Commercial Solar Economics

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Commercial Solar presentation focusing on the finance of loans and PPAs

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Commercial Solar Economics

  1. 1. Andy Black “Commercial Solar Economics & Solar Financial Analyst (408) 428 0808x1 Introduction to Financing with Leases & andy@ongrid.net PPAs”Solar Living Institute: April 20, 2008, Los Angeles, CA, 9am-5pm Contact: Solar Living Institute: www.solarliving.org, 707 744 2017 to register 8:30 Check-in 9:10 Introductions Commercial Tax & Incentive Issues Break, Q & A, Networking TOU & Demand Rate Choices & Case Studies ~12:00 Lunch, Q & A, Networking (~30 minutes if possible) Choosing Rebates vs. PBIs Commercial Financing In General Break, Q & A Financing with Leases Financing with PPAs ~4:30 Formal Conclusion, Break, Q & A Interactive Examples (for those who wish to stay) Using the OnGrid Tool We must be out by 5:00 (add’l questions outside)Diligence: Heights by great men reached and kept were not obtained by sudden flight, but they, while their companions slept, were toiling upward in the night. - Henry Wadsworth Longfellow
  2. 2. Andy Black “Commercial Solar Economics & Solar Financial Analyst (408) 428 0808x1 Introduction to Financing with Leases & andy@ongrid.net PPAs”Solar Living Institute: April 20, 2008, Los Angeles, CA, 9am-5pm Contact: Solar Living Institute: www.solarliving.org, 707 744 2017 to registerAbstract:This rigorous workshop is designed to help commercial systems integrators (dealers, installers, andsalespeople) understand and make the financial case for commercial PV systems including specificsfor the local/nearby utilities (depending on location), then understand how to finance them withPPAs and Leases.“Economics of Solar: Making The Financial Case for Residential Solar” or equivalent is a requiredprerequisite.This class includes: Economics of commercial & municipal systems, including the additional incentives (tax credits, RECs, PBIs, depreciation), and utility tariff options (including TOU and demand charge rate choices) PPAs: Understanding the basics, subtleties, complexities, risks, and opportunities Leases: Understanding the major types, how and when they are used A short list of financing, legal, tax, and accounting providers who specialize in solarAll students will receive a copy of the demo version of the OnGrid Tool (licensing agreement will berequired).Biography:Andy Black is a Solar Financial Analyst and the owner of OnGrid Solar. OnGrid Solar providesfinancial analysis and sales education & software to solar installers to help them make a strong salescase for solar electricity to their customers. Andy has more than a dozen years of design, consulting,teaching, sales, and research experience in solar. He specializes in demonstrating the financial paybackof solar electricity systems. He is a former NABCEP certified solar installer.Andy Black is a recent member of the Board of Directors of the American Solar Energy Society andserved as Chapters Representative. He is also a member of the Advisory Board of the NorthernCalifornia Solar Energy Association.Andy’s formal education includes a Bachelor’s in Electrical Engineering from Penn State University, aMaster’s in Electrical Engineering from University of Southern California, and a Marketing Certificateat the University of California. His training in solar electricity includes Solar Energy International’sintensive photovoltaic coursework and more than a dozen specialty courses in solar electric and relatedfields. He presents regularly on the financial analysis of solar electricity to audiences nationwide.Andy is also the groundskeeper and servant for a cat at his home in San Jose, CA.Contact Info: Andy Black, CEO OnGrid Solar 4175 Renaissance Dr #4, San Jose, CA 95134 (408) 428 0808x1 andy@ongrid.net www.ongrid.net
