstipulatedassumptions.
TheModelisprovidedasiswithoutwarrantyofanykind,eitherexpressorimplied,includingbutnotlimitedtotheimpliedwarrantiesofmerchantabilityandfitnessforaparticularpurpose,andshallbeusedbyUsersattheirownrisk.AlthoughtheModelpresentsaframeworkforperformingUserscalculations,itisnotintended,andshouldnotbeusedasthebasisforinvestmentdecisions.NoUsershouldrelyontheModelsresultsasapredictionoffutureoutcomes;actualeventsmaydiffersignificantlyfromthoseproducedbytheModel.
NeitherCEFIAorTheBrattleGroup,Inc.acceptanydutyofcaretoUsers,includinganyresponsibilityforanyUsersuseoftheModel.AlthoughneitherCEFIAnorTheBrattleGroup,Inc.areunderanyobligationtoprovideupdatestotheModel,CEFIAretainstherighttochange/amendtheModelwithoutnoticetoUsers.
InnoeventshallCGC,CEFIAand/orTheBrattleGroup,Inc. beliableforanydamageswhatsoever,includingbutnotlimitedtodirect,indirect,incidentalconsequential,lossofbusinessprofits,orspecialdamages,regardlessoftheformofaction,whetherincontract,tort,orotherwise.
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3Contents
1. Background
2. Illustrative Base Case
3. Model Mechanics
4. Potential Impact of Green Bank Debt
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41. Background
Focus on incremental benefits of Green Bank funding at project level
Based on illustrative specifications provided by CT Clean Energy Finance and Investment Authority (CEFIA) and the Coalition for Green Capital (CGC)
Model derives key metrics for behind-the-meter solar:
Specifications including:
Installed costs
Regional capacity factors [a]
State policies and incentives [a]
Capital structure including Green Bank Debt
Key metrics:
Retail cost [b]
Equity returns
Installed capacity per dollar of Green Bank Debt
[b] In the form of a 2013 levelized cost of electricity, net of state incentives and RECs.
[a] Initially shown for Connecticut.
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51. Background (Contd.)
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62. Illustrative Base Case
Key Assumptions:
Aggregate portfolio of 20MW
Installed cost of $4.5/ Watt
25-year underlying project life
Regional capacity factors applied per NREL data
Operating costs modeled @ $27/ kW-Year
Annual degradation modeled at 0.5%
State incentives modeled at $0.225/ kWh for 6 years
Renewable Energy Credits (RECs) modeled at $0.030/ kWh under financeable 15-year contract
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72. Illustrative Base Case (Contd.)
3rdpartyownership(targetreturn=15%)
RelianceonTaxEquity(targetreturn=12%)
PrecedentofCTSolarLeaseProgram
Expectationofdebtsecuritization(interestmodeledat6%)
CAPITALIZATION
BehindtheMeterHost(s)
ProjectOwner(Fund)
ProjectSponsor
FederalGovt.
StateGovt.
ITC
Utility
RECMarket
Taxincentives,grants*
TaxEquityInvestors
CommercialLenders
(emerging)
Equity
PotentialBackleverage
*Subjecttofunding,legislation
* Assumed Structure Before Green Bank Loans
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82. Illustrative Base Case (Contd.)
12%
44%48%
13%
40% 42%
0%
20%
40%
60%
80%
100%
UpfrontCapitalization
LifetimeCost(25Years)
%
o
f
C
a
p
i
t
a
l
C
o
s
t
s
PercentageCostComponents
CommercialDebt
GreenBankLoans
TaxEquity
DeveloperEquity
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92. Illustrative Base Case (Contd.)
OPERATIONSBehindtheMeterHost(s)
ProjectOwner(Fund)
1.O&M
2.DebtService
3. Capex/Rsvs.
4. TaxEquityAllocation
5. CashEquityAllocation
CommercialLenders
(emerging)
ProjectSponsor
TaxEquityInvestors
FederalGovt.
StateGovt.
ITCandaccelerateddepreciation
Utility
RECMarket
PPA/Lease
Debtservice
PerformanceBasedIncentives
PotentialBackleverage
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10
2. Illustrative Base Case (Contd.)
Under above assumptions, reliance on:
Tax Equity
State Incentives
RECs
would hold retail costs at $0.210/ kWh (without Green Bank Debt)
RECs
StateIncent.
