0
Overview of the Solar
Power Purchase Agreement (PPA)


                           Paul Detering
                       CEO...
Overview
   First seminar in a series of five. Each seminar will cover various
    aspects of PPAs

   Time: 11:30 a.m. ...
Today’s Agenda
   PPA background
     –   What is a PPA
     –   Value and market emergence
     –   Ancestry
   Problem...
What is a Solar PPA?
                     Purchase Renewable Energy
                     • 20-year term
                  ...
A Brief History of PPAs
   1978 PURPA (Public Utility Regulatory Policies Act)
     – Meant to promote renewable energy
 ...
PPAs are the Driving Force Behind Solar

                                      $1,126M

                           $835M

...
PROBLEMS SOLVED BY
SOLAR AND SOLAR PPAS

                       7
Why the Need for Solar PV
   Electricity costs are on the rise and are increasing
    volatile…driving up the difficulty ...
Illustrative Rate Increases – PG&E

                                                              Demand Charges          ...
Illustrative Rate Increases – SDG&E


          SDG& Rate Increases
                                  % Increase Year Over...
Average Price Change

                 50%
                                              Electricity in Key Solar PPA Stat...
What will happen to rates in the future?




                                           12
Take Control




    Solar = Smart
                    13
Societal Concerns
   Environmental impacts
   Energy security
   Resource depletion




                            14
California Solar Initiatives
   Government action
    benefits solar
    – Financial incentives
          Renewable Ener...
Solar Advantages
   Cost competitive
   Price stability
   Clean and reliable
   Proven
   Positive community
    mes...
Solar                             Challenge
   Capital intense                Minimize Cost
                             ...
PPAs Resolve the Challenges of Solar



                                                                              Cust...
HOW THE PPA WORKS


                    19
PPA Provider View                                      Tioga
                                                             ...
Customer View…

          Tioga Energy,
               Inc



            Solar PPA




                          Utility ...
What Drives PPA Price?
     Fixed Elements                         Negotiated Elements
        EPC cost                  ...
Ideal Host Profile
        Credit
          – Investment grade credit (BBB- or better)
          – 3 years audited financ...
PPA Development Process
   Preliminary assessment
    – Gather data
        Site information
        Energy usage and c...
Value of Solar And Utility Escalation Studies
   Pre Sale Evaluation of Customer Energy Use
    Determine which portions ...
Value of Solar Study Results
   Optimize System Design to Maximize Utility Rate
    Offset
    – We can often reduce post...
SurePath Solarsm PPA Timeline
Assessment




                    Financing,
Preliminary




               Incentive Appli...
PPA IMPLEMENTATION


                     28
Design Requirements
   Safety
   Detailed shading analysis
   Permitting/utility approved interconnection practices
  ...
PPAs, EPCs & Project Finance
   PPAs use Project Finance — Each Project is
    Financially Self-Sufficient
    – All risk...
Financing Sources Utilized
   Construction Period
    – Construction/installation loans (loan facilities recycled upon
  ...
Project Assets — Collateral for Project Obligations
   Construction Period:
     – PPA
     – EPC


   Operations Period...
Finance-Related EPC Contract Provisions
   Lender controls
     – Milestone payment process, engineer review, site inspec...
Finance-Related EPC Contract Provisions (more)
   Financial performance versus projections
     – Mechanical and substant...
O&M Requirements & Procedures
   Preventative Maintenance
    – Combiner box fuse – terminal checks
    – Combiner box so...
Power Grid - System Diagram




                              36
Performance Monitoring & Alerts

 Lobby
Display –                              Daily
 Kiosk                               ...
CASE STUDIES


               38
City of Santa Barbara Case Study
   Central California Coast
   Population 400,000
   Committed to Sustainability
     ...
City of Santa Barbara Solar Project
   Challenge – Install largest PV
    array possible given limited
    space

   Sol...
How the PPA Works
   CoSB contracts to buy solar electricity at a
    predictable, low price

