Introduction to Solar Financing                                                                                           ...
Introduction to Solar Financing                                                                                          P...
Introduction to Solar Financing                                                                                           ...
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Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
Introduction to solar financing
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Introduction to solar financing

  1. 1. Introduction to Solar Financing Page 1 of 112Connect your Facebook account to check out what your friends are sharing on SlideShare Connect×SlideShare Search… • Upload • Browse • Go Pro • Login • Signup Email Like Save Embed Related More PPA Overview_5.10.2010 0 1896 views Li ke Solar Sales & Marketing 4527 views Ppa Overview Tioga Energy 2009 04 13 2 Ppa 1 4319 views Commercial Solar Economics 895 views Cutting Transaction Costs For Solar PPAs 89 views pManifold Indis_Solar PV_IIES_Workshop_report 1736 views Protecting Solar PPA From Foreclosure 95 views ‹› Solar powering your community, a 14 /58 guide for local governments 2395 views Solar powering your community guide for local governments 3286 views Economics of Solar: Western Focus 908 views Economics of Solar: PG&E Focus 756 views Oct Issue 1361 views Attracting and Maintaining Institutional Investment: Solar PV 493 views Innovations In Wind And Solar Pv Financing 2135 views Harnessing solar energy- options_for_india-full report 1601 viewshttp://www.slideshare.net/OnGridSolar/introduction-to-solar-financing 3/11/2013
  2. 2. Introduction to Solar Financing Page 2 of 112 Solar Enrgy Training and Classes Catalog 2011 1010 views Irec solar market_trends_report_2009 709 views No comments yet Credit suisse midsummer latam conference 186 views 5 Emerging US Public Finance Models 2009 527 views Large Scale Solar Power Legisaltion, 3 Favorites Regulation & Policies Conference 2521 views Dec 2008 Issue 717 views Utility Scale Solar - Kerinia Cusick 480 views Irec annual-trends-report-10-1-10 web 449 views Utility Scale Solar - Kerinia Cusick 1227 views Introduction to Solar Financing Document Transcript Solar Tax Equity Due Diligence Tips 363 views 1. Andy Black “Introduction to Solar Financing” Solar Financial Analyst (408) 428 0808x1Solar Living Institute: April 20, 2008, Los Angeles, CA, andy@ongrid.net9am-5pm Contact: Solar Living Institute: San Diego County Office Of Education ENERGY PLANNING www.solarliving.org, 707 744 2017 to register Check-in (15 minutes before GUIDE listed start time) Introductions Overview of Basic Financing Principals 1502 views Residential Conventional Financing Break, Q & A, Networking PACE & State San diego county office of education epg June 2011 Loan Programs ~12:00 Lunch, Q & A, Networking (~30 minutes if possible) 480 views Lease Basics and Commercial Leases Break, Q & A PPA Basics and Commercial PPAs Residential Leases & PPAs ~4:30 Formal Conclusion, 2nd Thin Film Solar Summit Europe - March 2010 Break, Q & A We must be out by 5:00 (add’l questions outside)Diligence: 2443 views 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 Own Your Power! Wadsworth Longfellow 1148 views 2. Andy Black “Introduction to Solar Financing” Solar Financial Analyst (408) Volume 1 - LGU PPP Manual 428 0808x1Solar Living Institute: April 20, 2008, Los Angeles, CA, 648 views andy@ongrid.net9am-5pm Contact: Solar Living Institute: www.solarliving.org, 707 744 2017 to registerAbstract:This rigorous workshop Haiti: "Open For Business" is designed to help commercial systems integrators (dealers, installers, 2594 views andsalespeople) understand and make the financial case for PV systems including specifics for how tofinance them with PPAs and Leases.This class Create solar panels Its not difficult includes:! PPAs: Understanding the basics, subtleties, complexities, risks, and 130 views opportunities! Leases: Understanding the major types, how and when they are used! A short list of financing, legal, tax, and accounting providers who Tessera brendan o’brien. sistema specialize in solarAll students will receive a copy of the demo version of the disco-stirling OnGrid Tool (licensing agreement will berequired).Biography:Andy Black is a 1149 views Solar Financial Analyst and the owner of OnGrid Solar. OnGrid Solar US Solar Market Insight Report Q3 providesfinancial analysis and sales education & software to solar installers to 2011 help them make a strong salescase for solar electricity to their customers. Andy 790 viewshttp://www.slideshare.net/OnGridSolar/introduction-to-solar-financing 3/11/2013
  3. 3. Introduction to Solar Financing Page 3 of 112 has more than a dozen years of design, consulting,teaching, sales, and research 2nd Concentrated Photovoltaic Summit USA experience in solar. He specializes in demonstrating the financial paybackof 1809 views 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 Heat Your Water From The Sun 1768 views 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 ReportsnReports - Crystalline Solar Photovoltaics PV Panel Systems State University, aMaster’s in Electrical Engineering from University of Market Shares… Southern California, and a Marketing Certificateat the University of California. 1756 views His training in solar electricity includes Solar Energy International’sintensive Heijunka iim ahmedabad-cleantech 1079 views 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 CSP Project Development Conference and Expo for a cat at his home in San Jose, CA.Contact Info: Andy Black, CEO OnGrid 615 views Solar 4175 Renaissance Dr #4, San Jose, CA 95134 (408) 428 0808x1 andy@ongrid.net www.ongrid.net GTM/SEIA U.S. Solar Energy Trade Balance Report 2011 3. INTRODUCTION TO Introductions & Thanks SOLAR FINANCING !  913 views Solar Power International ‘10 Andy Black !  Solar Electric Power Association Solar Financial Analyst "  Stuart Raper & Julia Hamm & Sales Software Creator !  Yennie Solheim !  Andy Black, OnGrid Solar "  Solar Financial Analyst & OnGrid Tool Creator Solar Power International 2010 !  You for coming! © 2010 OnGrid Solar, All rights reserved. Intro to Solar 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 business !  New or hopeful salespeople !  Want to learn about / have the OnGrid Tool !  Government / Utilities !  Customers / consumers / end users !  Want to increase your knowledge to develop !  Manufacturers your own tool !  Others? !  Who’s taken the Residential/Basic Payback Class?© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 3 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 4 Quick Survey - Area(s) of Interest? Instructor Background !  Came to learn specifically about: !  M.S. Electrical Engineering "  Residential Conventional Financing !  SEI graduate "  Residential Lease & PPA Financing !  NABCEP Certified Solar PV Installer Emeritus "  Commercial Lease Financing !  Involved with Solar since 1991 "  Commercial PPA Financing !  Studying, writing, & presenting about Solar "  Use PPAs in selling Financial Issues since 2000 "  Create new PPA offering to market !  Solar Salesperson 2001-2006 !  Other interests? !  Now a Solar Financial Analyst & !  Networking list? Creator of the “OnGrid Tool” solar sales software© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 5 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 6 4. Handout Resource List Decorum Resources available at www.ongrid.net !  Questions: Please focus on Solar Economics & Payback !  Articles & papers on solar “Payback” !  Good environment: !  Upcoming classes & events "  Cell phones to fun mode "  Sales & Marketing for Solar "  Side conversations: Yes or No? !  Slides from past classes "  Please help each other !  Free demos of the OnGrid Tool !  Site Logistics & Breaks "  Facilities "  Lunch & 2 breaks: Networking© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 7 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 8 Agenda Basic Financing Principals !  Overview of Basic Financing Principals !  Residential Conventional Financing with !  Several ways to finance Unsecured Loans & Home Equity !  Financing enables sales to those who can’t or !  PACE & State Loan Programs won’t buy with their own cash !  Lease Basics & Commercial Leases !  Good customer credit important (lately, critical) !  PPA Basics & Commercial PPAs !  Financing makes sense when the project basic ! http://www.slideshare.net/OnGridSolar/introduction-to-solar-financing 3/11/2013