  3. 3. COMMERCIAL SOLAR Introductions & Thanks ECONOMICS & FINANCING !  Solar Power International 09 Andy Black !  Solar Electric Power Association Solar Financial Analyst "  Julia Hamm & Emily Brown, & Stuart Raper & Sales Software Creator !  Andy Black, OnGrid Solar "  Solar Financial Analyst & OnGrid Tool Creator Solar Power International 2009 !  You for coming! © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 2 Quick Survey - Quick Survey - Who’s Here? !  Existing integrators / dealer / installers Your Goals for Today? "  Managers & Owners !  Learn about economics for general knowledge !  Salesperson for integrator / dealer / installer !  Want to use economics for selling / grow !  New or hopeful integrators / dealers / installers !  New or hopeful salespeople business !  Government / Utilities !  Want to learn about / have the OnGrid Tool !  Customers / consumers / end users !  Want to increase your knowledge to develop !  Manufacturers your own tool !  Others? !  Who’s taken the Residential/Basic Payback Class?© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 3 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 4 Quick Survey - Instructor Background Area(s) of Interest? !  Came to learn specifically about: !  M.S. Electrical Engineering "  Commercial Financial Analysis: IRR, Tax, etc !  SEI graduate & NABCEP Certified PV Installer "  Commercial Lease Financing !  13 Years involved with Solar "  Commercial PPA Financing !  9 Years studying, writing, & presenting about # Use PPAs in selling Solar Financial Issues # Create new PPA offering to market !  5 Years as Solar Salesperson !  Other interests? !  Now a Solar Financial Analyst & !  Networking list? Creator of the “OnGrid Tool” solar sales software© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 5 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 6
  4. 4. Handout Resource List Decorum !  Resources available at www.ongrid.net !  Questions: Please focus on Solar Economics & Payback " Articles & papers on solar “Payback” !  No Side Conversations Please " Upcoming classes & events "  Hard for others to hear # Sales & Marketing !  Cell phones to fun mode # Slides from past classes !  Site Logistics & Breaks "  Free demos of the OnGrid Tool "  Facilities "  Lunch & 2 breaks: Networking© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 7 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 8 Agenda Installed System Costs - Size !  Commercial Solar Financial Analysis !  Typical range $7-$11/ CEC AC watt thru 10/2008 "  Commercial Incentive, Tax, & Tariff Issues !  Commercial, Gov’t & Non-Profit: $7-$9/Watt CEC AC "  Four Financial Analysis Methods & Examples "  $5.50-$7.50/Watt STC DC (1 W DC =~ .83 W AC) !  Choosing Rebates vs. PBIs "  $5.50/W STC is typical for 500kW+ !  Financing with Leasing & PPAs !  Some economies of scale !  Interactive Examples using the OnGrid Tool !  Price Trends 2003-2008 Questions preferred at points marked: "  Germany & Spain Questions? "  Please focus on Economics Questions? !  Price Declines Since 11/2008 and Predictions !  Down $1 by 5/2009; Down $1.50-$2 by 12/2009© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 9 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 10 PBI: Performance CSI EPBB Rebate Based Incentive !  Systems under 50kW (30kW in 2010+) !  Systems over 50kW (30kW in 2010+) !  EPBB: Expected Performance Based Buydown "  Optional for systems <50kW "  Adjusted for Expected Performance: !  Paid for all kWh produced for first 5 years # Tilt, Orientation, Shading, Location, Module "  Actual performance Temperature (due to lack of air flow) # EPBB Calculator: www.csi-epbb.com Questions?© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 11 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 12
  5. 5. CSI Trigger Tracker Step Statewide MW in Step EPBB Payments (per Watt) Residential Commercial Government / PBI Payments (per kWh) Residential Commercial Government / Tax Benefit Overview Non-Profit Non-Profit 1 50 n/a n/a n/a n/a n/a n/a 2 70 $2.50 $2.50 $3.25 $0.39 $0.39 $0.50 3 4 5 100 130 160 $2.20 $1.90 $1.55 $2.20 $1.90 $1.55 $2.95 $2.65 $2.30 $0.34 $0.26 $0.22 $0.34 $0.26 $0.22 $0.46 $0.37 $0.32 !  Federal Investment Tax Credit (ITC)/Grant !  Federal & State Accelerated Depreciation 6 190 $1.10 $1.10 $1.85 $0.15 $0.15 $0.26 7 215 $0.65 $0.65 $1.40 $0.09 $0.09 $0.19 8 250 $0.35 $0.35 $1.10 $0.05 $0.05 $0.15 9 285 $0.25 $0.25 $0.90 $0.03 $0.03 $0.12 !  