   PPA provider handles al...
Electric Rate CAGR Probability Distribution




                                        42
Probability of Savings




                         43
Potential Cumulative Savings




                               44
Summary of Economic Analysis*
EIA Electricity Price Data Set                                  CA, Statewide average electr...
Non-Economic Benefits
    Highlight community sustainability policies
    Support CA environmental initiatives
    Help...
47
48
Athenian School Case Study
   Bay Area Private College Prep School
   75-acre campus
   450 students, grades 6-12
   C...
Athenian School Solar Project
   Challenge – Deploy a large
    solar array w/o sizable up-
    front capital

   Soluti...
How the Athenian PPA Works
   Athenian contracts to buy solar electricity at a
    predictable, low price

   PPA provid...
Non-Economic Benefits
    Supports commitment to environmental stewardship
    Provides hands-on curriculum for renewabl...
Q&A


   Any questions?




                     53
Thank you.

www.tiogaenergy.com




                      54
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Ppa Overview Tioga Energy 2009 04 13 2 Ppa 1

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Transcript of "Ppa Overview Tioga Energy 2009 04 13 2 Ppa 1"

  1. 1. Overview of the Solar Power Purchase Agreement (PPA) Paul Detering CEO, Tioga Energy 13 April 2009
  2. 2. Overview  First seminar in a series of five. Each seminar will cover various aspects of PPAs  Time: 11:30 a.m. - 1:30 p.m. + Q&A  Your Presenter: – Paul Detering, CEO of Tioga Energy 2
  3. 3. Today’s Agenda  PPA background – What is a PPA – Value and market emergence – Ancestry  Problems solved by solar and solar PPAs – Rising electricity rates, societal & environmental issues – PV cost & risk  How the PPA works – PPA structuring - behind the scenes & customer view – Pricing, value of solar, ideal ―Host‖ profile – Process & timing  PPA implementation – Design & EPC implications – Operations & Maintenance (O&M) – Performance tracking and monitoring  Case Studies 3
  4. 4. What is a Solar PPA? Purchase Renewable Energy • 20-year term • Early purchase options at yr 7, 15 & 20 • Fixed annual & step-up escalators • End-of-term: renew, purchase, have system removed Customers PPA Provide Renewable Energy from PV • Design, engineer, construct Provider • Finance, own, operate, maintain • RECs, rebates & incentives • Energy metering, billing Benefits Without risks – Price stability, affordability, hedge – No capital – Environmental benefits — e.g. LEED – No project management – No system performance risk – No distractions from customer’s core business 4
  5. 5. A Brief History of PPAs  1978 PURPA (Public Utility Regulatory Policies Act) – Meant to promote renewable energy – Created market for non-utilty electric power producers  Drove construction of cogen plants  ~2002/2003 Solar Commercial and Industrial (C&I) retail PPAs pioneered – Renewable Ventures (nee Nuon?) – Sun Edison (2004)  2007 – CA CSI program launches first wave of significant adoption  2008 – ~75% of C&I solar installations in US are completed using a PPA structure 5
  6. 6. PPAs are the Driving Force Behind Solar $1,126M $835M Source: Solar Power Services How PPAs are changing the PV Value Chain Greentech Media 6
  7. 7. PROBLEMS SOLVED BY SOLAR AND SOLAR PPAS 7
  8. 8. Why the Need for Solar PV  Electricity costs are on the rise and are increasing volatile…driving up the difficulty of budgeting  Budgets are increasingly tight  The need for green energy is greater than ever 8
  9. 9. Illustrative Rate Increases – PG&E Demand Charges Energy Charges PG&E Rate Increase March 1 2008 - March 1, 2009 & Year-To-Date % Increase % Increase Year-To-Date Year-Over-Year Year-To-Date Year-Over-Year A6 Average -----> 3% 8% A10 Average -----> 8% 16% 9% 13% A10 TOU Average -----> 8% 16% 9% 13% E-19 Average -----> 5% 12% 11% 16% E-20 Average -----> 4% 12% 11% 14% 9