  4. 4. Introduction to Solar Financing Page 4 of 112 Residential Leases & PPAs economics are favorable (good IRR) Questions preferred at points marked: Questions? "  Please focus on Financing & Economics Questions?© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 9 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 10 Ways to Finance Solar Sales Benefits of Financing +Reduced Customer Risk - Benefits Shared with more Parties !  Offering Financing keeps salesperson in control of - Cost to Consumer the sale !  PPA If the customer is out looking for financing, you’ve +More Sales Control "  !  Lease lost control of the sale. "  If you offer it, you can continue to control the sale. !  Loan !  Creates more purchasing options, more chances at a !  Cash close !  Can use to overcome objections !  Bringing the financing keeps you in control !  Gets salesperson closer to decision maker & their (as much as you can in this market!) real thinking© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 11 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 12 5. Commercial Selling Realities Common Characteristics !  Only 3% of all commercial quotes turn to sale !  Lower interest rate environment helps "  Most quotes are made to private companies #  Can’t make >5 year commitment !  Can improve initial customer cash flow "  Salesperson doesn’t know tax & accounting issues !  Requires good end-customer credit #  Talks w/ building manager, facilities, etc "  Stricter credit environment hurts #  Afraid to talk to CFO, Controller, CEO, Outside Auditor & Banker !  Typically only large public companies can go long (10-12 yrs) - even they hesitate 18-20 years !  Gov’t, Schools, some non-profits have long vision© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 13 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 14 “Good” or “Strong” Credit Risks in Solar Finance !  Three C’s of Credit: "  Credit scores & reports (Dun & Bradstreet) !  Compare to Real Estate "  Collateral "  Capacity or Cash Flow !  Residential: FICO score !  Commercial: "  >5 years in business "  >$50 million revenue "  Positive trends (increasing revenue & profits) #  Hard to find in 2009 & 2010 "  Standard ratios (cash flow, etc)© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 15 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 16 Residential Rates of Return Requires Good IRR !  The basic economics must be attractive !  What about non-profits & gov’t facilities? "  Economics are generally weak – no ITC "  Use 3rd Party Financing (PPAs mostly) "  Need good IRR if analyzed as commercial© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 17 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 18 6. Residential Rates of Return© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 1 Commercial Rates of Return© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 2 7. Commercial Rates of Return Commercially Attractive? !  IRR must exceed a hurdle rate "  > “Risk Free Rate” + ~1-2% = Risk Free Rate + Sum of Risks (more later) #  Source: Photon International, Aug 2007, p114 !  “Risk Free” interest rates: "  1 Year LIBOR ~ 0.8% As of September 2010 "  Treasury: 10yr = 2.5%, 30yr = 3.4% As of 10/4/2010 !  ! Commercially Attractive >= 4-6%?© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 19 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 20 Residential Conventional Financing !  Unsecured Loan Addison Avenue FCU: 5.25%, 5 year, $5-50K Residential Conventional "  Real Estate Secured Loan Financing with Unsecured !  "  Lowest interest rates (usually) Loans & Home Equity "  Tax deductible interest "  HUD EEMs - Energy Efficiency Mortgages "  “Home Equity Loans” & “Home Equity Line of Credit” (HELOC) #  E.g. New Resources Bank© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 21 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 22 Cash Flow Cash Flow with Loan !  Residential system offsettinghttp://www.slideshare.net/OnGridSolar/introduction-to-solar-financing 3/11/2013
  5. 5. Introduction to Solar Financing Page 5 of 112 a large !  Compares the savings on the utility bill bill with the cost of financing the system !  8% 20 year loan !  At today’s rates (~5-8%) and including !  Many Systems are rebate benefits, cash flow is often cash positive from positive immediately Year 0 "  Cost of borrowing is less than savings on !  Spike is Inverter electric bill Replacement Cost "  Stabilizes long term utility costs© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 23 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 24 8. Solar Mortgage Cash Flow Analysis !  Like buying vs. renting, but better !  Calculate net cash required to buy !  House costs more up front "  This is the amount to be financed "  Pays off over time !  Calculate monthly loan payments !  Solar costs less up front "  Based on loan rate, term & amount "  Pays off immediately & over time !  Subtract tax savings if loan interest is tax !  Protects against inflation deductible. This is net monthly loan cost. !  Savings grow over time !  Compare net loan cost to after tax value of net electric bill savings (incl. maintenance)© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 25 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 26 How Much To Borrow? Alt. 3: “Smart Financing” !  Efficient pay-down of principal using tax benefits when !  How much should customer borrow? received (using Line Of Credit - business or home equity) !  Alt. 1: Net Cost after Rebate & Grants? !  Find ‘payment’ amount that pays off evenly over term "  Once ITC is received, have cash sitting around "  Lower payments than amortizing full “after-rebate amount” "  Inefficient & expensive "  Higher payments than only amortizing the net “after-rebate, !  Alt. 2: Net Cost after All Incentives (including tax after-tax-benefits amount” credits, depreciation, PBIs, etc.)? !  No cash out of pocket waiting for ITC "  Requires a bridge loan until tax benefits & PBIs are "  Doesn’t require ‘bridge loan’ received "  Realistic presentation of customer costs "  Optimistically low monthly loan cost !  No excess interest paid on “un-used” money "  Doesn’t weaken sales presentation© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 27 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 28 Commercial Cash Flow Commercial Cash Flow Options ! High Cost Loan: Starting Principal = Net Costs w/ Solar Utility Costs w/!  Typical “Gross - Rebate” with High Cost Loan o Solar Commercial System Loan ! Optimistic* Loan:!  X% Y year loan $25,000 Net Annual Savings Starting Principal = $20,000 “Gross - Rebate - ITC - Depreciation” $15,000 Utility Costs w/ $10,000 o Solar *Customer needs Net Annual Savings $5,000 $0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 bridge loan until tax Net Costs w/ Solar savings realized -$5,000 Year with Optimistic Loan -$10,000© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 29 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 30 9. “Smart Financing” Timeline LOAN: Year:LOAN: Loan Balance Year: . 0 70,182 1 45,816 2 36,723 3 30,165 4 25,045 5 19,515 6 14,996 0 1 2 3 4 5 6Loan Balance Payment (monthly) 70,182 45,816 36,723 30,165 25,045 (356) 19,515 (356) 7 14,996 11,594 8 (356) 7,919 9 3,951 10 (356) 11 (356) (356) (356)Payment (monthly) Interest (portion of payment) Paid (356) (356) (356) (356) (356) (356) (356) (305) (356) (245) (356) (356) (201) (356) (167) (130) (100)Paid Interest (portion of payment) (356) (305) (245) (201) (167) (130) (100) (77) (53) (26)Unpaid Interest (added to Interest (added to loan principal) Unpaid loan principal) (112) (112) Tax Deduction Benefit (monthly)Tax Deduction Benefit (monthly)Net Monthly Loan Cost 205 (150) 134 (222) 107 (248) 88 (267) 73 205 57 (282) (298) 134 44 (312) 34 (322) 10723 (332) 12 (344) 88 73 57 44 Net Monthly Loan CostNet Tax Benefit Received (put towards paying down 25,714 8,493 5,230 3,267 3,267 (150) 1,814 (222) 336 336 (248) 336 336 (267)336 (282) 336 (298) (312)the next years principal) Net Tax Benefit Received (put towards paying downNet Annual Electric Bill before Solar (with tax effects 25,714 8,493 5,230 3,267 3,267 1,814 336& including Lifestylenext years principal) the changes, but not Energy 2,388 2,507 2,632http://www.slideshare.net/OnGridSolar/introduction-to-solar-financing 3/11/2013
