national cle
TRANSCRIPT
Solar & Solar Finance – A National
Perspective
“Fuel for Thought”
UN Population Growth estimate to 9 Billion by 2040
What Is Solar?
Predictive Modeling
Shade Analysis– tools to take the mystery out of the production forecast.
J une 21 st – 4 P.M .
Dec 21 st – 4 P.M .
15 Kw Ground Mount Multi-pole
Flat roof > Non-Balast Racking System
Flat Roof > Balast Racking System
New Jersey is second in the country in Solar Energy capacity
California leads the nation in Solar installations Florida distant third @ less than half of NJ’s capacity Solar Market Penetration.
New Jersey Solar Installation Projects by Program
Installed Projects 2001 to 8/31/2012
# Projects
Installed Capacity(KW dc)
17,608 876,091.3
The Economics of SolarFederal Tax Grant (if Safe Harbored)/Credit Solar Renewable Energy Certificates (SREC) Cost of Electric 5 year Accelerated Depreciation (commercial) First Year Bonus Depreciation 2012 (commercial) Cost of Financing
o Direct Purchaseo Power Purchase Agreements (PPA)
Grant Programs for Renewables
Utility, local, or private program(s) onlyState program(s) + utility, local, and/or private program(s)
Notes: This map only addresses grant programs for end-users. It does not address grants programs that support R&D, nor does it include grants for geothermal heat pumps or other efficiency technologies. The Virgin Islands also offers a grant program for certain renewable energy projects.
State program(s) onlyPuerto Rico
DC
21 states offer grant programs
for renewables
Copyright © 2011-2012 Szaferman, Lakind, Blumstein & Blader, P.C.
All Rights Reserved.
Interconnection Policieswww.dsireusa.org / March 2011
*Standard or Guideline only applies to net-metered systems
WA: 20,000
OR: 10,000
CA: no limit
MT: 50*
NV: 20,000
UT: 25/2,000*
NM: 80,000
WY: 25*
HI: no limit
CO: 10,000
MN: 10,000
LA: 25/300*
AR: 25/300*
MI: no limitWI:
15,000
MO: 100*
IN: no limitIL:
10,000
FL: 2,000*
KY: 30*
OH: 20,000
NC: no limit
VT: no limit NH: 100*
MA: no limit
Notes: Numbers indicate system capacity limit in kW. Some state limits vary by customer type (e.g., residential/non-residential).“No limit” means that there is no stated maximum size for individual systems. Other limits may apply. Generally, state interconnection standards apply only to investor-owned utilities.
CT: 20,000 PA: 5,000* NJ: no limit
DC: 10,000
MD: 10,000
NY: 2,000
SC: 20/100GA:
10/100*
PR: no limit
TX: 10,000
NE: 25*
KS: 25/200*
SD: 10,000
ME: no limit
41 States + DC & PR
have adopted an
interconnection policy
DC VA: 20,000
IA: 10,000
WV: 2,000
State StandardState Guideline
DE: 20,000*
Tax Credits for Renewables
Notes: This map does not include corporate or personal tax deductions or exemptions; or tax incentives for geothermal heat pumps.
Corporate tax credit(s) onlyPersonal + corporate tax credit(s)
Personal tax credit(s) onlyPuerto Rico
DC
23 states offer tax
credits for renewables
Sales Tax Incentives for Renewables
Notes: This map does not include sales tax incentives that apply only to geothermal heat pumps or other energy efficiency technologies.
State exemption + local governments (option) authorized to offer exemption or deduction
State exemption or deduction Puerto Rico 27 states
+ PR offer sales tax
incentives for renewables
DC
Solar Investment AnalysisSolar Investment Analysis
Step 1: Step 1: Sizing the Average Solar Energy SystemSizing the Average Solar Energy System
System Size kW DC – 149,960 AC – 179,952
Energy Rate $0.18
System Installed $$/kW* $4.50
Fed. Tax Grant 30% of system cost
SREC Value First year $641 (avg. $536)
Total Electricity Cost Years 1-15 without Solar: ($620,415)
* Valued by DC ratingCopyright © 2011-2012 Szaferman, Lakind, Blumstein &
Blader, P.C.All Rights Reserved.