  10. 10. Illustrative Rate Increases – SDG&E SDG& Rate Increases % Increase Year Over Year 2008 - 2009 Demand Energy AL TOU 21% 10% A6 20% 5% 10
  11. 11. Average Price Change 50% Electricity in Key Solar PPA States ↑ 80% 45% 10%+  Historically 40% – Rates up 28X 35% out of 35 yrs. – Rates down 8X, 30% avg. -2.7% 25% 15%+  Spikes Percent Change 20% – 10%+ 7X 15% – 15%+ 3X 10%  Most volatile 5% – 1970s oil crisis 0% – Early 2000s Electric Market -5% Restructuring -10% – Likely to 1970 1975 1980 1985 1990 1995 2000 2005 continue Year U.S. Government Energy Information Administration, official energy statistics. State energy consumption, price and expenditure estimates (SEDS). Complete 2005 data, released February 29, 2008. http://www.eia.doe.gov/emeu/states/_seds.html 11
  12. 12. What will happen to rates in the future? 12
  13. 13. Take Control Solar = Smart 13
  14. 14. Societal Concerns  Environmental impacts  Energy security  Resource depletion 14
  15. 15. California Solar Initiatives  Government action benefits solar – Financial incentives  Renewable Energy Credits – Tax breaks – Targets …PPAs make these benefits available to all 15
  16. 16. Solar Advantages  Cost competitive  Price stability  Clean and reliable  Proven  Positive community message  Solar PV  global solution 16
  17. 17. Solar Challenge  Capital intense Minimize Cost Risk  Project complexity  Operations & maintenance  Maximizing initiative funds and tax credits 17
  18. 18. PPAs Resolve the Challenges of Solar Customers PPA Provider Benefits Without risks – Price stability, affordability, hedge – No capital – Environmental benefits— e.g. LEED – No project management – No system performance risk – No distractions from customer’s core business 18
  19. 19. HOW THE PPA WORKS 19
  20. 20. PPA Provider View Tioga Parent Company Guarantee IRS Tax Incentives (Portfolio vantage) Energy, Inc Master Lease Installation Financing Agreement Agreement Investors Tioga Tioga Project Ind. Installation Engineer Lender Buildco, Holdco, Investment LLC LLC Bank Ind. Construction Project Sale Engineer Loans Lease Backs Tioga Solar State Tioga Solar Rebates Equip. II, LLC Tioga I, LLC Vendors Integrated REC Design Sales Engineer Insurance Sub Contractors Turnkey EPC Utility Net O & M Contracts Contractor Host PPAs, Com. Op. Metering Construction Contracts PPAs, Initial Phase 20
  21. 21. Customer View… Tioga Energy, Inc Solar PPA Utility Net Host Metering …PPA makes it simple. 21
  22. 22. What Drives PPA Price? Fixed Elements Negotiated Elements  EPC cost  Term  Energy performance  PPA price escalator  Financial markets – Rate  Incentives – Steps – Federal ITC and MACRS  Disposition of RECs – State/local utility incentives  Service level commitments – State tax credits  System size  Recurring expenses – Insurance – O&M – Monitoring and billing 22 22
  23. 23. Ideal Host Profile  Credit – Investment grade credit (BBB- or better) – 3 years audited financial statements  Geography – Access to incentives - CA, NJ, HI, MA, CT, AZ, MD, PA, OR, etc.  Facilities – Host controls facility for PPA term (15+ years) – Available space (25,000 ft2 min.) – Available Load (150,000 kWh/yr min.) – Minimum improvements required – Multiple facilities ideal  Electric Rates – Time of Use – Commercial (vs. industrial) usage 23 23
  24. 24. PPA Development Process  Preliminary assessment – Gather data  Site information  Energy usage and costs  Environmental requirements – Budgetary evaluation  Savings potential  Financial model and pricing  Firm Proposal, LOI – Design development, costing  Contracting – PPA, EPC  Construction, Operation 24