  6. 6. Introduction to Solar Financing Page 6 of 112 2,764 2,902 3,047 3,199 3,359 3,527 3,704 3,889 4,083Efficiency) Net Annual Electric Bill before Solar (with tax effectsNew Net Annual Energy Cost (with tax effects,including new& including Lifestyle changes, 755 electric bill, maintenance, inverter but not Energy 800 847 897 9502,388 1,006 2,507 1,065 1,127 2,632 1,193 2,764 1,262 1,336 2,902 1,414 3,047 3,199replacement) Efficiency)Net New Annual Cost (Loan plus New Net Energy 2,560 3,459 3,825 4,105 4,337 4,587 4,805 4,986 5,181 5,391 1,336 1,414Cost) New Net Annual Energy Cost (with tax effects,Cash Flow (annual) (Old less new electric bill, maintenance, inverter including New Net Costs) (172) (952) (1,193) (1,341) (1,435) 755 (1,540) 800 (1,627) (1,605) 847 (1,654) (1,687) 897 2,553 950 2,670 1,006 1,065 replacement)Cash Flow (monthly) (14) (79) (99) (112) (120) (128) (134) (136) (138) (141) 213 222ACCUMULATED LOAN CASH FLOW: (172) (1,124) (2,317) (3,658) (5,094) (6,633) (8,239) (9,865) (11,519) (13,206) (10,653) (7,983) Net New Annual Cost (Loan plus New Net Energy 2,560 3,459 3,825 4,105 4,337 4,587 4,805 Cost) Cash Flow (annual) (Old less New Net Costs) (172) (952) (1,193) (1,341) (1,435) (1,540) (1,605) Cash Flow (monthly) (14) (79) (99) (112) (120) (128) (134) ACCUMULATED LOAN CASH FLOW: . (172) (1,124) (2,317) (3,658) (5,094) (6,633) (8,239) © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 3 “Smart Financing” Timeline LOAN: Year: 0 1 2 3 4 5 6 Loan Balance 70,182 45,816 36,723 30,165 25,045 19,515 14,996 Payment (monthly) (356) (356) (356) (356) (356) (356) (356) Paid Interest (portion of payment) (356) (305) (245) (201) (167) (130) (100) Unpaid Interest (added to loan principal) (112) Tax Deduction Benefit (monthly) 205 134 107 88 73 57 44 Net Monthly Loan Cost (150) (222) (248) (267) (282) (298) (312) Net Tax Benefit Received (put towards paying down 25,714 8,493 5,230 3,267 3,267 1,814 336 the next years principal) Net Annual Electric Bill before Solar (with tax effects & including Lifestyle changes, but not Energy 2,388 2,507 2,632 2,764 2,902 3,047 3,199 Efficiency) New Net Annual Energy Cost (with tax effects, including new electric bill, maintenance, inverter 755 800 847 897 950 1,006 1,065 replacement) Net New Annual Cost (Loan plus New Net Energy 2,560 3,459 3,825 4,105 4,337 4,587 4,805 Cost) Cash Flow (annual) (Old less New Net Costs) (172) (952) (1,193) (1,341) (1,435) (1,540) (1,605) Cash Flow (monthly) (14) (79) (99) (112) (120) (128) (134) ACCUMULATED LOAN CASH FLOW: (172) (1,124) (2,317) (3,658) (5,094) (6,633) (8,239) © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 4 10. Smart Financed Commercial Cash Flow “Smart Financing” Timeline!  “Smart Financed” LOAN: Year: Loan Timeline New Net Cost: Loan, New Bill, Maintenance, etc. LOAN: Loan Balance Year: . 0 70,182 1 45,816 2 36,723 3 30,165 4 25,045 5 19,515!  No bridge loan Loan Balance Payment (monthly) Payment (monthly) Interest (portion of payment) Paid 0 70,182 (356) 1 45,816 (356) 2 36,723 (356) 3 30,165 (356) 4 25,045 5 (356) 19,515 (356) (356) (356) 6 (356) 7 14,996 11,594 8 (356) 7,919 (305) (356) (245) (356) (356) 9 3,951 10 (356) (201) (356) 11 (356) (167) (356) (130) needed Utility Bill w/o Solar Paid Interest (portion of payment) Unpaid Interest (added to Interest (added to loan principal) Unpaid loan principal) Tax Deduction Benefit (monthly) Tax Deduction Benefit (monthly) (356) (112) 205 (305) 134 (245) 107 (201) 88 (167) (130) (112) 73 205 57 (100) 134 44 (77) 34 107 (53) 23 (26) 12 88 73 57 Net Monthly Loan Cost (150) (222) (248) (267) (282) (298) (312) (322) (332) (344)!  Not optimistic - Net Monthly Loan Cost Net Tax Benefit Received (put towards paying down the next years principal) 25,714 Net Tax Benefit Received (put towards paying down Net Annual Electric Bill before Solar (with tax effects 8,493 5,230 3,267 3,267 (150) 25,714 1,814 (222) 336 8,493 336 (248) 336 5,230 336 (267) 3,267 336 (282) 336 3,267 (298) 1,814 fair to the & including Lifestylenext years principal) Efficiency) the changes, but not Energy 2,388 Net Annual Electric Bill before Solar (with tax effects 2,507 2,632 2,764 2,902 3,047 3,199 3,359 3,527 3,704 3,889 4,083 customer New Net Annualhttp://www.slideshare.net/OnGridSolar/introduction-to-solar-financing 3/11/2013
  7. 7. Introduction to Solar Financing Page 7 of 112 Energy Cost (with tax effects, & including Lifestyle changes, 755 not Energy but including new electric bill, maintenance, inverter800 847 897 2,388 950 1,006 2,507 1,065 1,127 2,632 1,193 2,764 1,262 1,336 2,902 1,414 3,047 replacement) Efficiency) Net New Annual Cost (Loan plus New Net Energy Assumes customer 2,560 3,459 3,825 4,105 4,337 4,587 4,805 4,986 5,181 5,391 1,336 1,414 Cost)!  New Net Annual Energy Cost (with tax effects, including new electric bill, maintenance, inverter 755 800 (1,627) 847 897 950 1,006 will be efficient w/ Cash Flow (annual) (Old less New Net Costs) (172) (952) (1,193) (1,341) (1,435) (1,540) (1,605) (1,654) (1,687) 2,553 2,670 replacement) Cash Flow (monthly) (14) (79) (99) (112) (120) (128) (134) (136) (138) (141) 213 222 tax benefits ACCUMULATED LOAN CASH FLOW: (172) (1,124) (2,317) (3,658) (5,094) (6,633) (8,239) (9,865) (11,519) (13,206) (10,653) (7,983) Net New Annual Cost (Loan plus New Net Energy 2,560 3,459 3,825 4,105 4,337 4,587 Cost)!  Interest Tax Cash Flow (annual) (Old less New Net Costs) (172) (952) (1,193) (1,341) (1,435) (1,540) Benefit Drops so Cash Flow (monthly) (14) (79) (99) (112) (120) (128) Net Cost Rises Net Annual Savings / Cost ACCUMULATED LOAN CASH FLOW: . (172) (1,124) (2,317) (3,658) (5,094) (6,633)© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 31 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 32 Commercial “Smart Financing” Timeline Cash Flow LOAN: Year: 0 1 2 3 4 5 6 7 8 9 10 11 Loan Balance 70,182 45,816 36,723 30,165 25,045 19,515 14,996 11,594 7,919 3,951 Payment (monthly) (356) (356) (356) (356) (356) (356) (356) (356) (356) (356) Paid Interest (portion of payment) (356) (305) (245) (201) (167) (130) (100) (77) (53) (26) Unpaid Interest (added to loan principal) (112) Tax Deduction Benefit (monthly) 205 134 107 88 73 57 44 34 23 12 Net Monthly Loan Cost (150) (222) (248) (267) (282) (298) (312) (322) (332) (344) Net Tax Benefit Received (put towards paying down 25,714 8,493 5,230 3,267 3,267 1,814 336 336 336 336 336 336 the next years principal) Net Annual Electric Bill before Solar (with tax effects & including Lifestyle changes, but not Energy 2,388 2,507 2,632 2,764 2,902 3,047 3,199 3,359 3,527 3,704 3,889 4,083 Efficiency) New Net Annual Energy Cost (with tax effects, including new electric bill, maintenance, inverter 755 800 847 897 950 1,006 1,065 1,127 1,193 1,262 1,336 1,414 replacement) Net New Annual Cost (Loan plus New Net Energy 2,560 3,459 3,825 4,105 4,337 4,587 4,805 4,986 5,181 5,391 1,336 1,414 Cost) Cash Flow (annual) (Old less New Net Costs) (172) (952) (1,193) (1,341) (1,435) (1,540) (1,605) (1,627) (1,654) (1,687) 2,553 2,670 Cash Flow (monthly) (14) (79) (99) (112) (120) (128) (134) (136) (138) (141) 213 222 ACCUMULATED LOAN CASH FLOW: (172) (1,124) (2,317) (3,658) (5,094) (6,633) (8,239) (9,865) (11,519) (13,206) (10,653) (7,983)© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 33 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 34 Smart Financed Residential Residential Cash Flow Utility Bill w/o Solar Cash Flow !  4 kW New Net Cost: Loan, New Bill, Maintenance, etc. residential system !  8% 20 year “Smart Financed” Loan Net Annual Savings / Cost !  No bridge loan needed© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 35 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 36 Examples 11. Commercial Cash Flow© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 5 Residential Cash Flow© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 6 12. Agenda Cumulative Cash Flow !  Overview of Basic Financing Principals !  Residential Conventional Financing with Unsecured Loans & Home Equity !  PACE & State/Utility Loan Programs !  Lease Basics & Commercial Leases !  PPA Basics & Commercial PPAs !  Residential Leases & PPAs© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 37 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 38Examples PACE / Community Financing Programs !  PACE: Property Assessed Clean Energy Propertyhttp://www.slideshare.net/OnGridSolar/introduction-to-solar-financing 3/11/2013