0.050
0.100
0.150
0.200
0.250
0.300
0.350
$
p
e
r
k
W
h
(
2
0
1
3
$
)
DerivationofRetailCost(over25YearLife)
Operations
CommercialDebt
GreenBankLoans
TaxEquity
DeveloperEquity
NetRetailCost
AvgResidentialPrice(CT)
AvgCommercialPrice(CT)
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3. Model Mechanics
Users can stipulate financing cost assumptions Base Case before adding Green Bank Debt is shown below:
% Maturity TargetReturns(AT) 9.0%
Min Avg 2013$State Subsidies 0%
Debt
Commercial (not < 0) 40% 6 6.0% 0.121
Green Bank:
Subordinated 0% 15 0.0% -
Tax Equity 48% 12.0% 0.037 Developer Equity 12% 15.0% 0.127
Total 100% 0.286
ProjectCapitalStructure
KEY FINANCING INPUTSLevelizedCosts
($/kWh)
KEY OUTPUTSTotalDSCR
1.35 1.37
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3. Model Mechanics (Contd.)
Users can stipulate revenue source assumptions:
Basic model calculation sets net PPA/ Lease rate sufficient to satisfy capital cost requirements.
% 2013$/MWh Escalation
2013$Capital 0.286 Operations 0.025
Gross 0.311 Less State Incentives 225.0 N 0.082
Less RECs 30.0 N 0.020
Net PPA/ Lease 210.1 Y 0.210
ProjectRevenueSources($/MWh)
LevelizedCosts
($/kWh)
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3. Model Mechanics (Contd.)
Base Case Cash Flow Summary ($M; Nominal Basis)
IRR Invest. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
1 Inflation Index 1.025 1.051 1.077 1.104 1.131 1.160 1.189 1.218 1.249 1.280 1.312 1.345 1.379 1.413 1.448
2 PPA/ Lease $/kWh 0.215 0.221 0.226 0.232 0.238 0.244 0.250 0.256 0.262 0.269 0.276 0.283 0.290 0.297 0.304
3 Elec. Sales GWh 22.4 22.3 22.2 22.1 22.0 21.9 21.8 21.6 21.5 21.4 21.3 21.2 21.1 21.0 20.9
4 PPA/ Lease Revs. $M 4.8 4.9 5.0 5.1 5.2 5.3 5.4 5.5 5.7 5.8 5.9 6.0 6.1 6.2 6.4
5 State Incentives $M 5.0 5.0 5.0 5.0 4.9 4.9 - - - - - - - - -
6 RECs $M 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6
7 Total Revenues $M 10.5 10.6 10.7 10.8 10.8 10.9 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.9 7.0
8 Operations $M 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.7 0.7 0.7 0.7 0.7 0.7 0.8 0.8
9 EBITDA $M 10.0 10.0 10.1 10.2 10.2 10.3 5.4 5.5 5.6 5.7 5.8 5.9 6.0 6.1 6.2
10 Debt Service $M 6% (36.4) 7.4 7.4 7.4 7.4 7.4 7.4 - - - - - - - - -
11 Tax Equity
12 Pre-Tax $M (43.7) 2.1 2.2 2.2 2.2 2.3 0.1 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
13 Tax Impact $M 27.1 3.0 6.6 2.5 (0.0) (0.2) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1)
14 After tax $M 12% (16.7) 5.1 8.7 4.7 2.2 2.1 0.0 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
15 Developer Equity
16 Pre-Tax $M (10.9) 0.5 0.5 0.5 0.5 0.5 2.7 5.2 5.3 5.3 5.4 5.5 5.6 5.7 5.8 5.9
17 Tax Impact $M - - - - - - (1.7) (2.1) (2.1) (2.1) (2.2) (2.2) (2.2) (2.3) (2.3) (2.4)
18 After tax $M 15% (10.9) 0.5 0.5 0.5 0.5 0.5 1.1 3.1 3.2 3.2 3.3 3.3 3.4 3.4 3.5 3.5
To Year 25
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3. Model Mechanics (Contd.)