  25. 25. Value of Solar And Utility Escalation Studies  Pre Sale Evaluation of Customer Energy Use Determine which portions of utility rates solar energy will offset and estimate near and long term financial benefit to host – Hour by hour energy production modeling – Review of host utility bills – Analysis of host’s interval load data to determine demand charge reductions – Analysis of alternative utility tariffs and rate switch opportunities – Analysis of EIA data to forecast long term trends to localized energy prices 25
  26. 26. Value of Solar Study Results  Optimize System Design to Maximize Utility Rate Offset – We can often reduce post-solar utility charges to $0 by modeling an optimal system size and output  Move Customer to Optimal Post-Solar Utility Rate Schedule – Minimize or eliminate demand charges – Choose tariff with highest TOU differentials – Optimize for net metering  Determine Savings – Provide customer accurate year 1, buyout and term savings over do-nothing utility base case 26
  27. 27. SurePath Solarsm PPA Timeline Assessment Financing, Preliminary Incentive Application Design, Engineering, Installation, Approvals, Operation and Permitting, Procurement Interconnection Maintenance 2 to 4 3 to 6 months 3 to 6 months To 25 years weeks LOI PPA Construction System Starts Online 27 27
  28. 28. PPA IMPLEMENTATION 28
  29. 29. Design Requirements  Safety  Detailed shading analysis  Permitting/utility approved interconnection practices  Minimize panel mismatch/multiple orientations  PPA provider-approved products  Data Acquisition System (DAS) 29
  30. 30. PPAs, EPCs & Project Finance  PPAs use Project Finance — Each Project is Financially Self-Sufficient – All risks are managed internally in each project – Each project is owned by a separate subsidiary – Project performance is secured only by project assets – Each project has to stand on its own financial ―legs‖ 30
  31. 31. Financing Sources Utilized  Construction Period – Construction/installation loans (loan facilities recycled upon project completion) – Investor equity (recycled upon project completion)  Operations Period — ―Take Out‖ (Term) Financing – Tax Equity Investors (for tax benefits) – Term Lenders – Grants – Debt 31
  32. 32. Project Assets — Collateral for Project Obligations  Construction Period: – PPA – EPC  Operations Period – PPA – Equipment / Completed Plant 32
  33. 33. Finance-Related EPC Contract Provisions  Lender controls – Milestone payment process, engineer review, site inspection – Punch list items and hold-back (retainage) – Assignment of EPC & subcontracts  Contract scope and overall risk mitigation – Fixed-price, turnkey contract; change order process, structural and/or geotechnical surveys – Payment and performance bonds – Indemnification and insurance – Termination for convenience  System performance and production – Performance guarantees (kW), testing, correction of deficiencies – ―As-built‖ documentation 33
  34. 34. Finance-Related EPC Contract Provisions (more)  Financial performance versus projections – Mechanical and substantial completion dates – Performance shortfall and delay liquidated damages, including incentive programs – Suppliers, manufacturers, installers warranties – Installer default and owner remedies  Ownership & title – Conditional / unconditional lien waivers – Passage of title, clear title 34
  35. 35. O&M Requirements & Procedures  Preventative Maintenance – Combiner box fuse – terminal checks – Combiner box source circuit measurements – Inverter checks – Racking and mounting system inspection – DAS maintenance checks – Panel inspection – Panel cleaning / site landscaping – Reporting – checklists  On-Call Services – Monitoring/dispatch – Diagnostics & repair – response time is critical – Spare parts - inventory is key 35
  36. 36. Power Grid - System Diagram 36
  37. 37. Performance Monitoring & Alerts Lobby Display – Daily Kiosk Power Viewer Monitoring Power Performance Profile Monitoring & Solar & Optimization Load Alerts & Alarms 37
  38. 38. CASE STUDIES 38
  39. 39. City of Santa Barbara Case Study  Central California Coast  Population 400,000  Committed to Sustainability – Fuel cell generator at wastewater treatment plant – 15 kW solar power system on fire station – 384 kW solar PPA for public works campus 39
