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Solar Project Finance: Turning Sunlight Into Green
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Solar Project Finance: Turning Sunlight Into Green

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Learn more at: http://www.principalsolarinstitute.org/webinar/566 ...

Learn more at: http://www.principalsolarinstitute.org/webinar/566

How do you pay for large-scale solar power plants when you need millions to start building, but receive payout over decades? Serious solar energy finance professionals will want to hear structured asset finance and valuation expert Ken Kramer present and answer questions about renewable energy project financing concepts applicable to utility scale solar projects, with a focus on US projects utilizing tax-oriented financing structures.


Ken will describe the mechanics and market participants involved in non-recourse project financing. He will also review currently available US Federal tax benefits for renewable energy projects and tax-efficient transaction structures that have evolved to utilize those benefits. Valuation issues associated with these structures will also be covered.


Students at Cornell and Columbia have recently had the opportunity to hear Ken lecture on this topic. This FREE webinar is your chance to do the same, plus attend the LIVE webinar to find out how to employ these concepts in your 2013 business strategy when Ken answers your questions during a LIVE Q & A segment following his presentation.

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  • Scheduled time (:00) – Welcome to $WebinarTitle. We have several people still joining the audio portion of the webinar, so we’ll get started in a couple minutes.[Start recording]Start + :02 – Hello I’m Rick Borry and will be your host today. Before we get started, I have a few housekeeping notes. This webinar is XX minutes long. All participants are muted, but if you have trouble hearing the audio, you can send a text chat to me via the chat dialog in the lower right corner of your viewer window. Also, if you have any questions you can send those to me via text chat at any time. I will collect all questions and ask them of the presenter at the end of the session. The webinar is being recorded, and it will be posted online along with a copy of the slides later today.Today’s webinar is “Micro-inverters for Solar Panels”. This webinar is part of the Principal Solar Institute webinar series, for professional installers, developers, owners, and operators of solar systems. We thank XX and YY for sponsoring this webinar. [Host should go on mute]