Solar Investment AnalysisSolar Investment Analysis
Step 2: Step 2: Assessing Capital Incentives Assessing Capital Incentives
System Pricing:
A) Total installed price $674,820
B) Less: 30% Federal Tax Grant $202,446
C) Net price after incentives $472,374
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Solar Investment AnalysisSolar Investment Analysis
Step 3: Step 3: Assessing Income Benefit Assessing Income Benefit
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Solar Investment AnalysisSolar Investment Analysis
Step 3: Step 3: The Final AnalysisThe Final AnalysisInstallation can pay for itself
in 45 months when payments are optimized IRR= 27%
Consider the value to this business of an 85% one time tax depreciation of:
$ 573,597
Copyright © 2011-2012 Szaferman, Lakind, Blumstein & Blader, P.C.
All Rights Reserved.
There are three primary benefits to creating a separate entity to own and operate the solar business.
(1) Liability Reduction: There is an inherent liability risk associated with the installation of the system. This includes damage due to weather related events and economic impact damages to off-takers in the event of system failure or downtime. A separate entity would obtain separate insurance and shield all remaining assets from risk.
(2) Accounting: The system would bill the off-taker their monthly charges according to the Power Purchase Agreement negotiated with the off-taker. With a separate accounting system to manage the income, expenses and billing of the solar operation, the Company’s existing accounting system that services its core business can remain intact without any compromise or further complication.
(3) SREC Profitability: As the solar business model grows and expands and acquired larger volumes of SREC’s for sale, the pooling of the SREC’s for sale by one entity will allow for an ability to garner more profitable long term strips (contracts).
Independent Accounting
Design, builds,
operates, and
maintains.
Revenue from sale of
SREC’s
Revenue from PPA
with Tenant
IndependentLiability
SOLAR, L.L.C.
Core business remains intact without impact to liability risk and business operations.
The Structure of the Entity
The Structure of the Deal
3 r d- Party S olar PV Pow er Pu rch ase Agreem en ts (PPAs)w w w .dsi r eu s a.org / M ar ch 201 1
Apparently disallow ed by s tate or otherw ise res tricted by legal barriers Status unclear or unknow n
Authorized by s tate or otherw ise currently in use
P u e r t o R ico
A t le a st 1 9 sta te s + P R a u th o r iz e o r
a llo w 3 rd - p a r ty so la r P V P P A s
A t le a st 1 9 sta te s + P R a u th o r iz e o r
a llo w 3 rd - p a r ty so la r P V P P A s
No te : T h is ma p is in te n de d to se rve a s a n u n o ffi cial g u id e ; i t do e s n o t co n sti tu te le g al a d vice . S e e k q u al ifie d leg a l e xp e rtise b e fo re m a kin g b in d in gfin a ncia l d e cisio n s re la te d to a 3 rd-pa rty P P A. S ee fo llo w in g slid e fo r a d d itio n al im p o rta n t in fo rm a tio n a n d a u tho ri ty re fe re n ce s.
UT: limited to certain sectors
AZ: limited to certain sectors
The PPA Benefits to the Off-taker
Protect Against Outrageous Utility
Rate Increases
Go Green!Reduce ElectricBy 30%
SOLAR, LLC
Protect Against Outrageous Utility
Rate Increases
Go Green!Reduce ElectricBy 30%
SOLAR, LLC
Reduce ElectricBy 30%
There are THREE primary benefits to the Off-taker with the installation of the solar power system under a PPA.
(1) 30% Electric Utility Cost Reduction: The solar system will be custom designed to provide sufficient power for the operation based on the past 12 months of the electrical power usage. Solar, LLC will invoice the off-taker monthly for its usage at its current electric rate less 30%.
The PPA Benefits to the Off-taker
The Structure of the Deal
Protect Against Outrageous Utility
Rate Increases
Go Green!Reduce ElectricBy 30%
SOLAR, LLC
Protect Against Outrageous Utility
Rate Increases
(2) Cap on Future Electric Costs: Avoid costly utility rate increases with a set 3% annual increase.
The PPA Benefits to the Off-taker
Protect Against Outrageous Utility
Rate Increases
Go Green!Reduce ElectricBy 30%
SOLAR, LLC
Go Green!
(3) Going Green - Public Relations: As the public demand increases for eco-friendly businesses, the off-taker can market its company as part of the solution.
The PPA Benefits to the Off-taker
•Public/Private Partnership
•Conventional Loan
•Equipment Lease
•Power Purchase Agreements
Financing Options for Solar
•Assignment of SREC’s
•Mortgage on Property
•Lien on Equipment
•Power Purchase Agreements
Collateral Options For Lenders
•Mortgage on PropertyCollateral Options For Lenders
• First Lien (Most Secure)
• Second Lien (Should Require 2 of 3)– Subordination, Non-Disturbance & Attornment Agreement
(SNDA).
– Solar License Agreement (SLA) Executed Between System Owner and Property Owner.
