SEED  Fund  Collabora/ve  Solar  Procurement  for  Public  Agencies  

 Solar  Project  Financing  &  Economics  Discussion  

July  2015  

Agenda  

•  Introduc?on  to  SEED  Fund  Team  •  SEED  Fund  Project  Overview  and  Status  Update  •  Solar  Value  Proposi?on  

–  Long-­‐Life  Asset  –  Offset  of  Electrical  Costs  –  Financial  Incen?ves  and  Programs  –  Alterna?ve  Energy  Valua?ons  

•  Financing  Op?ons  &  Evalua?on  Process  –  Direct  Purchase  –  Power  Purchase  Agreement  –  Equipment  Lease  

•  Next  Steps  

About  SEI  

3

Strategic Energy Innovations is committed to actions that sustain our planet. We’re a certified green business, community-based nonprofit organization

Committed to empowering under-served markets ²  Schools, colleges and universities ²  Local governments ²  Small and rural communities ²  Affordable housing providers and residents ²  Small businesses …to embrace a climate-friendly future through green building, clean energy, resource efficiency and support of a local and qualified green workforce.

Optony  develops  and  deploys  solar  best  prac?ces  across  the  en?re  solar  project  lifecycle  for  government  agencies,  schools,  investors  and  commercial  organiza?ons.    Working  with  clients  across  all  phases  of  solar  projects  creates  deep  insight  into  true  performance  drivers  which  is  used  to  reduce  costs  and  improve  performance  at  any  stage  in  the  process.      www.optony.com    

“Optony's consulting service is a must-have for any organization considering an investment in solar. Based on Optony’s comprehensive analysis and recommendations, we now have a low-risk, high-return solar strategy.”

4

About  Optony  

Strategy & Planning

Technical & Economic

Assessments

Procurement Management

Project Management

System Optimization

Goals  of  SEED  Fund  

•  Bring  at  least  5  MW  of  new  public  renewable  energy  on  line  •  Realize  10-­‐12%  in  total  project  cost  savings  •  Reduce  transac?on  costs  and  administra?ve  effort  by  50-­‐70%  •  Deliver  collabora?on  support  for  1.5-­‐2%  of  total  contracted  solar  project  

costs    •  Secure  agreements  to  build  reimbursement  costs  into  solar  contracts  •  Create  significant  new  economic  ac?vity  and  jobs  •  Leverage  regional  ini?a?ves  for  educa?on  and  workforce  development  •  A\ract  addi?onal  funding  for  long-­‐term  sustainability  of  the  fund    

5

SEED  Fund  Structure  

6  

SEED  Fund,  LLC  

Sponsor  (CSI  RD&D  Grant)  

Regional  Collabora?ve    Purchasing  Ini?a?ve  

Par?cipants  Par?cipants  Par?cipants  Par?cipants  

Vendors  Vendors  

Optony  

-> Solar Contract <- Reimbursement

-> Technical Assistance <- Reimbursement

SEI  

Multiple Rounds

Memorandum Of

Understanding

7

Program  Timeline  

Q3  ‘15   Q4  ‘15   Q1  ‘16   Q2  ‘16  Q2  ‘15   Q3  ‘16  

High-­‐level  review  of  poten/al  sites  

for  solar  development  

Decision  2:  Final  decision  about  economic  and  environmental  benefits  of  solar  installa/on  for  your  facili/es    

Decision  1:  Review  poten/al  for  solar  

development  and  sign  MOU  to  proceed  with  viable  projects  

Site  feasibility  

assessments  

Evalua/on  of  vendor  responses  and  

nego/a/on  of  contract  terms  

Council/Board  approval  of  projects  and  start  of  

design  ac/vi/es  

Project  construc/on  begins!  