  8. 8. Introduction to Solar Financing Page 8 of 112 Assessed Clean !  PV system financing thru property tax assessment Energy (PACE) Financing "  Paid by increased property tax liability "  Liability attached to the property, not the individual "  Transferrable to future owners #  Removes concerns about resale value #  Possible issue regarding ITC recapture vs. increased resale value within first 5 years© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 39 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 40 Property Assessed Clean Energy (PACE) PACE / Community Financing Programs (Berkeley FIRST, AB811) www.dsireusa.org / October 2010 ME: 2010 OR: 2009 MN: 2010 NY: 2009 NH: 2010 VT: 2009 !  PACE Examples / in progress: 20 year, fixed interest rates, tax deductible interest WI: 2009 "  NV: 2009 CO: 2008 IL: 2009 OH: 2009 MD: 2009 #  Berkeley FIRST: ~7.75% as of 3/2009 DC DC: 2010 "  Palm Desert CA, Santa Fe, Albuquerque, Austin, CA: 2008 VA: 2009 MO: 2010 NM: 2009 OK: 2009 NC: 2009 Babylon NY, San Diego, San Francisco TX: 2009 LA: 2009 GA: 2010 !  State level initiatives: 23 states + DC "  CT, MD, OR, TX, VT, VA, WI, … FL: 2010 authorize PACE (22 HI: Existing states have passed "  AB 811 allows all towns in CA to do same Authority legislation and HI PACE financing authorized by the state* permits it based on "  Listed in DSIRE: http://www.dsireusa.org *The Federal Housing Financing Agency (FHFA) issued a statement in July 2010 concerning the existing law) senior lien status associated with most PACE programs. In response to the FHFA statement, most local PACE programs have been suspended until further clarification is provided. !  Interest nationwide - U.S. D.O.E. PACE Initiative © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 42 13. Property Assessed Clean Energy (PACE) www.dsireusa.org / October 2010 ME: 2010 MN: 2010 NH: 2010 NY: 2009 OR: 2009 VT: 2009 WI: 2009 NV: 2009 OH: 2009 MD: 2009 IL: 2009 CO: 2008 DC DC: 2010 CA: 2008 VA: 2009 MO: 2010 NC: 2009 NM: 2009 OK: 2009 GA: 2010 TX: 2009 LA: 2009 23 states + DC FL: 2010 authorize PACE (22 HI: Existing states have passed Authority legislation and HI PACE financing authorized by the state* permits it based on*The Federal Housing Financing Agency (FHFA) issued a statement in July 2010 concerning the existing law)senior lien status associated with most PACE programs. In response to the FHFA statement, mostlocal PACE programs have been suspended until further clarification is provided. State Loan Programs for Solar Projects www.dsireusa.org / September 2010 U U U U U U U U U U DC U U U U U U 29 states + USVI Loan Programs for Solar Projects U.S. Virgin Islands offer loans for U Utility Incentive(s) solar projects 14. PACE Status !  Currently stalled almost everywhere "  FHFA currently blocking PACE activities State / Utility Loan Programs !  State lawsuits against FHFA !  Legislation pending to allow PACE to continue !  … Stay Tuned. Follow at the DSIRE database: www.dsireusa.org , VoteSolar.org© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 43 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 44 State Loan Programs for Solar Projects NJ - PSE&G Utility Loan Program www.dsireusa.org / September 2010 U !  Residential: 6.5%, 10 year term !  Non-Residential: 11.3%, 15 year term U U U U U U U !  Typically 40-60% of system value U U DC !  Repayment via either: U U U U "  SRECs (minimum value 35.0¢/kWh to 43.5¢/ U kWh based on size) U 29 states + "  Cash USVI "  Can change once per year Loan Programs for Solar Projects U.S. Virgin Islands offer loans for U Utility Incentive(s) solar projects © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 46 Agenda Example State Loan Programs !  Texas Schools, Local Government, State !  Overview of Basic Financing Principals Government, Hospitals !  Residential Conventional Financing with "  3%, Must have ~10 year average term Unsecured Loans & Home Equity !  PACE & State/Utility Loan Programs !  Oregon: All Sectors !  Lease Basics & Commercial Leases "  $20K to $20 Million, 5-15 year terms !  PPA Basics & Commercial PPAs !  For loans in other states see the DSIRE !  Residentialhttp://www.slideshare.net/OnGridSolar/introduction-to-solar-financing 3/11/2013
  9. 9. Introduction to Solar Financing Page 9 of 112 Leases & PPAs database: www.dsireusa.org© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 47 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 48 15. Sales Tip !  Failure to “sign” is not likely due to price !  Suggest don’t even quote a system price 3rd Party Financing of "  Only quote a monthly payment Solar Projects !  Ask if they are, or will become subject to AMT if they go solar "  If so, only consider Lease or PPA "  And only discuss monthly payments "  Then comparable to current expense© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 49 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 50 3rd Party Financing Options For Solar !  Leases - Ways of paying for ownership and/or use over time, having tax and/or cash flow benefits during term, usually with intention of purchasing or renewing at the end "  Renting system with intent to purchase, while Leases allowing transfer of tax benefits !  PPAs - Power Purchase Agreements - Paying for just the energy if/when delivered with possible intent to purchase Disclaimer: I’m not a CPA or lawyer, and am not providing tax advice. Seek qualified professional help© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 51 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 52 Returns for Lessors CHECK W/ Baker & DaveLeases Clamage Check examples for Typical cases too !  Was in ~6%-9% range before financial crisis, Ask for real examples !  Several Types now in the low- to mid-teens "  Finance / Capital Lease !  Less money now available, so higher returns for those willing to deal "  True / Tax / Operating Lease "  Tax-Exempt Lease Purchase !  Requires: "  Lessees with best credit !  Thanks: "  Gene Beck, EnviroTech Financial "  Limited project risk "  Baker Davenport, Davenport Group "  Low transaction costs via standard terms and "  Scott Young, Sentry Financial “conforming” projects© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 53 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 54 16. What is a Lease Widely Used !  Finance contract between 2 parties !  Solar Leases similar to other asset leases "  Lessor & Lessee !  Well established market "  Vendor connects the 2 parties "  80% of companies and gov’t agencies use leasing, rather than owning, for at least some !  Looks like either a loan or a rental of their equipment !  Ability to transfer ownership benefits "  Some companies only use leasing, rather than "  For Tax or Accounting purposes purchasing !  Specified term & payment !  Lessor = Owner of system !  Lessee = User (“renter”) of system© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 55 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 56 Lease “Flow” & Parties Benefits of a Lease Lessor !  Terms more flexible than a purchase Lease Payments !  Allows for 100% financing PV System "  Covering freight, maintenance, fees, … #  Which might not be allowed in a loan Purchase Payment !  Doesn’t tie up capital and/or effectively stretches Use of System line of credit "  Considered “Off Balance Sheet” Initial “sales” interaction Info on leasing resources "  Keeps bank line of credit free Lessee Vendor !  Solves AMT problems !  Can include Energy Efficiency measures© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 57 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 58 Lease vs. Loan AMT - Alternative Minimum Tax !  Corporate AMT occurs for business with large “tax preferenced” items "  Depletion, state income tax, real estate tax, non-solar Tax Credits, Accelerated Depreciation !  Some business are or will become subject to AMT if they go solar: "  MACRS Depreciation on solar can cause limitation "  Solar ITC no longer causes a problem - AMT relief !  Tax Equity Investors (banks) not usually affected by AMT, so have a tax “appetite” and can offer *courtesy Conergy Commercial Financing presentation by Baker investment $ to get tax benefits others can’t use Davenport & Tim Pedersen, Rockwell Financial Group© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 59 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 60http://www.slideshare.net/OnGridSolar/introduction-to-solar-financing 3/11/2013