Only apply to taxable entities (not schools, 10 350 $0.20 $0.20 $0.70 $0.03 $0.03 $0.10 non-profits, gov’t, etc) Disclaimer: I’m not a CPA or lawyer, and am not providing tax advice. Seek qualified professional help Trigger Tracker website: http://www.csi-trigger.com As of 10/19/09 Program Data & Statistics: http://csi.powerclerk.com© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 13 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 14 Federal Investment Federal ITC “Grant” Tax Credit - Commercial - Commercial 2009-2010 !  30% Investment Tax Credit - Extended 10/2008 "  Must be “placed in service” in 2006-2016 !  30% ITC becomes (or optionally can be?) a Grant "  10% if installed after 2016 !  Same general features and intended functionality as “There is no feast which does not come to an end.” the ITC, but better: - Chinese proverb ! "  Paid < 60 days of “placed in service” or application !  IRS Form 3468 (Sect 48 of Internal Revenue Code) "  Usable even if no tax appetite (effectively a !  Unused credit can be carried forward 20 years refundable ITC or Federal Rebate) !  Commercial !  Commercial systems only "  Including home businesses > 20% sqf - with caution !  “Placed in service” in 2009-2010 only, or !  Limited by AMT in 2008, No AMT limit 2009-2016 "  Construction Initiated 2009-10, completed by 2017 !  Vests at 20% per year (over 5 years) !  Treasury web application now Commercial Solar Economics & Financing available© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 15 © 2009 OnGrid Solar, All rights reserved. - 16 Federal ITC “Grant” Limitations “Placed In Service” !  Commercial systems only SEIA “Guide to Federal Tax Incentives for Solar Energy” "  Limited to IRC Sec 48 and some Sec 45 Available at: www.seia.org! !  Pass-thru entities (partnerships, LLCs, S-corps) !  Equipment delivered and construction / installation can use grant, as long as none of the recipients is completed! non-taxable (and therefore disqualified) "  Minor tasks like painting need not be finished ! "  I.e. One disqualifies all, regardless of small % !  Taxpayer has taken legal title and control ! !  Allows transfer of ownership !  Pre-operational tests demonstrate the equipment !  Recapture of Grant or ITC on permanent functions as intended ! cessation of production !  Taxpayer has licenses, permits, and PTO (permission !  May be state taxable in certain cases to operate)!© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 17 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 18
  6. 6. “Placed In Service” Depreciation - Federal !  Depreciation = tax deduction spread over time POSTT:! !  MACRS 5-Year Accelerated Depreciation (1/2 yr conv.) !  Permits & Permission to Operate signed off! MACRS: Modified Accelerated Cost Recovery System "  !  Operation Commenced! IRS Form 4562 "  !  Equivalent of tax deducting system’s ‘basis’ over 5.5 years !  Synchronization with the Grid! Net Value = Basis * Tax Rate !  Testing Complete! Net Value = (System ITC basis - 1/2 ITC) * Tax Rate Net Value = System ITC basis * 85% * Tax Rate !  Turnover to the Customer! !  Regular Schedule: 20%, 32%, 19.2%, 11.52%, 11.52%, 5.76% !  2008-09 Schedule: 60%, 16%, 9.6%, 5.76%, 5.76%, 2.88% "  2008-09 Gets 50% “Bonus Acceleration of Depreciation” !  Commercial (including home businesses >50% by sqf) !  Up to 20 year carry-forward© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 19 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 20 Depreciation - CA State Financial Hazards & Gotchas !  Corporate: 12 Year Straight Line method !  Federal Tax on Rebate !  Non-Corporate: MACRS 5-Year !  1099 tax forms have been issued to "  (Sole-Proprietors, LLP, etc) recipients !  Section 136 applies only to residential !  State Depr Basis is Top Line Cost minus Rebate & State Tax Credit !  Commercial (including home businesses) Questions?© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 21 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 22 Rebate Tax Interactions Tax Credit & Depr. Example !  If the rebate is non-taxable, the federal ITC Non-Taxed Rebate $150K System Cost is on amount after rebate -$50K Rebate $100K Net Cost After Rebate !  If rebate is taxable, then federal ITC is on -$30K Tax Credit Value (30% of $100K) amount before rebate -$35K Depr Value (85% of $100K * 41%) =$35K Net Cost !  Rebates are not state taxable in CA 41% = combined net federal & state tax rate (35% Federal, 8.84% CA State)© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 23 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 24