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  • 1. Solar Project Finance:Turning Sunlight Into Green Ken Kramer Managing Director, Rushton Atlantic LLC January 17, 2013
  • 2. Principal Solar Institute Solar Project Finance: Turning Sunlight Into Green Ken Kramer Managing Director and Co-Founder, Rushton Atlantic, LLC Ken Kramer has 30 years’ experience in structured asset finance, in valuation consulting, banking and corporate treasury. He is a co-founder and Managing Director of Rushton Atlantic, LLC, a boutique valuation advisory firm specializing in the energy, infrastructure, manufacturing and transportation sectors. The firm provides specialized valuation services supporting structured and project financings, acquisition due diligence, insurance placement, financial reporting and tax compliance.
  • 3. What is Project Finance? Financing of a project based solely on its risks and future cash flows, with limited or no recourse to a corporate obligor Project finance was developed to finance large infrastructure projects that might be too large or risky for an individual investor’s corporate balance sheet Risks are mitigated through contracts and guarantees, ranging from design and construction through operation and sale of project output
  • 4. What Makes Project Finance Feasible?Certainty of sale of project output to guarantee a revenue stream and operating margins – Long-term power purchase agreement – Long-term operating agreement (toll roads) – Capacity purchase agreement (transmission lines) – Production sharing agreement (oil fields) – Certainty of merchant sales (some windfarms)
  • 5. Sponsor Considerations Developers/equity investors benefit from off- balance sheet financing, maximize equity returns, and monetize tax financing opportunities Expensive & time consuming to document and close Operating restrictions, including cash sweeps
  • 6. Lender Considerations Critical mass? $50-100MM minimum Receipt of revenue contractually enforceable against creditworthy buyer? Will physical assets secure lender repayment? Technology risk? Reputable contractors? Permits in place?
  • 7. Project Agreements  With sponsor – O&M - operating & maintenance agreement – ASA - administrative services agreement – TLA - technology license agreement  With outside parties – EPC - engineering, procurement and construction – PPA - power purchase agreement – Renewable energy credit agreement – Other offtake agreements (e.g. steam, CO2, other byproducts) – Site lease agreement – Interconnection agreement – Feedstock supply agreements – Hedging agreements
  • 8. Contract Issues  PPA – Generally required with sufficient term and revenues to fully amortize debt or lease obligations – Utility scale projects may negotiate take or pay contracts – Wind projects may be financeable on merchant basis, with wind histories, etc.  EPC – Necessary if sponsor has not financed construction internally – Corporate guarantees or performance bonds required for construction (schedule and budget) – “Full wrap” coverage preferred, including maintenance guarantees – Available leverage is function of strength of EPC guarantee
  • 9. Typical Project Finance Structure
  • 10. Other Revenues – Renewable EnergyCredits Compliance vs. voluntary markets Qualifying generation technologies – Solar – Wind – Geothermal – Low impact hydro (small run-of-the-river) – Biomass, biofuels & landfill gas – Fuel cells (with “green” hydrogen) – Combined heat & power (some states)
  • 11. Renewable & Alternative EnergyPortfolio Standards
  • 12. SREC Trading Ranges by StateNJ PADE MDDC OH
  • 13. Debt Options Syndicated & club loans – Construction loans – Term loans – Working capital loans 144A Private placements USDA Sec. 9007 REAP loans & guarantees (to $25MM)
  • 14. Typical Project Finance Waterfall
  • 15. Top Renewable Energy ProjectFinance Arrangers for 2011 1. Federal Financing Bank $10,135 2. BNDES $4,229 3. Bank of America $2,500 4. Mitsubishi UFJ Financial $2,309 5. Banco Santander $2,037 6. KFW $1,889 7. Nordic Investment Bank $1,889 8. UniCredit $1,167 9. European Investment Bank $1,046 10. BBVA $1,006
  • 16. Top Renewable Energy ProjectSponsors for 2011 1. NRG Energy $6,463 2. NextEra Energy $3,367 3. Abengoa $3,072 4. Acciona $2,105 5. Exelon Corp $1,359 6. General Electric $1,294 7. Terra Firma Capital Partners $1,110 8. DONG Energy $920 9. WindlandEnergieerzeugungs $881 10. Blackstone $881
  • 17. Third Party Equity What is the gap between sponsor equity and debt? Active or passive investors? Is project technology and sponsor management attractive to potential equity investors? Type and terms of equity investment – Common vs. preferred – Board seats, dividends, liquidation preference, etc. – Anticipated liquidity event
  • 18. Tax Benefits  ITC – 30% (or 10% for microturbines, CHP & certain geothermal including heat pumps) of qualifying renewable energy generation equipment  1603 cash grant in lieu of ITC – 30% or 10%, as above, for facilities with construction started (or 5% spent) before 1/1/12 and placed in service before: – 1/1/13 for “large” wind – 1/1/14 for biomass, geothermal (30%), landfill gas, MSW, hydro & marine/hydrokinetic – 1/1/17 for solar, “small” wind, geothermal (10%), fuel cells, microturbines, CHP, geothermal heat pumps
  • 19. Tax Benefits – cont’d.  PTC – payments for 10 years of: – 2.2 cents/kwh for wind turbines under construction before 1/1/14 – 2.2 ckwh (for closed-loop biomass, geothermal, & pre-2006 solar) or 1.1 ckwh for open-loop biomass, small irrigation, MSW, qualified hydro & marine/hydrokinetic) placed in service before 1/1/14  Depreciation – 5 year MACRS, on basis reduced by one half of ITC or 1603 cash grant claimed, with bonus depreciation of – 100% for assets placed in service before 1/1/12, and – 50% for assets placed in service before 1/1/14
  • 20. Tax Structured Financing Options More efficient use of tax benefits Availability of step-up in basis Structural alternatives – Sale/leaseback – Partnership flip – Pass through lease
  • 21. Sale/Leaseback 100% financing Can monetize ITC only Must be structured as “true” lease per IRS guidelines Lease term approximates term of PPA, which is typically pledged as collateral
  • 22. Partnership Flip  Partial project financing  Can monetize both PTC and ITC  May or may not be leveraged  Disproportionate allocation of cash flows and tax benefits between developer and tax equity investor  Developer has option to repurchase facility after “flip date” – the point at which investor has realized his return of and on investment
  • 23. Inverted Lease  Developer leases to tax equity investor, who sells power to ultimate user  Lease rentals may be prepaid  Beneficial ownership automatically reverts to developer  Enables investor to claim ITC (but not PTC) while developer retains depreciation
  • 24. Top Tax Equity Investors for 2011 Bank of America MetLife J. P. Morgan PNC GE Capital PG&E Union Bank Wells Fargo Citi Northern Trust Credit Suisse Key Morgan Stanley U.S. Bank Google
  • 25. Questions and Discussion Please enter your questions in the chat window. Ken Kramer Managing Director Rushton Atlantic, LLC 845 Third Avenue – 6th floor New York, NY 10022 (646) 290 - 5069 ken.kramer@rushtonatlantic.com