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Third Party
Financing (TPO)
for Solar
Overview
1. What does TPO do for markets?
2. TPO Vehicles: How they work
1.
2.
3.
4.

Capital Lease
Operating Lease
PPA
Ne...
TPO Cost-Effectively Expands Market Opportunity
Without TPO, the market adoption is limited to a select few customers:
Fut...
VEHICLES
GOOD
1. Capital Lease

BETTER
2. Operating Lease

BEST
4. Power Purchase
Agreement (PPA)

3. Solar Service Agreem...
The SunEdison Model: A tool for the local Developers
Lender (debt)

Tax Equity

$

$

Special Purpose Vehicle
(Third Party...
Capital Lease
Term

Payment

End of Life

5-12 years

$/month

Lessee owns

LESSEE (customer)
• Customer tax appetite nece...
Operating Lease
Term

Payment

End of Life

5-10 years

$/month (with
O&M agreement)

Renew/Return/
FMV

LESSEE (customer)...
Power Purchase Agreement
Term

Payment

End of Life

15-20+ years

$/kWh

Renew/Return/
FMV

Off-taker (customer)
• Purcha...
Buzz Words: New Investment Vehicles

New investment vehicles help lower the cost of capital thereby reducing
finance costs...
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November 21, 2013 | Next Steps: Financing solar for your business | Maura Yates: Third party financing

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For many businesses and property owners, the high upfront cost of solar photovoltaic systems remains the single largest barrier to adoption. The solution? Solar financing. Fresh Energy’s solar financing event, the final installment of a three-part Solar Opportunities Series, will introduce participants to the range of current and emerging solar-financing options available in Minnesota. Learn more at fresh-energy.org/solarseries.

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November 21, 2013 | Next Steps: Financing solar for your business | Maura Yates: Third party financing

  1. 1. Third Party Financing (TPO) for Solar
  2. 2. Overview 1. What does TPO do for markets? 2. TPO Vehicles: How they work 1. 2. 3. 4. Capital Lease Operating Lease PPA New Investment Vehicles P. 2 | SunEdison Confidential
  3. 3. TPO Cost-Effectively Expands Market Opportunity Without TPO, the market adoption is limited to a select few customers: Future parity economics will improve (but not broadly enable) market adoption FUTURE with TPO TODAY without TPO MARKET DEMOGRAPHICS: Mostly Resi and Small Commercial •Customers with upfront cash •Customers with tax appetite •Customers with strong balance sheets MARKET DEMOGRAPHICS: Resi, Small, Medium, Large C&I, Tax Exempt •Customers with upfront cash •Customers with tax appetite •Customers with strong balance sheets PLUS •Customers with no tax appetite •Commercial customers with desire to offbalance sheet finance •Customers in 20 kW- 1 MW range •Tax Exempt Entities With TPO, market transformation occurs and adoption increases prior to parity economics: Eliminating upfront cost hurdles for Customers, leveraging commercial economics are the primary drivers P. 3 | SunEdison Confidential
  4. 4. VEHICLES GOOD 1. Capital Lease BETTER 2. Operating Lease BEST 4. Power Purchase Agreement (PPA) 3. Solar Service Agreement (SSA) • • Still requires lessee (Customer) to bear liability and risk Provides access to upfront capital needed, similar to a loan • • • Allows tax exempt participation Lender balance sheet Performance risk remains with Lessee • Risks fall on Lessor • Lender balance sheet • Longer term, typically strongest project economics Payment $/month $/month (with O&M true-up) $/kWh Term 5-12 years 5-10 years, 20+ years 15-20+ years End of Term Ownership transfers to Lessee Renew/Return/FMV Purchase Renew/Return/FMV Purchase P. 4 | SunEdison Confidential
  5. 5. The SunEdison Model: A tool for the local Developers Lender (debt) Tax Equity $ $ Special Purpose Vehicle (Third Party Financier-SunEd) •Lender contributes debt; possibly Sponsor equity •Repaid through interest and revenue streams •Tax Equity Investor contributes tax equity •Repaid through tax MACRS and ITC •SunEdison creates the SPV; provides SPV access to local installers (channel partners) $ O&M, Installation $ Lease Payment Installer Host Utility •Qualified installers are provided with access to SPV •These projects create a Project Portfolio then financed by the SPV •SPV pays Installer Installation and O&M fees •Pays monthly lease payment to investors via developer •Customer Net meters, etc. P. 5 | SunEdison Confidential
  6. 6. Capital Lease Term Payment End of Life 5-12 years $/month Lessee owns LESSEE (customer) • Customer tax appetite necessary • Lessee takes ITC and Depreciation • Interest component of lease payment is considered an expense • Lessee takes incentives • Customer owns asset at end of lease • Economics less favorable than cash/loan purchase typically LESSOR (lender) • 100% financing of equipment and installation P. 6 | SunEdison Confidential
  7. 7. Operating Lease Term Payment End of Life 5-10 years $/month (with O&M agreement) Renew/Return/ FMV LESSEE (customer) • Entire lease payment can be a deduction • Production risk assumed (unless O&M true-up) • Incentives (PBIs) • Benefits from technology obsolescence---10 years is ideal timing LESSOR (lender) • Monetizes tax benefits • Asset and liability recorded on balance sheet: title remains with lessor • 100% financing of equipment and installation • Still challenges for tax-exempt entities per Section 7701(e) of federal tax code • Service contracts, SSAs P. 7 | SunEdison Confidential
  8. 8. Power Purchase Agreement Term Payment End of Life 15-20+ years $/kWh Renew/Return/ FMV Off-taker (customer) • Purchasing power • De-risked Owner (lender) • Monetizes tax benefits and incentives • Asset and liability recorded on balance sheet: title remains with owner • 100% financing of equipment and installation • Still challenges for tax-exempt entities per Section 7701(e) of federal tax code • Service contracts, SSAs P. 8 | SunEdison Confidential
  9. 9. Buzz Words: New Investment Vehicles New investment vehicles help lower the cost of capital thereby reducing finance costs. Focusing on innovative financing is a critical way to lower market costs and drive market adoption 1. 2. 3. 4. YieldCo Master Limited Partnerships (MLPs) Real Estate Investment Trusts (REITs) …. P. 9 | SunEdison Confidential

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