  7. 7. Tax Credit & Depr. Example Tax Credit & Depr. Example Taxed Rebate Non-Taxed Rebate Taxed Rebate $150K System Cost $150K System Cost $150K System Cost -$50K Rebate -$50K Rebate -$50K Rebate +17.5K Rebate Tax ($50K * 35% Fed Tax) +17.5K Rebate Tax $100K Net Cost After Rebate -$45K Tax Credit Value (30% of $150K) -$30K Tax Credit Value -$45K Tax Credit Value -$52K Depr Value (85% of $150K * 41%) -$35K Depr Value (85K * 41%) -$52K Depr Value (127.5K * 41%) =$20.5K Net Cost =$35K Net Cost =$20.5K Net Cost If commercial, want rebate taxable (no choice) Then tax credit and depreciation are on amount before rebate "  Worth more to pay tax on rebate, then get 30% credit and " © 2009 OnGrid Solar, All rights reserved. depreciation on rebate © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 25 Commercial Solar Economics & Financing - 26 Section 179 Not Available Small Business Carry-Back of NOL !  Can’t use Section 179 Deduction (in lieu !  In 2009(+?), small businesses can carry of depreciation) and also get ITC or back Net Operating Losses up to 5 years Treasury Grant "  $15 Million Gross Receipts limitation "  Normally only 2 year carry-back !  2009 Economic Stimulus© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 27 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 28 Tax Benefits System Variables in More Depth !  ITC & MACRS reduce customer cost, but not !  Demand Charges up-front !  RECs !  Not available to all customers - affected by !  Time-of-Use (TOU) Choices & Issues AMT (before 2009 only) !  Commercial Tax Issues "  Ask about customers “tax appetite” "  More in Lease & PPA section !  Customers beware of optimistic sales claims© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 29 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 30
  8. 8. CPUC Loading Order Least GHG, Least Total Cost Electric Rate Structures Overview (including new power plants) 1a. Customer Awareness via Energy Audits and Analysis 1 - Energy Efficiency & Conservation 1b. Efficiency Rebates !  Options for Solar - Net Metering Eg: programmable thermostats and lighting controls, CFLs, etc. 2a. TOU & Super-Peak Rates !  3 Customer Classes (Res, Com, Ag) 2b. Demand Charges 2 - Demand Response & Load Control 2c. Utility Control Systems with large critical !  2 Types of Rate (Flat, TOU) Greater customers System 2d. Advanced Metering 2e. “Flex Your Power” Ads "  TOU: Time of Use 3 - Renewables Reliability 2f. PV 3. California Solar Initiative (PV), !  Demand Charges for Commercial & other RE programs Overall 4 - Clean Cost Fossil Effectiveness© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 31 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 32 Time of Use with Common Electric Rate Schedules Annual Net Metering Net Metering on an annual basis Common Commercial Rate !  Utility Common Ag Rates Schedules Combined with !  Time Of Use metering CA - PG&E A1, A6, A10, E19, E20 AG1, AG4, AG5 CA - SCE GS-1, GS-2, TOU-GS-3, TOU-8 PA-1, PA-2 !  Sell at high rate, Buy at low rate CA - SDG&E A, AL-TOU, A6-TOU, DG-R PA !  2:1 or 3:1 in customer favor !  Can reduce system size 0-30% NJ - JCPL GLP "  Reduction depends on % on-peak usage & rate schedule NJ – PSEG GP #  Commercial is usually small reduction #  Shading and orientation AZ - APS E-32 Questions?© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 33 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 34 Time Of Use Commercial Rates (PG&E) Commercial PG&E A6 & A10 Demand Commercial "A6" & "A10" Time-of-Use Pricing Periods Rate Size Flat Rate TOU Rate Charge Sunday Monday Tuesday Wednesday Thursday Friday Saturday A1 <20kW 13-19¢ Flat None Midnight - 6am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak 40¢ Peak 6am - 8:30am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak A6 Any* None 8:30am - Noon Off-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Off-Peak 11¢ Off-Peak Noon - 6pm Off-Peak Peak Peak Peak Peak Peak Off-Peak A10 <500kW 10-13¢ Flat High 6pm - 9:30pm Off-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Off-Peak 15¢ Peak 9:30pm - Midnight Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak A10 TOU <500kW High 9-11¢ Off-Peak 14¢ Peak !  Use and/or Sell On-Peak @ up to 40¢/kWh on A6 E19**/E20 >500kW High 7-8¢ Off-Peak !  More usage on peak, less benefit from TOU *If not required to be on another rate schedule **Required schedule if measured demand is >500kW Questions?© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 35 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 36