  10. 10. Introduction to Solar Financing Page 10 of 112 17. Lease vs Loan Cost: Lease Term Set By: !  Loan/Cash: 100% Principal !  Price of project - larger is better "  + Interest (or Time Value of Money if Cash Purchase) !  Credit of customer "  - ITC (30% if available) !  Structure of the deal "  - Depr (~30% if available) "  = Net cost = 45-50% depending on interest rates !  Lease: Total payments ~= 60% of principal (interest cost included), but no ITC or Depreciation, therefore total cost is 60% net !  The (60% minus ~50%) difference is the Lessor’s profit© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 61 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 62 Finance / Capital Lease Capital Lease Typical Terms !  5 year, $100-150K !  Same as bank loan !  7 year, $500K !  Fully amortizing or with balloons !  Over 8yrs will have a longer amortization period, but with a 7 year due date !  Lessee gets tax credit & depreciation "  Banks don’t lend over 7 yrs unsecured !  Interest is deductible #  Ie. w/o cash, real estate, or marketable securities !  Most commonly utilized for energy projects !  8 year, $1MM, 5-7 year due date (7 w/ balloon) !  10 year typical max, 7 year due date "  Not useful for solar projects needing to !  Limits: Longer = higher risk transfer tax benefits to Tax Equity Investor !  Easiest lease to create wrt due diligence "  Typically 2 page agreement plus boilerplate© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 63 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 64 Accounting vs. Taxes Operating Lease wrt True & Operating Lease (Accounting Perspective) !  Two perspectives when reviewing leases !  Rental contract w/ fixed terms & conditions "  Tax vs. Accounting !  Lower effective interest rate than capital lease "  Two different sets of books & calculations "  Lessor gets depreciation & tax credits !  Accounting: must meet FASB 13 rules "  Payments ~40% lower for solar than capital lease "  FASB - Financial Accounting Standards Board !  Lessee expenses monthly payments !  Tax: must meet IRS rules !  Lease considered “off balance sheet” !  Most solar leases are "  Operating Leases for accounting purposes !  This is the typical accounting treatment of an True "  True Lease / Tax Leases for tax purposes Tax / Tax Lease© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 65 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 66 18. True Lease / Tax Lease True / Operating / Tax Lease CHEC Check (Tax Perspective) Typical Terms Ask f !  Rental contract w/ fixed terms & conditions !  E.g.: $500K+, 80kW+ system (as of 5/23/09) !  Lessee expenses monthly payments !  Preferred: $3MM, 500kW+ system Get e !  Available to non-profits & gov’t entities "  5-7-10yrs on strong credit for smaller projects To se "  ~10-15yrs on very strong credit & larger projects "  Can do, but no transfer of tax benefits #  Credit requirements have gone up in 2009 "  Use Tax Exempt Lease Purchase !  End of lease: !  This is the one used for solar projects suffering "  Purchase equipment at Fair Market Value (more later) from AMT tax benefit limits "  Extend lease for add’l 12-60 months at fixed rental rate !  This is how Operating Leases are treated from Tax #  Repeat indefinitely or sell perspective "  Return equipment to Lessor in good condition© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 67 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 68 Cash Benefits of CHECK W/ Gene & Dave Clamage Operating Lease Docs Check examples for Typical cases too True & Operating Leases Ask for real examples !  More difficult, more due diligence than Capital Lease, !  Lessor offers lower monthly cost of solar Less than PPA Get examples of Common lease because of and processing costs system to end user paperwork enjoyed tax !  10-15 pages basic lease: benefits To set up a deal "  5% custom language, 95% boilerplate !  Lessor gets lower taxes "  Roof lease "  Waivers !  Lessee gets lower cost PV system (lower "  Terminal Value Schedule & Purchase payments) "  Master Lease, Equipment Schedule "  + other docs "  = total of ~15-30 pages© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 69 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 70 Loan Lease Payment Options Electrichttp://www.slideshare.net/OnGridSolar/introduction-to-solar-financing 3/11/2013
  11. 11. Introduction to Solar Financing Page 11 of 112 Bill Various Leases Loan Electric Bill ~50% are Cash Positive in 2009 w/ Lease Larger more likely to be cash positive if over 10 years© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 71 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 72 19. True & Operating Lease Term Purchase Options: FMV !  Best IRS clarity: purchase >6 years for FMV !  Typically >= 6 years to get all depreciation "  May be okay to have limited purchase options benefit and vest all of the tax credit at set anniversaries at FMV "  Should not be open ended option !  End of Lease options: !  Fair Market Value (FMV) "  Purchase at greater of Fair Market Value (FMV)* or predetermined price "  Best IRS clarity: Determined by independent appraiser at time of exercise "  Return to Lessor upon notice "  May be okay to come to agreement among "  Auto-renewal for shorter term parties at time of exercise *Critical to avoid tax violation "  Should not be bargain fixed price© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 73 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 74 Typical Lease Terms Tax Exempt Lease Purchase !  Lease can’t exceed 80% of life of asset !  Primarily for State & Local governments "  Must have a residual value "  Includes public schools & universities !  Lessor owns, but takes no operating risk "  Longer terms: 10-20 yrs by project size (>20kW) "  Hell or high water - Lessee must pay for system !  Current debt obligation for lessee regardless of performance "  Incentive on Lessee to maintain system !  Non-profits qualify for larger projects (> $1MM) !  Property tax, insurance, maintenance is "  Must have gov’t sponsor responsibility of lessee !  Special structuring - more “complicated” lease !  May require tax indemnity if tax benefits aren’t !  “Tax Exempt” means the lessor doesn’t pay Fed tax transferable to Lessor on income: Reduces interest ~ 300 basis points© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 75 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 76 Non-Profits w/o Gov’t Sponsors Lease Contract Costs !  Non-Profits not eligible for True / Operating !  Were long & complicated (50-60 pages and Leases $10Ks) "  Can’t pass tax benefits to lessor "  Now have 8-9 page standard lease agreements "  Instead - Capture via a 3rd party ownership structure: PPA !  Need a common set of terms "  Current diversity of lease names & approaches confuses & slows the sale "  Increases sales cost© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 77 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 78 20. Get Lessor, Lender or Financing Options For Solar Broker Involved Up Front !  They can help present and sell the deal - !  Leases - Ways of paying for ownership and/or include them early on use over time, having tax and/or cash flow !  Helps and increases sales person’s control benefits during term, usually with intention of purchasing or renewing at the end !  Helps get the right questions asked up front "  Speeds the sale !  PPAs - Power Purchase Agreements - Paying for just the energy if/when delivered "  Or determines early that this is a no-go "  Determine which type is best© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 79 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 80 Power Purchase Agreement - PPA !  A Type of Offering or Proposal "  Contract for the sale of energy (kWh) PPAs "  Not sale of a PV system !  A financing alternative to leasing !  Recently very popular (75%+ of large) !  Thanks: "  Keith Martin, Chadbourne & Parke, LLP "  Colin Murchie, SunEdison© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 81 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 82 3rd-Party Solar Power Purchase Agreements (PPAs) www.dsireusa.org / July 2010 Parties to the Transaction !  Agreement between "  PPA Provider / Vendor aka “Developer” Off-Taker / End User of Energy UT: limited to certain sectors "  AZ: limited to NM: effective "  Building Owner (might be End User) certain sectors 1/1/2011 At least 17 states + PR "  System Vendor / Installer / Integrator authorize or allow 3rd-party "  3rd Party Investor / Financier (might be solar PPAs Authorized by state or otherwise currently inhttp://www.slideshare.net/OnGridSolar/introduction-to-solar-financing 3/11/2013