Issuance  of  RFP  

Recent updates: Feasibility assessments received: •  San Juan Bautista •  Cabrillo College (soon!) Site visits planned: •  North County Rec and Park •  Soledad •  Santa Cruz County News: •  Technical workshop next month to discuss project types and design and construction considerations

Status  of  Current  Par?cipants  

8

Organiza?on   Recommended  Sites  

Recommended  Solar  Capacity  

(kW-­‐DC)  

MOU’s  Signed   31   11,268  Cabrillo  College   3   3,866  North  County  Recrea?on  and  Park  District   1   43  City  of  San  Juan  Bau?sta   2   266  County  of  Santa  Cruz   11   3,912  City  of  Soledad   11   3,199  

MOU  Under  Considera/on   23   13,467  City  of  Monterey   14   9,459  Monterey  Peninsula  College   3   3,269  City  of  Pacific  Grove   3   219  City  of  Seaside   3   520  

Site  Screening  Underway   16   1,756  City  of  Capitola   2   30  Castroville  Special  Services  District   3   75  County  of  Monterey   4   350  Presidio  of  Monterey   3   150  Soquel  Creek  Water  District   1   792  City  of  Watsonville   3   359  

Total   70   26,509  

Recent Changes

Major  Changes  in  the  Solar  Industry  

o  Dramatic Drop in Panel Prices

o  Consolidation in the Industry

o  New Financial Players in the Market

o  Maturing Industry

o  US Markets are a Strong Focus

o  Excess PV Capacity Coming Online

o  Grid Parity Accelerating (without incentives)

o  Utility and Federal Programs

o  Better Project Economics

o  Few, Stronger Players

o  Lower Cost of Capital

o  Safer Investments for Buyers

o  PV Mfrs Must Lower Cost

o  Must Seek Long-Term Stability

o  Mass Adoption of Solar

o  Rate Structures and Financing

Major Impact On:

9

What  drives  realiza?on  of  solar  value?  •  Robust  technology  with  long-­‐life  components  

–  Low  total  cost  of  ownership  and  price  stability  for  25  years  –  Properly  designed  and  installed  PV  system  –  Energy  usage  offset  with  expected  facility  load  profile  

•  Offset  of  Electricity  Costs  –  Net  Energy  Metering  –  Solar-­‐friendly  Time-­‐of-­‐Use  rate  schedule  

•  Financial  incen?ves  and  programs  –  Produc?on  rebates  and  incen?ves  –  Solar  renewable  energy  credits  –  Tax  incen?ves  (even  useful  for  tax-­‐exempt  en??es)  –  Low-­‐interest  loans,  bonds  

•  Alterna?ve  energy  valua?ons  –  Feed-­‐in  Tariff,  RES-­‐BCT  (AB  2466),  Over-­‐produc?on  credit  (AB  920),  Energy  Storage  

Electricity  Pricing  Trends  

11  

 $0.0700    

 $0.0900    

 $0.1100    

 $0.1300    

 $0.1500    

 $0.1700    

 $0.1900    

 $0.2100    

1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010   2011   2012   2013   2014  

$/kW

h  

Year  

PG&E  prices  per  kWh  for  Representa/ve  Commercial  Facili/es  

E-­‐19S   A-­‐6   A-­‐1  TOU   A-­‐10  TOU   E-­‐20S  

Net  Energy  Metering  (NEM)  •  U?lity  credits  for  export  energy  at  same  rate  as  they  charge  

–  Best  economics  for  solar  –  Capped  at  1  MW-­‐AC  per  meter  –  Allows  solar  customers  to  take  advantage  of  Time-­‐of-­‐Use  (TOU)  rates  –  Note:  Will  change  in  late  2016:  NEM  2.0  (“grandfathering”)  