  9. 9. SCE Commercial Commercial Rates (SCE) Time Of Use SCE Commercial Time-of-Use Pricing Periods Sunday Monday Tuesday Wednesday Thursday Friday Saturday 11pm - 5am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak 5am - 8am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak 8am - Noon Off-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Off-Peak Noon - 6pm Off-Peak Peak Peak Peak Peak Peak Off-Peak 6pm - 11pm Off-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Off-Peak !  Use and/or Sell On-Peak @ 24-32¢/kWh on Option R "  Part-Peak @ 14-19¢/kWh !  More usage on peak, less benefit from TOU Questions?© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 37 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 38 Electric Rate Structures Overview Demand Charges !  Usually applies only to Large users Commercial and Agricultural !  Options for Solar - Net Metering "  !  On a per kW basis (load, not usage) !  3 Customer Classes (Res, Com, Ag) "  Size of the wire, power plant for peak usage !  2 Types of Rate (Flat, TOU) "  TOU: Time of Use !  Demand Charges for Commercial !  Based on highest 15-30 minute peak load average any time during the last 1-12 billing months Questions?© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 39 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 40 Demand Profile vs. Reducing Demand Charges Solar Production !  Difficult for solar to offset demand TYPICAL "  Clouds, spikes in usage not during solar hours, BUILDING DEMAND inverters tripping offline DEMAND & !  Add control systems ~$30K+ IDEAL PRODUCTION SOLAR !  Some rates have no/low demand charges PRODUCTION "  And sometimes high peak (sell) rates 7am 12noon 5pm "  Benefits depend on Size: Usage ratio and demand & HOUR usage patterns with respect to rate schedule hours© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 41 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 42
  10. 10. Reducing Demand Charges RECs, Green Tags, TRCs !  RECs = Renewable Energy Credits !  TRC = Tradable Renewable Certificates !  Green Tags = RECs = TRCs = S-RECs !  What are these? "  The green value part of a solar kWh "  The Legal Rights to Green-ness Electricity (kWh) Generating Plant (kWh) Green Tags (kWh) Questions?© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 43 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 44 REC Value CA REC Value !  RECs have value to other consumers !  REC sale value can be added to other value generated by the system to calculate payback, etc. " Those who can’t get solar directly "  Not included in any examples here " Utilities who need it to get into "  Likely 1¢ to 5¢/kWh in California - same as Wind compliance with emissions "  Must give up “Green Attributes” & claims requirements. !  Challenges in aggregating from small systems !  The best performing systems produce the most !  Value ranges from 1¢ to 68¢/kWh RECs "  Depends on location, type & term !  Double counting in sales Questions? "  Depends on state mandate for S-RECs !  Green-e Certified RECs: www.green-e.org© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 45 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 46 NJ REC Value Commercial Cost / Value Overview - System Cost !  REC sale value can be added to other value + Rebate / PBI generated by the system to calculate payback, etc. - Tax on Rebate / PBI "  15 year producible life + 30% Fed Tax Credit "  Assumption in examples at 48¢ for 1 year, 30¢ for + ~41% Depreciation * 85% 12 more years, and 10¢ for the final 2 years + Savings & Inflation !  Challenges in aggregating from small systems - Lost Electric Bill Tax Deduction "  Estimated/calculated RECs used - Maintenance & Inflation - Inverter Replacement Cost !  The best performing systems produce the most + REC Value, Green Marketing, Morale RECs ------------------------------------------ Questions? = Net Cost Questions?© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 47 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 48