– Guarantee from Property Owner with Negative Pledge Agreement.
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•Lien on Equipment
Collateral Options For Lenders
• Perfected Via Conventional UCC Filings.• • There is Currently NO Established Secondary (i.e. used) Market for Solar Equipment.
• There is Significant Downward Price Pressure from Worldwide Growth in the Sector.
• System is Most Valuable at Initial Installed Location. The Lender is More Secure Holding the Asset Versus Liquidation.
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•Assignment of SREC’s
Collateral Options For Lenders
• Sophistication of Borrower– Borrowers with experience in solar or trading commodities
should be given greater flexibility than those with less experience.
– The SREC is the driving financial tool so focus must be on the risk/reward analysis.
• Protective Measures– Qualified Intermediary
• Experienced Trader Assigned to Oversee the SREC Portfolio of Borrower.
• Required as part of closing.• Fees derived from trade of SRECs.
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•Assignment of SREC’s
Collateral Options For Lenders
• Protective Measures– Strips (Long Term Contracts)
• Flett Exchange– Minimum System of 500kw
– Fixed Price for 3, 5, or 7 Years
– Price Fluctuates Based on Credit Worthiness of System Owner
– May Require Posting of Standby Letter of Credit
• SolSystems– Sol Annuity (Fixed Price for Five Years)
– Sol Flex
» Guranteed Base Price
» Receive 70% of ALL Profits Above Base Price
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All Rights Reserved.
Collateral Options For Lenders•Power Purchase Agreements
• Credit Worthiness of Off-Taker.• • Proper PV Watts & Integrator Installed Production Analysis.
• Language to Preserve Meter In Event of Default.
•Language for Termination Penalty.
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All Rights Reserved.
SRECs
• SREC stands for Solar Renewable Energy Certificate and equivalent to 1,000 kWh of electricity.
• It is a tradable certificate that represents all the clean energy benefits of electricity generated from a solar electric system.
• Each time a solar electric system generates 1,000 kWh of electricity, an SREC is created and can then be sold for cash.
• Generated for 15 years from system activation.
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NJ Senate Bill No. 2036 – Enacted 8/19/2010
•“The solar renewable portfolio standards requirements in paragraph (3) of this subsection shall automatically increase by 20% for the remainder of the schedule in the event that the following two conditions are met: (a) the number of SRECs generated meets or exceeds the requirement for three consecutive reporting years, starting with energy year 2013; and (b) the average SREC price for all SRECs purchased by entities with renewable energy portfolio standards obligations has decreased in the same three consecutive reporting years.”
Regulatory Risks• EY – June 1 to May 312011 306 Gigawatthours (Gwhrs) (as of 04/01/2011 - 289 Gwhrs built)• 2012 442 Gwhrs• 2013 596 Gwhrs• 2014 772 Gwhrs• 2015 965 Gwhrs• 2016 1,150 Gwhrs• 2017 1,357 Gwhrs• 2018 1,591 Gwhrs• 2019 1,858 Gwhrs• 2020 2,164 Gwhrs• 2021 2,518 Gwhrs• 2022 2,928 Gwhrs• 2023 3,433 Gwhrs• 2024 3,989 Gwhrs• 2025 4,610 Gwhrs• 2026 5,316 Gwhrs
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All Rights Reserved.
SRECs• Who can participate:
– All solar system owners in New Jersey with grid connected generators can participate in New Jersey's SREC program.
• How much are they worth:– The NJBPU concluded the SREC needed
to trade $100 less than the SACP to support solar development.
– The SACP schedule was established by the Board of Public Utilities in their board order dated 9/12/2007.
– The Board is Directed to set the schedule through 2026.
• Long term SREC contracts can be entered into in order to lock-in pricing for up to seven (7) years. Current 5 year contracts for financially strong entities are offering $375-$425 per SREC.
SACP: If a utility company does not purchase enough SRECs to meet their RPS requirements, they will pay an SACP (solar alternative compliance payment).
Reporting Year SACP
June 1, 2008 – May 31, 2009 $711
June 1, 2009 – May 31, 2010$693
June 1, 2010 – May 31, 2011$675
June 1, 2011 – May 31, 2012$658
June 1, 2012 – May 31, 2013$641
June 1, 2013 – May 31, 2014$625
June 1, 2014 – May 31, 2015$609
June 1, 2015 – May 31, 2016$594
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All Rights Reserved.
Questions? Comments?
Ryan A. Marrone, [email protected]
Copyright © 2011-2012 Szaferman, Lakind, Blumstein & Blader, P.C.
All Rights Reserved.