•  A-­‐6  PG&E  rate  schedule:  “solar-­‐friendly”  –  Site/meter  demand  must  remain  below  500  kW  –  No  demand  charges  –  A-­‐6  Peak  summer  rate:  ~$0.60/kWh;  Off-­‐Peak  summer  rate:  ~$0.15/kWh  –  For  every  summer  peak  kWh  exported  to  grid,  you  get  credit  for  4  off-­‐peak  kWh  –  With  this  valua?on,  annual  energy  offset  of  ~65-­‐85%  can  lead  to  a\rac?ve  project  

economics  (typically)  –  Note:  Proposed  changes  reduce  eligible  site  demand  to  75  kW  (grandfathering);  

probable  future  demand  charges  

Rate  Schedule  Change:  A-­‐10  to  A-­‐6  

$0  

$20,000  

$40,000  

$60,000  

$80,000  

$100,000  

$120,000  

0   10   20   30   40   50   60   70   80   90   100  

U/lity

 Electric

ity  Bill  ($

)  

Energy  Offset  by  Solar  (%)  

Comparison  of  Energy  Bill  Savings  (With/Without  Solar,  Different  Rate  Schedules)  

PG&E  No-­‐Solar  A-­‐10  

PG&E  Solar  A-­‐10  

PG&E  Solar  A-­‐6  

13  

Other  Cost  Offsets  •  Rebates  

–  California  Solar  Ini?a?ve  (CSI)  –  Budget  Allocated    

•  Tax  benefits  –  Investment  Tax  Credit  (ITC):    30%  un?l  end  of  2016;  10%  anerwards  –  Accelerated  Bonus  Deprecia?on:  50%  Deprecia?on  in  Year  1  (un?l  end  of  2013)  –  Cannot  be  used  directly  by  tax-­‐exempt  en??es  =>  PPAs/Leases    

•  Solar  Renewable  Energy  Credits  (SREC)  –  Highly  valuable  in  some  markets  (Northeast),  but  minimal  value  in  CA  

•  Over-­‐produc?on  credit  –  AB  920  requires  u?lity  payment  for  energy  genera?on  higher  than  usage  –  Only  valued  at  market  rate:  ~$0.04/kWh  

Financing Structures

Financing  Impacts  Project  Design,  Process  &  Economics  

o  Direct Purchase

o  Power Purchase Agreement

o  Equipment Leasing

o  Bond Financing

o  Tax Exempt Lease

o  Utility Financing

o  Energy Service Contract

o  Performance Risk

o  Up-Front Costs

o  Long-Term Returns

o  Procurement Process

o  System Design

o  Project Benefits

o  Operations & Maintenance

Changes Project:

15

Direct  Purchase  

o  Ownership  •  Customer  owns,  operates,  and  maintains  the  system  •  Owner  has  full  responsibility  for  performance  •  Maintenance  contracts  and  performance  guarantees  can  be  purchased  

o  Capital  Costs  •  Full  cost  of  system  due  at  delivery  (on  construc?on  schedule  of  payments)  •  May  be  par?ally  offset  by  rebates,  grants  &  incen?ves  (higher  for  non-­‐profits/gov’t)  •  Could  be  financed  directly  with  exis?ng  processes  (loan,  lease,  internal  investment)  

o  Financial  Benefits  •  High  annual  savings  begin  immediately  and  may  be  the  highest  over  long-­‐term  •  Customer  retains  Solar  Renewable  Energy  Credits  (SREC)  •  Customer  receives  federal,  state,  and  local  incen?ves  and  rebates  •  However,  non-­‐taxable  organiza?ons  cannot  capture  any  tax  benefits  •  Low  opera?ng  costs,  effec?vely  capping  electricity  costs  for  25+  years  

16

Solar  Purchase  Cash  Flow  Example*  

* Not an actual project site, but representative of the potential cash flows from a solar lease. All costs, benefits, terms, conditions, and cash flows may vary. 17

($1,000,000)'

($800,000)'

($600,000)'

($400,000)'

($200,000)'

$0''

$200,000''

1' 2' 3' 4' 5' 6' 7' 8' 9' 10' 11' 12' 13' 14' 15' 16' 17' 18' 19' 20' 21' 22' 23' 24' 25' 26'

Annual'Solar'Purchase'Cash'Flows''190kW&System,&A6&Rate&Schedule,&Step&10&CSI&rebate!!!

