Solar Project Risk from the Developer’s Point of View


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Solar Project Risk from the Developer’s Point of View - Presented at the Illinois Chapter of ASHRAE April 2011 Meeting.

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Solar Project Risk from the Developer’s Point of View

  1. 1. Solar Project Risk from the Developer’s Point of View<br />Regulatory Incentives<br />Project Finance<br />Market-based Incentives<br />
  2. 2. Regulatory Incentives<br />At the Federal level: <br />1705 RE loan guarantees<br />1603 Cash Grant, 2011 only<br />Investment Tax Credit, through 2016<br />New Market Tax Credits<br />1-year depreciation, 2011 only<br />5-year depreciation, after 2011<br />
  3. 3. Regulatory Incentives<br />State Incentives<br />-Always check the DSIRE website; State programs come and go. (mostly go)<br />-Some State programs such as grants and tax-based incentives; <br />-State rebates-once generous-can vary with the election cycle<br />-Illinois rebate program very limited and underfunded; <br />
  4. 4. Regulatory Incentives<br />PACE- Property Assessed Clean Energy (Calif)<br />Feed-In Tariffs- Europe, Ontario, Michigan, Oregon and Washington<br />Carbon Offset Credits (New England, RGGI)<br />Local utility distributed clean energy incentives (Ohio, Pennsylvania, NY)<br />Net Metering (many states)<br />RPS-based Renewable Energy Credits<br />
  5. 5. Solar Funding Sources<br />Investment Banks<br />Tax Equity<br />Private Equity<br />Venture Capital<br />Some local banks<br />Private Investors who have; <br />Tax ‘appetite’ for the Investment tax credit<br />Ability to use all of the depreciation<br />
  6. 6. The Development Checklistthat Investors want to see<br />Is the project distributed or centralized<br />Site Control and associated risks<br />Quality of the PPA<br />Quality of the Developer<br />System Technical Specifications<br />Installer/OEM<br />Legal and Insurance Issues<br />SRECs plan<br />
  7. 7. Solar Project Risk<br />Even with tax benefits and depreciation fully allocated, there may be considerable risk; <br />What is weakest link ? Developer, Installer, Lender?<br />How is the Power Purchase Agreement configured? Does it insure profit/eliminate risk? <br />How are the Solar Renewable Energy Credits monetized? <br />
  8. 8. Solar Project RiskPower Purchase Agreement<br />Typically 10-25 years; Easement or Site License?<br />How solid is the site owner/ off-taker? <br />Are there future risks inherent in adjacent sites? <br />What if there is a default within the first 5 years?<br />What if the business or site is shut down? <br />
  9. 9. Market- Based IncentivesSREC Sales<br />The SRECs market is the “incentive of choice” inside the solar industry, but is as yet volatile; <br />SRECs avoid the political risk inherent in the regulatory incentives at the Fed and State level; <br />States are creating a foundation for the solar market by strengthening the SREC programs; <br />Range is value from $ 150 to $ 650 per Mwh;<br />
  10. 10. RECs for wind, bio, or hydro, and SRECs for Solar projects can be monetized in several ways; <br />Sold directly in advance to utilities under the state RPS; <br />Sold via forward contracts to individual buyer or speculators ; <br />Sold on the spot market; <br />Sold at auction; <br />Market-Based IncentivesSREC Sales<br />
  11. 11. Solar Project Riskfrom the Developer’s Point of View<br />Federal Incentives good for the next few years<br />State Incentives purely a bonus<br />Few experienced developers<br />Few standard legal documents <br />Equipment risk/OEM<br />Future condition of off-taker<br />SRECs often extremely discounted<br />Risk of lower gas and electric markets<br />