  12. 12. Introduction to Solar Financing Page 12 of 112 use installer and/or Developer) Apparently disallowed by state or otherwise restricted by legal barriers Status unclear or unknown Puerto Rico Note: This map is intended to serve as an unofficial guide; it does not constitute legal advice. Seek qualified legal expertise before making binding financial decisions related to a 3rd-party PPA. See following slide for authority references. © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 84 21. 3rd-Party Solar Power Purchase Agreements (PPAs) www.dsireusa.org / July 2010 UT: limited to certain sectors AZ: limited to NM: effective certain sectors 1/1/2011 At least 17 states + PR authorize or allow 3rd-party solar PPAs Authorized by state or otherwise currently in use Apparently disallowed by state or otherwise restricted by legal barriers Status unclear or unknown Puerto Rico Note: This map is intended to serve as an unofficial guide; it does not constitute legal advice. Seek qualified legal expertise before making binding financial decisions related to a 3rd-party PPA. See following slide for authority references. PPA “Flow” PPA Developer PPA Investment Cash Financier / Vendor ROI & Tax Benefits / Investor Monthly Energy PV System Building Access / Payments Maintenance kWh Purchase Energy Payment Permission Building Occupant / System Owner Off-Taker / Vendor/Installer Energy User© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 10 22. PPA “Flow” PPA Developer Investment Cash PPA Financier Party Responsibilities / Vendor ROI & Tax Benefits / Investor !  Developer (might also be installer) oversees: Monthly "  Construction Energy "  Operation & maintenance of equipment Building PV System Access / Payments Maintenance kWh Purchase "  End User & Investor relationships & payments Energy Payment "  Execute the 80-100 ‘To Do’ items !  End-User Permission "  Receives energy from system Building Occupant / System Owner "  Makes predetermined payments for energy if/as it is Off-Taker / Vendor/Installer Energy User produced© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 85 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 86 Financier-Developer Relationships Sale-Leaseback !  Financier is Tax Equity Investor !  Property Sold to Tax Equity Investor & "  Has Tax appetite Leased back to Developer/Operator "  Doesn’t want to build or operate projects - "  Important that this lease is back to the same needs developer/operator party that placed the property in service !  Sale-Leaseback or Partnership-Flip "  Tax benefits stay w/ Tax Equity Investor© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 87 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 88 Partnership-Flip Sale- Leaseback Time Flexibility !  Tax Equity Investor & Developer/Operator are !  Allows “Place-In-Service” date up to 3 months partners with unequal ownerships before closing Sale-Leaseback "  For initial period, Tax Equity Investor owns 99% "  More time flexibility in getting financing (max) and receives 99% of benefit (tax and income) !  To qualify, delay In-Service as needed: until “target” return is achieved "  Construction completion #  Must be >5 years for full vesting of ITC "  Asset conveyance "  Entering second phase, ownership “flips” so that #  Sale to Tax Equity Investor Developer/Operator owns up to 95%. #  Use of asset by site user "  Developer/Operator can buy remaining share at FMV (or more, FMV decided at that future date) "  Permits signed off "  Testing and customer signoff© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 89 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 90 23. Sale-Leaseback Benefits & Drawbacks End-User/Off-Taker Benefits + 3 extra months to close financial of deal !  No up-front costs, down payment or deposit + 100% Tax Benefit Capture (vs. 99%) required !  Lower initial energy costs - No “Limited Use” property (can’t be removable) !  Potentially lower long term energy costs - 80% of useful life limit on lease term !  Future discount purchase of system - Repurchase at end of term more expensive !  Reduced PVhttp://www.slideshare.net/OnGridSolar/introduction-to-solar-financing 3/11/2013
  13. 13. Introduction to Solar Financing Page 13 of 112 cost even if no tax appetite - Tax Indemnity required - Developer/Operator can’t be a non-profit© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 91 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 92 Energy Expense Comparison Investor/Owner Benefits !  Guaranteed stream of income from energy Utility Electric Rate including estimated escalation at 5% sold 15¢ !  Tax benefits Cost 14¢ PPA Electric Rate including Per contracted escalation at 3% !  No inflation/escalation risk kWh !  Keep or sell Green Tags / RECs 2007 2017 2027 Year© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 93 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 94 User Energy and Performance Terms Capacity Payments !  Most are Energy Payments only: $/kWh !  Performance Guarantees delivered "  Annual & Project life "  Sometimes indexed to electric or gas markets "  Actual Energy / Power delivered !  Some also include a “Capacity” payment "  Efficiency & Availability of Equipment "  Fixed $/kW/month based on average “availability” of PV equipment !  Liquidated Damages for failure to perform / "  Comparable to Demand Charges provide power or energy # Depends on profile # Recover some lost hidden value© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 95 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 96 24. Performance Terms cont’d End User Risks PPA Electric Rate including !  REC / Green Tag ownership contracted escalation at 3% 15¢ "  Usually retained by system owners Cost 14¢ Per Utility Electric Rates may not rise or stay "  Potentially valuable as AB32 kicks in kWh above PPA Contract Rate !  Metering "  Costs & Billing Systems 2007 2017 2027 Year !  Rights to Excess Power !  Inverse of Electricity Escalation "  If rates don’t rise, might cost more "  Use of and Value !  Might not get Green Tags/RECs "  Additional cost if desired© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 97 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 98 2010 Average Upside Down Deals? Residential Electric Rates & Escalation (West, partial) 14¢ PPA Electric Rate including 2008 U.S. Average Retail Price per kWh is 9.74 Cents Cost contracted escalation at 3% Per 13¢ kWh Utility Electric Rates assumed to rise at 5% and eventually go above PPA Contract Rate !  Why take 10 years of guaranteed losses to maybe get 10 2007 2017 2027 Year future years of savings (consider Time Value of Money)? !  Is the hedge worth that much? "  Chances of rates not rising at 5%? Average Retail Price (Cents per Kilowatt-hour) "  U.S. Average: Rates Grew 3.8% /yr from 2001- 2010 "  Large 2009 U.S. Natural Gas discoveries may limit escalation Source: DOE Energy Information Administration.© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 99 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 100 *+,-+."/"&01" California Electric Rates asa s Residential 1970 to 2001 plus 2001 to 2010 tiers asf sf •  Deregulation in 1995 froze Tier 1 & 2 •  AB1X during 2001 Power Crisis created Tier asdf 23+4"&"5"67"&%1" Investor/Owner Risks 3-5, which have risen 5x faster than ‘average’ f 23+4"87"#01" rates needed to rise to compensate for Tier 1&2 System Performance f •  SB 695 (Kehoe) unlocks and raises Tier 1 & 2 !  rates 1% faster than ‘average’, up to 5% per year "  Maintenance over 15+ years •  Tier 3,4,5 might now drop )$%" df !  End-User default or vacancy of property ) &$%" 23+4"#7")8$61" Good credit end-users required !"#$%&"(&)*+,-./01,2 (& Residential asf 23+4")7"))$01" "  )#$%" a *95:"#%)%" )%$%" ($%" 1982 sdf "  Require host supply another site or pay term. Fee $%" Be cautions about "  Lots of “due diligence” required - high transaction &$%" future rate hikes – #$%" 2-3% max costs !" 9:;8& 9:<7& 9::=& 9::<& 3456&7889& 23+4"67"#1" 3456&7898& 23+4"67"&01" !  Incentive Receipt Certainty 23+4"&7"#&1" 23+4"&7"&)1"Source: California Public Utilities Commission, EIA, PG&E 23+4"87");1" 23+4"#7")81" 23+4"87"#;1" 23+4"#7")81" "  Must have confirmation of qualification/allocation "#$#1" <+=3.+>?,@" ";$;1" "))$1" ")) $81"" 23+4")7"))1" 23+4")7"))$61"© 2010 OnGrid Solar, All rights reserved.http://www.slideshare.net/OnGridSolar/introduction-to-solar-financing 3/11/2013