Under forgoing assumptions, Green Bank Debt could complement commercial debt
% Maturity TargetReturns(AT) 9.0%
Min Avg 2013$State Subsidies 0%
Debt
Commercial (not < 0) 20% 6 6.0% 0.060
Green Bank:
Subordinated 20% 15 2.0% 0.042
Tax Equity 48% 12.0% 0.035 Developer Equity 12% 15.0% 0.102
Total 100% 0.239
ProjectCapitalStructure
KEY FINANCING INPUTSLevelizedCosts
($/kWh)
KEY OUTPUTSTotalDSCR
1.75 2.44
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3. Model Mechanics (Contd.)
with significant reduction in retail cost:
% 2013$/MWh Escalation
2013$Capital 0.239 Operations 0.025
Gross 0.265 Less State Incentives 225.0 N 0.082
Less RECs 30.0 N 0.020
Net PPA/ Lease 163.5 Y 0.163
ProjectRevenueSources($/MWh)
LevelizedCosts
($/kWh)
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3. Model Mechanics (Contd.)
To Year 2520% Green Bank Debt Case Cash Flow Summary ($M; Nominal Basis)
IRR Invest. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
1 Inflation Index 1.025 1.051 1.077 1.104 1.131 1.160 1.189 1.218 1.249 1.280 1.312 1.345 1.379 1.413 1.448
2 PPA/ Lease $/kWh 0.168 0.172 0.176 0.180 0.185 0.190 0.194 0.199 0.204 0.209 0.214 0.220 0.225 0.231 0.237
3 Elec. Sales GWh 22.4 22.3 22.2 22.1 22.0 21.9 21.8 21.6 21.5 21.4 21.3 21.2 21.1 21.0 20.9
4 PPA/ Lease Revs. $M 3.8 3.8 3.9 4.0 4.1 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.9
5 State Incentives $M 5.0 5.0 5.0 5.0 4.9 4.9 - - - - - - - - -
6 RECs $M 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6
7 Total Revenues $M 9.5 9.5 9.6 9.6 9.7 9.7 4.9 5.0 5.0 5.1 5.2 5.3 5.4 5.5 5.6
8 Operations $M 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.7 0.7 0.7 0.7 0.7 0.7 0.8 0.8
9 EBITDA $M 8.9 8.9 9.0 9.0 9.1 9.1 4.2 4.3 4.4 4.4 4.5 4.6 4.6 4.7 4.8
10 Debt Service $M 3% (18.1) 5.1 5.1 5.1 5.1 5.1 5.1 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4
11 Tax Equity
12 Pre-Tax $M (43.6) 2.1 2.1 2.2 2.2 2.2 0.2 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2
13 Tax Impact $M 26.9 3.0 6.6 2.6 0.2 0.1 (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1)
14 After tax $M 12% (16.6) 5.1 8.7 4.8 2.4 2.3 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
15 Developer Equity
16 Pre-Tax $M (10.9) 1.7 1.7 1.7 1.7 1.8 3.8 2.7 2.7 2.8 2.9 2.9 3.0 3.1 3.1 3.2
17 Tax Impact $M - - - - - - (1.3) (1.6) (1.6) (1.7) (1.7) (1.7) (1.7) (1.8) (1.8) (1.8)
18 After tax $M 15% (10.9) 1.7 1.7 1.7 1.7 1.8 2.5 1.1 1.1 1.1 1.2 1.2 1.3 1.3 1.3 1.4
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4. Potential Impact of Green Bank Debt
For Illustration, Green Bank Scenarios defined per capital structure scenarios shown below:
0%
20%
40%
60%
80%
100%
120%
0% 10% 20% 30% 40%
P
e
r
c
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n
t
o
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C
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GreenBankDebtasaPercentageofCapital
CapitalStructure
CommercialDebtGreenBankDebtTaxEquity
DeveloperEquity
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4. Potential Impact of Green Bank Debt (Contd.)