Inverter Replacement

Utility Savings + CSI Rebates

Initial Investment

Utility Savings - O&M

Utility Savings - O&M

Power  Purchase  Agreement  

o  Ownership  •  PPA,  LLC  owns,  operates,  and  maintains  the  system  •  PPA  receives  all  federal,  state  and  local  incen?ves,  rebates  (typically)  and  tax  benefits  •  System  output  is  the  responsibility  of  PPA,  but  Customer  must  buy  ALL  power  produced    

o  Capital  Costs  •  No  up-­‐front  capital  costs  for  buyer  •  Legal  services  can  be  expensive  

o  Financial  Benefits  •  Fixed  price  per  kWh  with  known  annual  escala?on  (0%  to  4%)  over  20  years  •  Savings  are  generally  very  low  in  the  early  years  but  increase  over  ?me  •  PPA  or  Customer  owns  Solar  Renewable  Energy  Credits  (SREC),  based  on  contract  •  System  sizing  must  be  carefully  evaluated  and  Performance  Guarantees  should  be  included  •  Payback  periods  can  be  quite  short  because  there  is  are  no  ini?al  capital  costs  •  Customer  can  purchase  the  system  at  the  end  of  the  PPA  term  for  FMV  

18

Solar  PPA  Cash  Flow  Example*  

19

Utility Savings - PPA Costs

$0##

$10,000##

$20,000##

$30,000##

$40,000##

$50,000##

$60,000##

$70,000##

1# 2# 3# 4# 5# 6# 7# 8# 9# 10# 11# 12# 13# 14# 15# 16# 17# 18# 19# 20# 21# 22#

Annual#Solar#PPA#Cash#Flows#193#kW#System,#A6#Rate#Schedule,#Step#10#CSI#Rebate!!

* Not an actual project site, but representative of the potential cash flows from a solar lease. All costs, benefits, terms, conditions, and cash flows may vary.

Equipment  Lease  

o  Ownership  •  Leasing  company  (bank)  owns  the  system  •  Fixed  monthly  payments  for  7-­‐15  years  (can  be  sculpted)    •  Leasing  company  takes  available  federal  tax  benefits,  or  uses  tax-­‐exempt  lease  structure  •  Customer  has  full  responsibility  for  performance  •  Maintenance  contracts  and  performance  guarantees  can  be  included  

o  Capital  Costs  •  Usually  no  up-­‐front  capital  costs    •  May  be  some  transac?on  costs  

o  Financial  Benefits  •  Lease  term  savings  generally  minimal,  but  then  as  high  as  purchase  aner  lease  term  •  End  of  lease  buy-­‐out  for  FMV  or  10-­‐20%  of  ini?al  value  •  Customer  generally  retains  Solar  Renewable  Energy  Credits  (SREC)  •  Customer  generally  receives  state  and  local  incen?ves  and  rebates  

o  Varia/on:  Some  PPAs  can  be  structured  like  leases  

20

Solar  Equipment  Lease  Cash  Flow  Example*  

($20,000)'

$0''

$20,000''

$40,000''

$60,000''

$80,000''

$100,000''

$120,000''

$140,000''

$160,000''

$180,000''

$200,000''

1' 2' 3' 4' 5' 6' 7' 8' 9' 10' 11' 12' 13' 14' 15' 16' 17' 18' 19' 20' 21' 22' 23' 24' 25' 26'

Annual'Solar'Lease'Cash'Flows!210kW&system,&A6&Rate&Schedule,&Step&10&CSI&rebates&!

Utility Savings + CSI Rebates

– Lease Payments

Utility Savings – Lease Payments

- O&M

Utility Savings - O&M

Inverter Replacement

21 * Not an actual project site, but representative of the potential cash flows from a solar lease. All costs, benefits, terms, conditions, and cash flows may vary.