  11. 11. Financial Analysis Agenda Methods & Tests Overview !  Commercial Solar Financial Analysis !  Simple Payback: In reasonable time "  Commercial Incentive, Tax, & Tariff Issues !  Total Lifecycle Cash Flow "  Four Financial Analysis Methods & Examples "  Gives back lots more than cost over time !  Choosing Rebates vs. PBIs !  Rate of Return analysis: 6-15+% returns !  Financing with Leasing & PPAs !  Cash Flow when financing: Cash Positive !  Interactive Examples using the OnGrid Tool !  Increase in Appraisal Valuation "  Appraises for more than it cost© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 49 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 50 General Commercial Utility Specific Variables & Assumptions Commercial & !  35% federal tax bracket, corresponding state tax bracket Muni/Non-Profit Assumptions !  Facing south, 14° pitch, simple composition shingle roof by Staring/Ending Rate AC kWh ~2008 Cost per Schedule full service provider, no complications Utility Insolation Production per rated kW per year rated Watt Peak%/ PP% Incentives Demand !  Slightly conservative real system performance, no shade A1 / A6 CA - PG&E San Francisco 1540 / CEC kW $1.10/W Rebate 47%/35% !  Final Net Cost = total installed system costs - Rebate (if any) - GS2B / GS2A 10kW: $8.50 CEC CA - SCE Los Angeles 1590 / CEC kW 48%/43% $1.55/W Rebate 2009 Fed 30% ITC + $800 Permit + $0 Utility Fee 25kW: $8.25 CEC 50kW: $8.00 CEC 2x Min Demand AL-TOU / DG-R !  System maintenance cost is 0.25% of gross system cost per CA - SDG&E San Diego 1700 / CEC kW 39%/51% $1.55/W Rebate 2x Min Demand year, adjusted for inflation SRECs: 48¢/1yr, NJ - JCPL Newark 1100 / STC kW 50kW: $6.50 STC GP 30¢/12yrs, 10¢/12yrs !  5.0% electric inflation (2.2% in CO) $1/W Rebate !  Module degradation: 0.5% per year !  Inverter replacement costing $700/kW occurs in year 15 !  Solar only - no Energy Efficiency included© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 51 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 52 General Gov’t/Non-Profit Variables & Assumptions !  Facing south, 14° pitch, simple composition shingle roof by full service provider, no complications !  Slightly conservative real system performance, no shade Final Net Cost = total installed system costs - Rebate (if Watt’$ the Payback? !  any) + $800 Permit + $0 Utility Fee !  System maintenance cost is 0.25% of gross system cost per year, adjusted for inflation !  5.0% electric inflation (except CO is 2.2%) !  Module degradation: 0.5% per year !  Inverter replacement costing $700/kW occurs in year 15 !  Solar only - no Energy Efficiency included© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 53 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 54
  12. 12. General Commercial Variables & Assumptions !  35% federal tax bracket, corresponding state tax bracket !  Facing south, 14° pitch, simple composition shingle roof by full service provider, no complications !  Slightly conservative real system performance, no shade !  Final Net Cost = total installed system costs - Rebate (if any) - 2009 Fed 30% ITC + $800 Permit + $0 Utility Fee !  System maintenance cost is 0.25% of gross system cost per year, adjusted for inflation !  5.0% electric inflation (2.2% in CO) !  Module degradation: 0.5% per year !  Inverter replacement costing $700/kW occurs in year 15 !  Solar only - no Energy Efficiency included© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 51 Utility Specific Commercial & Muni/Non-Profit Assumptions Staring/Ending Rate AC kWh ~2008 Cost per Schedule Utility Insolation Production per Incentives rated Watt Peak%/ PP% rated kW per year Demand A1 / A6 CA - PG&E San Francisco 1540 / CEC kW $1.10/W Rebate 47%/35% GS2B / GS2A 10kW: $8.50 CEC CA - SCE Los Angeles 1590 / CEC kW 48%/43% $1.55/W Rebate 25kW: $8.25 CEC 2x Min Demand 50kW: $8.00 CEC AL-TOU / DG-R CA - SDG&E San Diego 1700 / CEC kW 39%/51% $1.55/W Rebate 2x Min Demand SRECs: 48¢/1yr, NJ - JCPL Newark 1100 / STC kW 50kW: $6.50 STC GP 30¢/12yrs, 10¢/12yrs $1/W Rebate© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 52