  14. 14. Introduction to Solar Financing Page 14 of 112 Intro to Solar Financing - 101 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 102 25. 2010 Average Residential Electric Rates & Escalation (West, partial) 2008 U.S. Average Retail Price per kWh is 9.74 Cents Average Retail Price (Cents per Kilowatt-hour) Source: DOE Energy Information Administration.© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 11 *+,-+."/"&01" California Electric Rates asa s Residential 1970 to 2001 plus 2001 to 2010 tiers asf sf asdf •  Deregulation in 1995 froze Tier 1 & 2 23+4"&"5"67"&%1" •  AB1X during 2001 Power Crisis created Tier 3-5, which have risen 5x faster than ‘average’ f 23+4"87"#01" rates needed to rise to compensate for Tier 1&2 f •  SB 695 (Kehoe) unlocks and raises Tier 1 & 2 rates 1% faster than ‘average’, up to 5% per year •  Tier 3,4,5 might now drop )$%" df )&$%" 23+4"#7")8$61" !"#$%&"(&)*+,-./01,2(& Residential asf )#$%" a 23+4")7")) $01" *95:"#%)%" )%$%" 1982 sdf ($%" $%" Be cautions about &$%" future rate hikes – #$%" 2-3% max !" 9:;8& 9:<7& 9::=& 9::<& 3456&7889& 3456&7898& 23+4"67"#1" 23+4"67"&01" 23+4"&7"#&1" 23+4"&7"&) 1"Source: California Public Utilities Commission, EIA, PG&E 23+4"87");1" 23+4"87"#;1" 23+4"#7")81" 23+4"#7")81" "#$#1" <+=3.+>?,@" ";$;1" "))$1" "))$81"" 23+4")7"))1" 23+4")7"))$61"© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 12 26. Investor Access to Tax Benefits PPA Contract Documents !  Tax Equity investor must have “unfettered” use of !  Total: 100-200+ pages valuable asset after deal is over !  Standard Off-taker Contract Segments: "  Will panels still be valuable in 15+ years? "  The PPA: 20-35p "  Value can’t be stated now - must be set at that time #  Sale of Power/Energy: Output vs. Requirements "  Term can’t go over 80% of “useful life” #  Metering & REC ownership !  Must not be “Limited Use” or “Personal” property "  Installation Contract: 20-50p w/ exhibits "  Must be “attached” and not easily moved - non- #  Equipment Supply & Construction penetrating systems? "  Operations & Maintenance Agreement: 10-15p !  Purchase Options: Fair Market Value (FMV) only "  Site Lease gives provider rights & protections "  Dates can be set, but not value #  O&M Access; Transfer to new site owners© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 103 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 104 PPA Contract Costs PPA Developer & !  High (long & complicated) but dropping Investor Contract Documents rapidly for “generic” & standard !  Additional agreements for Developer & Investors "  Basic Standard Agreements: $3K-20K "  LLC w/ Partnership Flip: 40p + 15p exhibits including tailoring w/ desired terms "  Purchase Agreement: 24p + 7p of “definitions” !  Moving to pre-approved deal checklists !  Covers the multi-year legal structure to allow Tax !  SolarTech.org “Standard PPA” Equity Investor to reap tax benefits as 99% initial "  $395, free to members owner, then “flips” ownership to Developer to reap !  SEIA “PPA Template” free for members long term operating benefits. !  Per-Deal (legal) costs are now low(er): !  Flips occur anywhere from Year 6 to Year 17 "  Quick review (if standard & good basic "  Rebates/PBI, Host Payments, Tax Benefits (vesting) agreements are used)© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 105 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 106 Equipment Supply & Complications - Legal & Tax Construction Agreement !  Product Supply !  Long contracts - 40-60 pages !  Installation terms, timeline, etc !  High initial transaction costs "  In-Service Date not < 3 months before closing Sale- Leaseback or not before closing Partnership Flip "  Reduced with standardization !  Warranty (5-10 yrs, useful terms to satisfy) !  Building access / maintenance costs !  Performance Guarantee or Warranty !  Repossession / aftermarket value "  Based on independent data & measurable parameters !  Termination tax issues? - terminal price? !  Can installation be subcontracted? "  Must be at FMV or greater for tax benefits© 2010 OnGridhttp://www.slideshare.net/OnGridSolar/introduction-to-solar-financing 3/11/2013
  15. 15. Introduction to Solar Financing Page 15 of 112 Solar, All rights reserved. Intro to Solar Financing - 107 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 108 27. Complications - Terms Common Mistakes !  Power Contract Form: !  Purchase Options: Fair Market Value (FMV) only "  Value can’t be stated now - must be set in future "  Selling kWh? "  No declining schedules of value/purchase price # At what price? # TOU & Demand saving / costs !  Rebates are taxable to Host? # Who takes remaining utility bill? "  Host signs over rebate, but is stuck w/ tax liability? "  Simpler but vague sales presentation !  Usually no “Tax Indemnification” (unlike leases) !  Max length <= 80% of expected life "  May leave lots on table in customer’s !  Host can’t share in upside benefit !  Host can’t be charged for electricity not received© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 109 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 110 PPA Deal Sizes Aggregation !  Tax Equity Investors looking for big deals !  Collect 5 to 50 $3-$5million+ size projects "  $25-$40 million minimum !  Master Agreements: “All Deals …” "  Keith Martin’s typical: $75-$150 million "  In by X date "  Desirable $100-$200 million "  Meet 10-12 item checklist "  ? 5 to 50MW PV systems ? !  Standard checklist reduces due diligence & !  Aggregation legal costs per deal "  Collect $3-$5million+ size projects© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 111 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 112 Tax Equity Investors & Lenders Investor Returns !  Recently Active (changes frequently): "  Union Bank of CA !  Financial Returns for Tax Equity Investors "  US Bank (U.S. Bancorp) !  Was High 6% to Low Teen % after tax "  Deutsche Bank "  Now? – 14-18% depends on project "  John Hancock !  Much less money now available, so "  Rabobank "  Morgan Stanley demanding higher returns "  Wells Fargo !  Leveraged? "  National City Bank (leaving the business?) "  Increases risk & complication !  Goldman Sachs invests in PPA companies to buy "  Too small to bother? & flip for profit© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 113 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 114 28. Cash Flows at PPA Typical Terms Various Phases MN+4,?G>" P3."5"QG>E" CD43>E" JD=H"KL+4" MN+4,?G>" 2+4O"R,L+4" !  $2.5Million+ (>350kW+) *A,=+" *4+!B,@+" FG>=H4DI?G>" FG>=H4DI? G>" BAG4H"2+4O" S3NT" !  15-20-25 yr commitment BGD4I+=" $  C+W+@GN+4" $  C+W+@GN+4" $  24+,=D4^" $  V+."Z2F"R3U" $  C+N4+I3,?G>" GU"VD>.="" XB,@+="<3=-Y" F,=A"X=-3>"3>" 94,>H" >GH"D=3>E" $  *]Z=" !  End of term: BH,4HDN" HA+"E,O+Y" $  BH,H+"5" 24+,=D4^" $  B<:F=" Z>W+=HO+>H" [#%" QGI,@"<+_,H+=" 94,>HT" "  Renew PPA $  *G`+4"B,@+=" $  ],>-" G4"94,>H=" $  BH,H+"Z2F" $  ],>- "QG,>"HG" "  Purchase of system FG>=H4DI?G>" $  Z>W+=HG4" $  PKF<B" +>."GU"P3." 2+4O"QG,>" F,N3H,@" C+N4+I3,?G>" #  At greater of FMV or pre-determined price 2+4O" $  ],>-"QG,>" R6%"_G>D=" ,II+@+4,? G>T" $  C+W+@GN+4" Pay termination & have system removed "  $  ],>- "QG,>" _D^GDH"I,=A" HG"_D^GDH",H" !  Significant due diligence on customer req’d HA+"S3N"© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 115 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 116 PPA vs. Lease Dealing with PPA Developers Electric Bill !  Greed has set in: "  Not really a “partner” with installers "  Not trying to save customers money Typical PPA "  Working each as hard as possible Typical Lease !  Shop around - help your customer find the best deal "  Good service gets you the repeats and installation work© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 117 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 118 Lease vs. PPA PPA Leasing Cash Buyer vs. Lease vs. PPA Ease for Operation, Maintenance, Return Almost No Effort Customer Inspection !  Profit / Reward - shared among the parties Operating Risk PPA Vendor End User "  Lessee: more risk, may get more ofhttp://www.slideshare.net/OnGridSolar/introduction-to-solar-financing 3/11/2013