  40. 40. City of Santa Barbara Solar Project  Challenge – Install largest PV array possible given limited space  Solution – Solar PPA  Benefits – Leverage tax incentives – Hedge against utility costs – No upfront capital System Details – No ongoing maintenance • Public Works campus – No project development • 385 kW DC resources • 1,830 SunTech solar modules • 4 Hi-E SatCon inverters – Supports City’s sustainability • Roof mounted, fixed-tilt array goals 40
  41. 41. How the PPA Works  CoSB contracts to buy solar electricity at a predictable, low price  PPA provider handles all details – Design, engineering, and construction – Financing and RECs – Rebates and incentives – Operation, maintenance, insurance, repair – Energy metering and billing  COSB pays ONLY for electricity delivered 41
  42. 42. Electric Rate CAGR Probability Distribution 42
  43. 43. Probability of Savings 43
  44. 44. Potential Cumulative Savings 44
  45. 45. Summary of Economic Analysis* EIA Electricity Price Data Set CA, Statewide average electricity price Average Historical Utility CAGR 5.91% Most Probable Future Utility CAGR 5.93% Annual Electricity Consumption, kWh 850,000 kWh/yr Utility Rate Offset by Solar, $/kWh $0.125/kWh Solar Power System Size, kW 384 kW PPA Initial Rate, $/kWh $0.119 PPA Escalator, % 4.5% Estimated 1st Year Production, kWh 514,520 Annual Production Degradation, % 0.50% Estimated Percentage of Energy Requirement Provided by Solar: 60.5% Host Discount Rate, % 8.00% Financial Results Most probable first-year savings $5,000 Most probable cumulative 20-year savings $465,000 Most probable Net Present Value (NPV) of savings $173,000 45
  46. 46. Non-Economic Benefits  Highlight community sustainability policies  Support CA environmental initiatives  Help reduce greenhouse gas emissions Environmental Benefits, Annual (CO2) Reduction Equivalencies Vehicle miles not traveled 270,000 Gallons of gasoline conserved 14,100 Passenger vehicles taken off the road 23 Barrels of oil conserved 290 Number of tree seedlings grown for 10 years 3,200 Acres of pine or fir forests storing carbon for one year 28 46
  47. 47. 47
  48. 48. 48
  49. 49. Athenian School Case Study  Bay Area Private College Prep School  75-acre campus  450 students, grades 6-12  Committed to Environmental Stewardship – One of five founding principles 49
  50. 50. Athenian School Solar Project  Challenge – Deploy a large solar array w/o sizable up- front capital  Solution – solar PPA  Benefits – No upfront capital investment or ongoing maintenance responsibilities System Details • 220 kW – Hedge against rising utility costs • 1,296 Mitsubishi PV Modules • 2 – 100kW Xantrex inverters – System provides nearly 50% of • Ground mounted, fixed-tilt array the school’s electricity, saving • Offsets significant energy use money from day 1 50
  51. 51. How the Athenian PPA Works  Athenian contracts to buy solar electricity at a predictable, low price  PPA provider handles all details – Design, engineering, and construction – Financing and RECs – Rebates and incentives – Operation, maintenance, insurance, repair – Energy metering and billing  Athenian pays ONLY for electricity delivered 51
  52. 52. Non-Economic Benefits  Supports commitment to environmental stewardship  Provides hands-on curriculum for renewable energy  Send positive message to current and prospective students Environmental Benefits, Annual (CO2) Reduction Equivalencies Vehicle miles not traveled 503,500 Gallons of gasoline conserved 26,500 Passenger vehicles taken off the road 44 Barrels of oil conserved 543 Number of tree seedlings grown for 10 years 6,000 Acres of pine or fir forests storing carbon for one year 53 52
  53. 53. Q&A  Any questions? 53
  54. 54. Thank you. www.tiogaenergy.com 54
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