Base Case $0.210/ kWh retail cost shown at upper left in table below
Alone, or with help from reductions in installed costs, Green Bank Debt could achieve parity with retail rates:
Cells with retail cost < average 2011 CT retail price escalated to 2013 ($0.190/ kWh) are shaded
Retail Cost ($/kWh) as a Function of Green Bank Debt and Installed Cost
Other Assumptions:
0% 10% 20% 30% 40% Developer equity return: 15%
4.5 0.210 0.187 0.163 0.140 0.117 Tax equity return: 12%
4.0 0.174 0.154 0.133 0.112 NA Total leverage: 40%
3.5 0.139 0.121 0.103 0.085 NA Commercial debt int.: 6%
3.0 0.103 0.088 0.072 0.057 NA 15-Year RECs: $0.030/ kWh
6-Year State incentives: $0.225/ kWh
Installed Cost ($/W)
% Green Bank Debt in Capital Structure
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4. Potential Impact of Green Bank Debt (Contd.)
Green Bank Debt could help take pressure off State incentives
Cells with retail cost < average 2011 CT retail price escalated to 2013 ($0.190/ kWh) are shaded
Retail Cost ($/kWh) as a Function of Green Bank Debt and State Incentives
Other Assumptions:
0% 10% 20% 30% 40% Installed cost: $4.5/W
0.300 0.172 0.149 0.126 0.103 NA Developer equity return: 15%
0.225 0.210 0.187 0.163 0.140 0.117 Tax equity return: 12%
0.150 NA 0.224 0.201 0.177 0.155 Total leverage: 40%
0.075 NA NA 0.238 0.215 0.192 Commercial debt int.: 6%
15-Year RECs: $0.030/ kWh
State Incentives per kWh
% Green Bank Debt in Capital Structure
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4. Potential Impact of Green Bank Debt (Contd.)
as well as REC prices:
Cells with retail cost < average 2011 CT retail price escalated to 2013 ($0.190/ kWh) are shaded
Retail Cost ($/kWh) as a Function of Green Bank Debt and REC Prices
Other Assumptions:
0% 10% 20% 30% 40% Installed cost: $4.5/W
0.045 0.199 0.175 0.152 0.129 0.106 Developer equity return: 15%
0.030 0.210 0.187 0.163 0.140 0.117 Tax equity return: 12%
0.015 0.221 0.198 0.175 0.152 0.129 Total leverage: 40%
- 0.233 0.209 0.186 0.163 0.140 Commercial debt int.: 6%
6-Year State incentives: $0.225/ kWh
REC Prices per kWh
% Green Bank Debt in Capital Structure
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4. Potential Impact of Green Bank Debt (Contd.)
At given levels of retail cost, Green Bank Debt can help developers achieve target returns:
Cells with developer return > assumed target (15%) are shaded
Developer Return (%) as a Function of Green Bank Debt and Retail Cost
Other Assumptions:
0% 10% 20% 30% 40% Installed cost: $4.5/W
0.230 17.0% 20.2% 24.7% 30.8% 38.6% Tax equity return: 12%
0.180 12.0% 14.2% 17.4% 22.4% 29.5% Total leverage: 40%
0.130 NA 8.1% 9.9% 12.9% 18.5% Commercial debt int.: 6%
0.080 NA NA NA NA NA 15-Year RECs: $0.030/ kWh
6-Year State incentives: $0.225/ kWh
Retail Cost per kWh
% Green Bank Debt in Capital Structure
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4. Potential Impact of Green Bank Debt (Contd.)
Depending on dollars deployed and role in capital structure, Green Bank Debt could support significant MWs of solar pv installation:
Cells with retail cost < average 2011 CT retail price escalated to 2013 ($0.190/ kWh) are shaded
MWs Installed as a Function of Green Bank Debt Deployed
Other Assumptions:
0% 10% 20% 30% 40% Installed cost: $4.5/W
Retail Cost 0.210 0.187 0.163 0.140 0.117 Developer equity return: 15%
100 - 220 110 74 55 Tax equity return: 12%
75 - 165 83 55 41 Total leverage: 40%
50 - 110 55 37 28 Commercial debt int.: 6%
25 - 55 28 18 14 15-Year RECs: $0.030/ kWh
6-Year State incentives: $0.225/ kWh
Green Bank Debt Deployed ($M)
% Green Bank Debt in Capital Structure
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