Creating A Cleaner Energy Future For the Commonwealth

MA Residential SolarLoan Program

PRELIMINARY DESIGN PROPOSAL

Stakeholder Review Meeting

June 30, 2014 – BostonJuly 1, 2014 – Greenfield

July 2, 2014 – Westborough

Creating A Cleaner Energy Future For the Commonwealth

Solar (PV) Technology and Markets• Solar PV is a mature technology with a proven performance track

record.• Solar markets have increased worldwide installed capacity from 31.1

GW in 2012 to have the capacity to reach 48 GW by 2017. • Solar costs continue to decline and an unsubsidized solar market is

within sight.• Project financing is mature for large scale solar development, but

remains difficult for small, residential scale projects.• Residential solar can provide positive cash flow to homeowner

throughout loan period, minimizing default concerns. • DOER study (September 2013) demonstrated substantially greater

value of residential direct ownership to the homeowner and the Commonwealth, as opposed to 3rd party ownership model.

• DOER will utilize $30 million to facilitate solar loan offerings to residential market.

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Creating A Cleaner Energy Future For the Commonwealth

Massachusetts ResidentialSolar Market 2014-2020

• Market has been supported by the RPS Solar Carve-Out program. Phase I (SREC I) ended system qualifications in April 2014. Phase II (SREC II) program was launched in April 2014 to meet

Governor’s new goal of 1600 MW by 2020. New net metering and solar incentive bill may begin new tariff

based program in 2015/2016 providing fixed revenue for generation – eliminates risk associated with SREC II market price.

• Between 2014 and 2020, DOER anticipates a growth in the residential sector from about 5,000 to 10,000 systems per year.

• Residential installations represent approximately a half to $1.5 billion investment over this timeframe.

• Solar Loan Program seeks to facilitate access of homeowners to financing and encourage local financial institutions to serve the market.

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Growth of MA Solar Market

Massachusetts is a national solar leader. 350 of 351 MA cities and towns have a solar installation

4th in solar capacity installed in 20135th in cumulative installed capacity

6th in residential installations

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MA Residential Solar PV Installations

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Directly Owned

Third Party Owned

Year

Num

ber o

f Sys

tem

s

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Benefits to Participation

Customer• Broader access to financing for residential direct-ownership of solar PV• Cash-flow positive financing as with 3rd party leasing with the added

economic benefits of ownership

Installer• Mechanism to offer cash flow

positive, direct-ownership project financing

• Mechanism to broaden direct-ownership customer demographic beyond those with premier credit and those who can provide their own financing

Lender• Opportunity to reach new and

old customers with a new loan product

• Mechanism to enter the highly successful MA solar market with risk mitigation provided by DOER’s credit enhancement

• Opportunity to enhance green lending and wealth creating services that benefit the community

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Agenda

1. Eligibility• Customer Eligibility• Technical Eligibility• Qualification of Installers

2. Financial Analysis• Solar Loan Example• Loan Parameters• Credit Enhancement• Potential Leverage of DOER

Funds

3. Program Structure• Loan Facilitation• Central Administrator• Program Documents

4. Next Steps

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Draft Design Elements MA Solar Loan Flow Diagram

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Mass Solar Loan ProgramDraft Design Elements

Customer Eligibility

• Homeowner – installing solar on primary or secondary residence.

• Small Participants in Community Shared Solar – off-takers with ownership positions or ownership via condo associations (25 kW or less).

• Customer eligible for SREC II program or successor program.

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Draft Design ElementsSolar PV System – Technical Eligibility

Adapted from Commonwealth Solar IIMinimum Technical Requirements (from MassCEC)

• Minimum design and estimated production requirements Project designed so that estimated annual energy output is at

least 80% of the default optimal output for a fixed PV project of the same capacity

• Installation requirements Electrical work performed by MA licensed electrician Project installed according to manufacturer’s instructions and in

compliance with all applicable permits, interconnection agreements, codes and standards

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Draft Design ElementsSolar PV System – Technical Eligibility

• PV project and equipment warranty requirements Installer warranty (at least 5 year labor warranty) Manufacturer warranty (at least 20 year production warranty on

panels) Roof condition in satisfactory shape Service and maintenance plan for loan term

• Additional solar PV equipment requirements New panels and equipment UL listed Solar panels on California Energy Commission (or successor) list

of eligible renewable energy equipment• Electricity production meter requirements

Data Acquisition System and automatic generation reporting

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Draft Design ElementsQualification of Installers

• Installers expedited similar to MassCEC Commonwealth Solar II Rebates program Installers already expedited in Commonwealth Solar II

immediately qualifies installer for expedition in solar loan program

• Non-expedited or new-entry installers will be subject to inspection of first two projects Successful inspection will result in expedited status for installer

going forward Inspection contracted by Central Administrator

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Draft Design Elements Model System Used for Financial Analysis

• Financial modeling based on typical residential system: Capacity: 5 kW Installed cost: $4.50/Watt Project cost: $22,500 SREC II revenue set

consistent with declining Auction Floor Price.