  13. 13. Commercial Total Total Lifecycle Payback Lifecycle Payback kWh PV System Final Net Cost w/ Cumulative Savings Lifecycle Years Pre-Solar Utility Usage per Size & Tax Benefits & Over First 25 Years Payback To Bill Month Rating Rebate (including inflation) Ratio Payback PG&E $346 2000 10 kW CEC $23K $68K 2.9x 11 PG&E $853 5000 25 kW CEC $56K $172K 3.1x 10.6 PG&E $1,696 10000 50 kW CEC $107K $344K 3.2x 10.3 SCE $333 2000 10 kW CEC $20K $27K 1.3x 21.1 SCE $695 5000 25 kW CEC $48K $75K 1.5x 19.1 SCE $1,297 10000 50 kW CEC $92K $156K 1.7x 18.2 Total Savings SDG&E $371 2000 10 kW CEC $20K $55K 2.7x 11.6 SDG&E $840 5000 25 kW CEC $48K $137K 2.8x 11.2 Initial Cost SDG&E $1,621 10000 50 kW CEC $92K $274K 3.0x 10.9 NJ - JCPL $692 10000 50 kW STC $91K $116K 1.3x 8.1 NC - Progress $800 10000 50 kW STC $47K $88K 1.9x 17.9 CT - UI $2,309 10000 50 kW PTC $133K $310K 2.3x 13.1 AZ - APS $906 10000 50 kW STC $60K $127K 2.1x 16.4 !  Total Savings (whole area) is much larger than Initial Cost HI - HECO $2,144 10000 50 kW STC $47K $368K 7.9x 5.1 CO - Xcel $805 10000 50 kW STC $109K $57K 0.5x 40.2© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 55 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 56 Gov’t/Non-Profit Total Lifecycle Payback Total Lifecycle Payback PV System Final Net Cost w/ Cumulative Savings Lifecycle Gov’t/Non-Profit vs. Commercial Pre-Solar kWh Usage Utility Size & Tax Benefits & Over First 25 Years Payback Bill per Month Rating Rebate (including inflation) Ratio PG&E $346 2000 10 kW CEC $68K $122K 1.8x PG&E $853 5000 25 kW CEC $162K $306K 1.9x PG&E $1,696 10000 50 kW CEC $311K $613K 2.0x !  Differerences between Gov’t/Non-Profit SCE $333 2000 10 kW CEC $63K $48K 0.8x SCE $695 5000 25 kW CEC $150K $134K 0.9x & Commercial? - Taxes! SCE $1,297 10000 50 kW CEC $285K $278K 1.0x SDG&E $371 2000 10 kW CEC $63K $97K 1.6x !  Tax deduction for electricity SDG&E $840 5000 25 kW CEC $150K $244K 1.6x SDG&E $1,621 10000 50 kW CEC $285K $488K 1.7x !  Commercial tax deduction lowers the NJ - JCPL NC - Progress $692 $800 10000 10000 50 kW STC 50 kW STC $301K $351K $318K $150K 1.1x 0.4x value of a kWh saved by solar CT - UI $2,309 10000 50 kW PTC $336K $539K 1.6x !  Commercial gets tax credit & depreciation AZ - APS $906 10000 50 kW STC $276K $218K 0.8x HI - HECO $2,144 10000 50 kW STC $351K $628K 1.8x CO - Xcel $805 10000 50 kW STC $351K $95K 0.3x Questions?© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 57 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 58 IRR Timeline Year X Year: Year 0 Year 1 Year 2 Year 3 … … (12-15-20) System -System Cost Cost +Incentives Rebate PBI 1 PBI 2 PBI 3 … PBI X … +Bill Savings Savings 1 Savings 2 Savings 3 … Savings X … Maint. X -Maintenance Maint. 1 Maint. 2 Maint. 3 … … Watt’$ the Rate %f Return? Inverter +Fed Tax Credit Fed ITC +State Tax Credit State ITC -Fed Cost of Fed Cost State Tax Credit State ITC +Fed Depr. Fed Depr Fed Depr Fed Depr … +State Depr. State Depr State Depr State Depr … - Fed Cost of Fed Cost of Fed Cost of … State Depr State Depr State Depr =Net Net 0 Net 1 Net 2 Net 3 … Net X … !  IRR is function of Net0 : Net25 line !  Inverter replacement: $700/kW in yr 12-20 !  PBI, Savings, Maintenance adjust for inflation and/or module degradation© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 59 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 60
  14. 14. Commercial Total Lifecycle Payback kWh PV System Final Net Cost w/ Cumulative Savings Lifecycle Years Pre-Solar Utility Usage per Size & Tax Benefits & Over First 25 Years Payback To Bill Month Rating Rebate (including inflation) Ratio Payback PG&E $346 2000 10 kW CEC $23K $68K 2.9x 11 PG&E $853 5000 25 kW CEC $56K $172K 3.1x 10.6 PG&E $1,696 10000 50 kW CEC $107K $344K 3.2x 10.3 SCE $333 2000 10 kW CEC $20K $27K 1.3x 21.1 SCE $695 5000 25 kW CEC $48K $75K 1.5x 19.1 SCE $1,297 10000 50 kW CEC $92K $156K 1.7x 18.2 SDG&E $371 2000 10 kW CEC $20K $55K 2.7x 11.6 SDG&E $840 5000 25 kW CEC $48K $137K 2.8x 11.2 SDG&E $1,621 10000 50 kW CEC $92K $274K 3.0x 10.9 NJ - JCPL $692 10000 50 kW STC $91K $116K 1.3x 8.1 NC - Progress $800 10000 50 kW STC $47K $88K 1.9x 17.9 CT - UI $2,309 10000 50 kW PTC $133K $310K 2.3x 13.1 AZ - APS $906 10000 50 kW STC $60K $127K 2.1x 16.4 HI - HECO $2,144 10000 50 kW STC $47K $368K 7.9x 5.1 CO - Xcel $805 10000 50 kW STC $109K $57K 0.5x 40.2© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 56 Gov’t/Non-Profit Total Lifecycle Payback PV System Final Net Cost w/ Cumulative Savings Lifecycle