Indica?ve  Cash  Flows  Across  Financing  Op?ons  

22  

 $(2,000,000)  

 $(1,000,000)  

 $-­‐        

 $1,000,000    

 $2,000,000    

 $3,000,000    

 $4,000,000    

 $5,000,000    

1   2   3   4   5   6   7   8   9   10   11   12   13   14   15   16   17   18   19   20   21   22   23   24   25  

Cumula/

ve  Savings  per  year  

Total  Cumula/ve  Projected  Net  Savings  Bay  Area  Municipality,  4  sites,  Total  Installed  Capacity:  600  kW  

Purchase  

3%  PPA  

Lease  Op?on  

Financial  Analysis  

23  

•   Review  system  sizing,  pricing,  assump?ons,  costs/benefits  •   Compare  project  cash-­‐flows  across  various  financing  op?ons  •   Used  in  developing  Feasibility  Assessment  and  to  compare  vendor  proposals  

Making  the  Case  

•  Feasibility  studies  demonstrate  technical  &  economic  poten?al  

•  Compare  realis?c  financing  op?ons  and  assump?ons  

•  Look  for  available  incen?ves  and  programs  to  reduce  costs  

•  An?cipate  ques?ons  and  provide  concrete  examples  

•  Involve  key  decision-­‐makers  early  in  the  process  

•  Show  long-­‐term  cost  savings  can  more  than  pay  for  the  effort  

•  Connect  projects  to  local  and  regional  sustainability  plans  

•  Link  to  state  requirements  for  GHG  reduc?ons  

•  Involve  community  members  to  help  support  clean  energy  

•  Include  economic  impact  and  job  crea?on  benefits    

24

Next  Steps  •  Send  site  data  or  signed  MOU’s  asap:  seeking  to  have  par?cipant  pool  

finalized  by  end  of  September  •  Arrange  feasibility  assessment  site  visits    •  Review  assessments  and  confirm  inclusion  of  sites  in  RFP;  verify  that  

construc?on  info  for  vendors  is  complete  and  correct  •  A\end  technical  workshop  in  August  •  Speak  out  against  proposed  changes  to  A-­‐6  and  NEM  •  Send  follow-­‐up  ques?ons  to  SEED  Fund  team:  

–  Jonathan  Whelan  jonathan.whelan@optonyusa.com  415-­‐450-­‐7032  –  Karly  Zimmerman  karly@seiinc.org      415-­‐507-­‐1430  

•  Build  internal  understanding  and  consensus  among  departments:  Management,  Finance,  Enviro/Sustainability,  Public  Works/Facili?es,  Legal  

25

Other  Produc?on  Revenue  Op?ons  •  Feed-­‐in  Tariffs:  U?lity  pays  fixed  rate  per  kWh  for  contract  term  

–  PG&E  FiT  (ReMAT)  –  Instead  of  fixed  rate,  price  varies  depending  on  supply  –  Current  pricing  around  $0.07-­‐$0.09/kWh  –  Developer  would  sell  energy  to  u?lity;  lease  land  from  Agency  (for  $)  –  Community  Choice  Aggrega?on  (CCA)?  

•  Renewable  Energy  Self-­‐Genera?on  –  Bill  Credit  Transfer  (RES-­‐BCT)  (AB  2466)  –  Been  in  place  since  early  2010,  but  few  applica?ons  (<10  in  PG&E  territory)  –  Genera?ng  facility  offsets  facility  use,  then  all  energy  exports  are  credited  at  TOU  rate  to  

Benefi?ng  Accounts  owned  by  same  Agency  –  Credits  are  only  accrued  at  Genera?on  Component  of  rate,  not  full  retail  which  includes  

Transmission  and  Distribu?on  (1/3  to  1/2  of  full  rate)  –  Does  not  qualify  for  NEM  

•  Net  Surplus  Compensa?on  (AB  920)  –  U?lity  must  provide  compensa?on  for  annual  kWh  exports  (not  excess  $  credit)  –  Compensa?on  is  at  average  spot  market  pricing  (~$0.04/kWh)  –  Not  worth  planning  to  over-­‐build,  but  is  an  op?on  if  facility  usage  changes