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Draft Design Elements Illustrative Cash Flow Model

Borrower provides lender with federal tax credit ($6750) within 18 months, or else loan is re-amortized.

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Draft Design ElementsLoan Parameters

Lender eligibility for credit enhancement (interest rate buy down and loan loss reserve)

• Unsecured loan with option for Lender to use a UCC-1 filing • Maximum loan available of at least $35,000• Loans available to borrowers with FICO scores down to at least 580

Lender may establish additional underwriting criteria (e.g. borrower income, debt/income, credit/debt), subject to further review for final program design

• Loan term of 10 years to coincide with SREC revenue Lenders may offer optional terms, but a term of 10 years must be offered

• Interest rate (for 10 year loan term) initially no higher than 5.5% before interest rate buy down (potentially pegged to prime lending rate)

• No penalties for early payoff• 1/3 of loan disbursed upon closing of loan used to pay installer, other 2/3 of loan

disbursed to Borrower Optional two-party check or direct Borrower payment

• Transferability (at discretion of Lender that new homeowner meets credit requirements)

• Loan fees optional, but not to exceed threshold set by DOER• Loan must not have recourse to credit enhancement by any other state or

government program

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Draft Design ElementsCredit Enhancement

SREC II Revenue SecurityBorrower consents to assignment of SREC II revenue to LLR agent in case of default (revenue replenishes LLR fund and discourages default)

Interest Rate Buy DownLoan Closed In: IRB2014 and 2015 3.5% buy down, pre-paid to lender

2016 2.0% buy down, pre-paid to lender2017 and after 0% buy down

Loan Loss ReserveBorrower FICO Score LLR

680 and higher 2% LLR for 50% of remaining principal640 - 679 5% LLR for 80% of remaining principal580 - 639 10% LLR for 80% of remaining principal550 - 579 What is the desire/feasibility of serving this sector?

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Draft Design ElementsPotential Leverage of DOER Funds

• DOER has allocated $30 million to support the credit enhancement and early mover incentives to encourage consumer solar loans.

• Modeling, with conservative assumptions, demonstrates that the DOER funds may support around $150 million of loans, a leverage factor of 5 times.

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Draft Design ElementsLoan Facilitation

• DOER will secure and approve loan facilitation to solar installers, borrowers, and lenders to enhance transactional efficiencies in the market. Lenders may opt to provide service themselves.

• The default or 3rd party service providers will: Provide pre-screening and preliminary approval of borrower

eligibility (home ownership, FICO score, employment, income, debt/credit ratio, etc.) Lenders who wish to perform these services directly with

borrowers may do so Provide homeowner with list and loan offerings of qualified lenders Qualify solar installations as meeting technical/quality criteria for

loan eligibility Provide access to common online or lender-specific loan

applications, per lender preference

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Draft Design ElementsCentral Administrator

DOER will establish a Central Administrator for the solar loan program that will provide the following services:• Qualify lenders and loan products that meet program criteria to be

eligible for the credit enhancement• Qualify solar installers for expedited treatment• Maintain Loan Program website with public information and listing of

qualified participants and loan offerings• Register each loan and directly, or through contracted party, disburse

IRB and administer LLR accounts• Provide quarterly DOER and public reports on loan program activity

and recommendations for improvement• Establish a NEPOOL GIS account for SREC II’s that are assigned to the

administrator due to loan defaults, sell the credits into the market for competitive value, and utilize revenues for credit enhancement as directed by DOER

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Draft Design ElementsProgram Documents

Required documentation• Program criteria documents• Participation qualification documents• Program forms

DOER will create program documents for review and program launch

Documents will be in an online form to the extent feasible

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Draft Design Elements MA Solar Loan Flow Diagram

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Next Steps…• DOER will take stakeholder input and develop final program design• DOER will draft program documents for review• DOER will procure Default Loan Service Provider and Central

Administrator• DOER seeks to establish a Lender working group to be available for

further programmatic and document review. Please provide Emma Krause your contact information if you are interested.

• DOER may hold one additional Lender stakeholder meeting to offer final proposed program design for discussion

• DOER expects to initiate loan program in fall of 2014• DOER is most interested in your comments on the preliminary design

provided today. Please email your comments to Emma Krause by Tuesday, July 15, 2014

• Comments received as well as this presentation will be posted on DOER’s website

• Contact Emma Krause at: emma.krause@state.ma.us