  16. 16. Introduction to Solar Financing Page 16 of 112 profit than with Long Term May Be Higher, to May Be Lower, Except Upon PPA unless the PPA willing to take more risk than Costs Compensate for Risks Return of Equipment the bank for the same returns Costs on Removal of Equipment, Functional Termination Usually None Verification, Return Shipment "  Cash buyer: all risk, gets all profit Opportunity None None #  Uses up working capital - opportunity cost Costs !  Energy Efficiency REC Benefits Stays w/ PPA Vendor End User "  Cash buyers & Leases can enjoy add’l savings Cash Flow Cash Neutral or Often Negative Up-Front, Positive Savings Positive Whole Term Over Term "  Typically not part of PPA deals (directly) Include E. Hard to sell “negawatt-hours” More Difficult Yes #  Efficiency #  May be able to sell kWh for higher value w/ EE© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 119 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 120 29. Cash Flows at Various Phases 89%#41.& <-=&>&?1./& +,-./& 5,$2&67% & 89%#41.& :%;&@#7%& !"#$%& !%()#*%& 01.$2,341.& 01.$2,341.& )"12&:%;& A-9B& )1,3%$& !  +%E%*19%& !  +%E%*19% & !  :%#$,P& !  D%=&J:0&@-C& !  +%9%3-#41.& 1C&D,.=$&& F)#*% $&G-$HI& 0#$"&F$H-.&-.& Q#.2& .12&,$-./& !  !OJ$& )2#2,9& 2"%&/#;% I& !  )2#2%&>& :%#$,P& !  )GT0$& J.E%$2;%.2& KLMN& ?13#*&G% R#2%$& Q#.2B& !  !1U%&)#*%$& !  O#.H& 1&Q#.2$& !  )2#2%&J:0& !  O#.H&?1#.&21& 01.$2,341.& !  J.E%$21& !  <60G)& :%;&?1#.& %.=&1C&<-=& 0#9-2#*& +%9%3-#41.& :%;& !  O#.H&?1#.& @SMN&R1.,$& #33%*%#41.B& !  +%E%*19%& R,P1,2&3#$"& !  O#.H&? 1#.& 21&R,P1,2&#2& 2"%&A-9&© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 13 Lease vs. PPA PPA Leasing Ease for Operation, Maintenance, Return Almost No Effort Customer Inspection Operating PPA Vendor End User Risk Long Term May Be Higher, to May Be Lower, Except Upon Costs Compensate for Risks Return of Equipment Costs on Removal of Equipment, Functional Usually None Termination Verification, Return Shipment Opportunity None None Costs REC Benefits Stays w/ PPA Vendor End User Cash Flow Cash Neutral or Often Negative Up-Front, Positive Savings Positive Whole Term Over Term Include E. More Difficult Yes Efficiency© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 14 30. Which Product Is Right? PPA Vendors / Providers Not tax restricted, Cash, Loan, Offer PPAs to 3rd Parties (may be looking for deals): wants to own system Finance Lease "  Sun Run Generation: Residential pseudo PPA (large initial fee) Tax restricted, deal Tax/Operating "  Renewable Ventures: 250kW+ under ~$3,000,000 Leas e "  Tioga Energy Tax restricted, deal Tax/Operating "  Recurrent Energy (now owed by Sharp) over ~$3,000,000 Lease, PPA "  Sun Edison: 250kW+ #  Vertically integrated on many sales, installation & ownership Tax-Exempt Lease Many others available & more coming Government entity "  Purchase, PPA Non-profit PPA Uses PPAs on their own projects only: "  SunPower (former Powerlight): 250kW+ Deal w/ Energy Usually Not PPA Efficiency Component© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 121 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 122 PPA and/or Lease Agents PPA/Lease Legal Services Gene Beck Baker Davenport Keith Martin Stoel Rives LLP Davenport Finance Company EnviroTech Financial, Inc Chadbourne & Parke, LLP stoel_rives@stoel.com bdavenport@davenportfinance.com gbeck@etfinancial.com (202) 974-5674 (800) 88-STOEL 804-323-6061 714- 532-2731 kmartin@chadbourne.com www.etfinancial.com Wrote SEIA Fed Tax Manual. Charles Gerni Please call only to hire, not just National Lease Financial Services questions David J. Clamage 858-546-4888 Saulsbury Hill Financial Edwin F. Feo Jigar Shah davidc@saulhill.com Milbank jigarshahdc@gmail.com 303-629-8777 x102 Scott F. Young 213-892-4417, EFeo@milbank.com (202) 250 3651 Sentry Financial Teaches at Solar Powerhttp://www.slideshare.net/OnGridSolar/introduction-to-solar-financing 3/11/2013
  17. 17. Introduction to Solar Financing Page 17 of 112 Founded SunEdison. Now consults (801) 303-1111 International and other on “more unconventional” PPA/ syoung@sentryfinancial.com conferences finance deals© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 123 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 124 Agenda !  Overview of Basic Financing Principals !  Residential Conventional Financing with Residential 3rd Party Unsecured Loans & Home Equity Financing with !  PACE & State/Utility Loan Programs !  Lease Basics & Commercial Leases PPAs & Leases !  PPA Basics & Commercial PPAs !  Residential Leases & PPAs© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 125 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 126 31. Sun Run Generation SolarCity “SolarLease” Residential Pseudo PPA Residential Pseudo Lease !  Residential Pseudo PPA !  Residential Pseudo Lease "  Deposit or “installation fee” reduces per kWh price "  $0-$2.25/Watt down "  Per kWh savings w/ performance guarantee "  $0 to escalating monthly payment w/ perf. guarantee !  20 yr term & unknowable? buyout charge at end !  Otherwise could be ~ same as SunRun: !  Very small deal size needs low “due diligence cost” "  15 yr term & unknowable buyout charge at end "  FICO score / credit check & large deposit "  Very small deal size needs low “due diligence cost” #  No risk if Deposit >25% of gross cost #  FICO score / credit check "  Risk spread over many customers #  Risks spread over many customers "  Much higher relative savings on Residential Tiered #  Much higher relative savings on Residential Tiered TOU rates compared to commercial rates/PPAs TOU rates compared to commercial rates/leases "  Issues: Rate escalators & ITC Basis !  Issues: Rate escalators & ITC Basis© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 127 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 128 Unknowable Buyout Charges Tools To Analyze Deals !  IRS rules around Fair Market Value discussed earlier prevent stating the buyout !  CEI - Competitive Energy Insight value – what could it be? "  Complements OnGrid !  No obligation to purchase "  More detailed, sophisticated, expensive !  Minimum - $0 "  Helps you (or your finance partner) take !  Maximum – less than the future new system the deal to the next step after-incentives net cost !  OnGrid !  If provider sets it too high, customers will walk away, must be low enough to attract© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 129 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 130 The Economics of Stakeholders are Linked CEI’s EconExpert Software Suite Bank / !  Universal Financial Pro Forma Lessor Gas "  For PV, Wind, CSP, Fuel Cells, CHP & other Construction Loans Project Supplier !  Economics and Tax Benefit Monetization Finance !  Early Screening to Financial Closing Suppliers Project Tariffs !  From the Viewpoint of Every Stakeholder Competing Developer/ Electric Equipment O&M Suppliers Owner/ Utility Operator !  Before and After-Tax Discount Cash Flow Tax Accelerated !  Book and Cash / Levered and Unlevered Credits Depreciation * CEI is not a licensed legal, brokerage or accounting firm. You are recommend to also consult licensed advisors Tax Monetization© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 131 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 132 32. Competitive Energy The OnGrid Tool Insight, Inc. !  Sales Tool !  Specializing in: TM "  Quickly Identify & Screen Leads "  Energy Project Ownership and Asset "  Organizes Client Info Management "  Financing !  Design Tool "  Business and Contract Development "  Size Systems Optimally Steve Provol, President !  Proves the Payback www.CEInsight.com !  Automatically Creates Quotes & Proposals (858) 566 0221 !  Prepares Documents & Paperwork SProvol@CEInsight.com© 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 133 © 2010 OnGrid Solar, All rights reserved. Intro to Solar Financing - 134 OnGrid Calculates Rates & Incentives Cost & Performance !  Commercial, Residential, Agricultural !  West: CA, AZ,http://www.slideshare.net/OnGridSolar/introduction-to-solar-financing 3/11/2013

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