Pre-Solar kWh Usage Utility Size & Tax Benefits & Over First 25 Years Payback Bill per Month Rating Rebate (including inflation) Ratio PG&E $346 2000 10 kW CEC $68K $122K 1.8x PG&E $853 5000 25 kW CEC $162K $306K 1.9x PG&E $1,696 10000 50 kW CEC $311K $613K 2.0x SCE $333 2000 10 kW CEC $63K $48K 0.8x SCE $695 5000 25 kW CEC $150K $134K 0.9x SCE $1,297 10000 50 kW CEC $285K $278K 1.0x SDG&E $371 2000 10 kW CEC $63K $97K 1.6x SDG&E $840 5000 25 kW CEC $150K $244K 1.6x SDG&E $1,621 10000 50 kW CEC $285K $488K 1.7x NJ - JCPL $692 10000 50 kW STC $301K $318K 1.1x NC - Progress $800 10000 50 kW STC $351K $150K 0.4x CT - UI $2,309 10000 50 kW PTC $336K $539K 1.6x AZ - APS $906 10000 50 kW STC $276K $218K 0.8x HI - HECO $2,144 10000 50 kW STC $351K $628K 1.8x CO - Xcel $805 10000 50 kW STC $351K $95K 0.3x© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 57
  15. 15. Commercial Analysis Commercially Attractive? !  Ideal commercial customers can see after- !  IRR must exceed a hurdle rate tax IRRs in the 3% to 8% range "  > “Risk Free Rate” + ~1-2% = Risk Free Rate + Sum of Risks (more later) "  Comparable to other business investments #  Source: Photon International, Aug 2007, p114 "  Plus has green marketing and morale !  Current “Risk Free” interest rates: benefits "  LIBOR = 1.25% As of October 2009 "  10yr = 3.5%, 30yr = 4.4% As of 10/29/2009 "  Depends heavily on system cost !  ! Commercially Attractive >= 6-7%? !  Must properly factor all benefits and costs !  PPA & Lease investors were getting 6-8% "  More on this later, due to recent financial market© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 61 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 62 Complete Commercial Analysis Commercial Rates of Return PV System After-Tax Pre-Solar kWh Usage System Gross Final Net Cost w/ Tax Utility Size & Annual Bill per Month Cost Benefits & Rebate !  Proper commercial analysis is after-tax PG&E $346 2000 Rating 10 kW CEC $85K $23K Return 7.4% !  A. Extra incentives: PG&E $853 5000 25 kW CEC $206K $56K 7.8% PG&E $1,696 10000 50 kW CEC $399K $107K 8.2% "  Federal Tax Credit & Depreciation SCE $333 2000 10 kW CEC $85K $20K 1.8% !  B. Loss of electric expense tax deduction SCE SCE $695 $1,297 5000 10000 25 kW CEC 50 kW CEC $206K $399K $48K $92K 2.8% 3.4% !  A & B approximately offset each other SDG&E $371 2000 10 kW CEC $85K $20K 6.6% SDG&E $840 5000 25 kW CEC $206K $48K 7.0% "  Net results are comparable to residential, but SDG&E $1,621 10000 50 kW CEC $399K $92K 7.4% are “after tax” values, so sometimes appear NJ - JCPL $692 10000 50 kW STC $350K $91K 6.9% NC - Progress $800 10000 50 kW STC $350K $47K 3.5% smaller. CT - UI $2,309 10000 50 kW PTC $375K $133K 5.9% AZ - APS $906 10000 50 kW STC $350K $60K 4.6% HI - HECO $2,144 10000 50 kW STC $350K $47K 14.4% Questions? CO - Xcel $805 10000 50 kW STC $350K $109K -3.7%© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 63 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 64 Gov’t/Non-Profit Analysis Gov’t/Non-Profit Rates of Return PV System Pre-Tax Pre-Solar kWh Usage System Gross Final Net Cost w/ Tax Utility Size & Annual Bill per Month Cost Benefits & Rebate !  Ideal government & non-profit customers PG&E $346 2000 Rating 10 kW CEC $85K $68K Return 4.2% can see non-tax IRRs in 1% to 5% PG&E $853 5000 25 kW CEC $206K $162K 4.6% PG&E $1,696 10000 50 kW CEC $399K $311K 5.0% "  Comparable to funding costs (muni bonds) SCE $333 2000 10 kW CEC $85K $63K -1.7% SCE $695 5000 25 kW CEC $206K $150K -0.7% "  Long term thinking, modest returns OK SCE $1,297 10000 50 kW CEC $399K $285K -0.2% SDG&E $371 2000 10 kW CEC $85K $63K 3.1% "  Has green societal and moral benefits SDG&E $840 5000 25 kW CEC $206K $150K 3.5% SDG&E $1,621 10000 50 kW CEC $399K $285K 3.8% !  Simpler analysis of benefits and costs NJ - JCPL $692 10000 50 kW STC $350K $301K 0.5% NC - Progress $800 10000 50 kW STC $350K $351K #NUM! CT - UI $2,309 10000 50 kW PTC $375K $336K 3.3% AZ - APS $906 10000 50 kW STC $350K $276K -1.5% HI - HECO $2,144 10000 50 kW STC $350K $351K 4.2% CO - Xcel $805 10000 50 kW STC $350K $351K #NUM!© 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 65 © 2009 OnGrid Solar, All rights reserved. Commercial Solar Economics & Financing - 66

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