Stellar	
  Energy	
  GP,	
  Inc.	
  
                                                          1500	
  Valley	
  House	
  ...
Agenda	
  

•    Introduc*on	
  
•    A	
  brief	
  history	
  of	
  Renewable	
  Energy	
  (RE)	
  Finance	
  
•    Finan...
About	
  Stellar	
  Energy	
  
General	
  IntroducQon	
  
•  Founded	
  in	
  2004	
                                     •...
IntroducQon	
  
What	
  can	
  solar	
  energy	
  do	
  for	
  organizaQons?	
  


•  Save	
  money	
  
      o  Solar	
  ...
Brief	
  History	
  of	
  RE	
  Finance	
  	
  
 Timeline	
  
•  2000	
  –	
  Solar	
  incen*ves	
  become	
  prolific	
  i...
Brief	
  History	
  of	
  RE	
  Finance	
  	
  
Global	
  Asset	
  Financing	
  for	
  New	
  Clean	
  Energy	
  Assets	
 ...
Brief	
  History	
  of	
  RE	
  Finance	
  	
  
2007	
  to	
  Present	
  
Financial	
  Structures	
  Available	
  for	
  Solar	
  
Primary	
  Types	
  of	
  Financial	
  Structures	
  

  •  Capit...
Financial	
  Structures	
  Available	
  for	
  Solar	
  
End	
  User	
  Comparison	
  of	
  Financial	
  Structures	
  

C...
Customer	
  QualificaQon	
  
ConsideraQons	
  for	
  All	
  Medium	
  to	
  Large	
  Scale	
  Solar	
  Projects            ...
Focus	
  on	
  PPAs	
  
Value	
  ProposiQon	
  for	
  the	
  Solar	
  PPA      	
  
 •  Providers’	
  primary	
  goal	
  i...
Focus	
  on	
  PPAs	
  
Standard	
  PPA	
  Terms	
  
    Solar	
  PPA	
  provider	
  typically	
  proposes	
  20	
  year	...
Focus	
  on	
  PPAs	
  
Solar	
  Renewable	
  Energy	
  CerQficates	
  (SRECs)                   	
  
     Also	
  known	
...
Focus	
  on	
  PPAs	
  
  OperaQons	
  &	
  Maintenance	
  /	
  System	
  Performance	
  Monitoring                       ...
Anatomy	
  of	
  the	
  PPA	
  
  View	
  from	
  PPA	
  Provider	
                                     Parent	
  Company	...
Anatomy	
  of	
  the	
  PPA	
  
View	
  from	
  Host	
  Customer	
  




                       Solar	
  PPA	
  contract	
...
Focus	
  on	
  PPAs	
  
Value	
  of	
  Solar	
  kWh	
  vs.	
  Average	
  Cost	
  of	
  Energy  	
  
 •  This	
  is	
  a	
 ...
Focus	
  on	
  PPAs	
  
The	
  Value	
  of	
  Solar	
  kWh	
  or	
  JusQficaQon	
  of	
  PPA	
  Rate   	
  

              ...
From	
  LBNL	
  report,	
  “ The	
  Impact	
  of	
  Retail	
  Rate	
  Structures	
  on	
  the	
  Economics	
  of	
  Commer...
Focus	
  on	
  PPAs	
  
JusQficaQon	
  of	
  Annual	
  Escalator                                          	
  
            ...
Focus	
  on	
  PPAs	
  
JusQficaQon	
  of	
  Annual	
  Escalator   	
  
Focus	
  on	
  PPAs	
  
JusQficaQon	
  of	
  Annual	
  Escalator   	
  




                                               ...
Focus	
  on	
  PPAs	
  
     Hedging	
  Against	
  VolaQlity	
  

                                                        ...
Focus	
  on	
  PPAs	
  
Financial	
  Analysis	
  –	
  25	
  year	
  term,	
  fixed	
  annual	
  escalator   	
  
Focus	
  on	
  PPAs	
  
Financial	
  Analysis	
  –	
  25	
  year	
  term,	
  7th	
  year	
  “step”	
  escalator   	
  
Per	
  Unit	
  Energy	
  Cost	
  Comparison	
  
25	
  Years,	
  No	
  Solar	
  vs.	
  With	
  Solar	
  
QuesQons?	
  
Thank	
  you.	
  
     Stellar	
  Energy	
  has	
  delivered	
  safe,	
  reliable,	
  clean	
  energy	
  to	
  a	
  divers...
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PPA Overview_5.10.2010

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PPA Overview_5.10.2010

  1. 1. Stellar  Energy  GP,  Inc.   1500  Valley  House  Drive,  Suite  210   Rohnert  Park,  CA    94928   Overview  of  Solar  Power  Purchase  Agreements  (PPAs)   Presented  by  MaO  Lugar,  Vice  President  of  Sales,  Stellar  Energy   for  the  Center  for  Sustainable  Energy   May  10,  2010   1
  2. 2. Agenda   •  Introduc*on   •  A  brief  history  of  Renewable  Energy  (RE)  Finance   •  Financial  structures  available  for  solar  projects   •  Focus  on  Power  Purchase  Agreements  (PPAs)   –  Opportunity  /  Host  Qualifica*on   –  PPA    General  Terms  and  “Anatomy”  of  the  PPA   –  The  “Value  of  Solar  Energy”   –  Solar  PPAs  versus  “The  Grid”   –  Financial  Analysis   2
  3. 3. About  Stellar  Energy   General  IntroducQon   •  Founded  in  2004   •  Top  15  EPC  provider  in  2008  and   2009  on  California  Solar  Ini*a*ve   •  Headquartered  in  Rohnert  Park,   (CSI)  list   California   •  Acquired  by  ITOCHU  Interna*onal  in   •  EPC  contractor  (Engineering,   2009,  a  Global  500  company  with   over  $36  billion  in  revenues   Procurement,  Construc*on),   licensed  in  mul*ple  states   •  Specializing  in  commercial  and   u*lity  grade  solar  energy  plants   •  Clients  include  municipal,   agriculture,  manufacturing,  mining   and  commercial  opera*ons   •  In  2008,  completed  the  largest  solar   installa*on  on  a  winery  in  the  U.S.   for  Foster’s  Wine  Estates  Americas   3
  4. 4. IntroducQon   What  can  solar  energy  do  for  organizaQons?   •  Save  money   o  Solar  energy  offsets  more  expensive  u*lity  rates  during  peak  hours  of   the  day…  net  metering  credits   •  Hedge  energy  costs   o  The  “fuel”  from  sunlight  is  free  unlike  tradi*onal  fuels  such  as  coal,   natural  gas  and  nuclear…  opera*ng  costs  do  not  fluctuate  over  *me   •  Predictable  opera*ng  costs   o  You  know  what  you  are  paying  for  your  solar  energy  kWh  from  day  one   through  the  life  of  the  system…  easier  for  budget  planning   •  Improve  corporate  “green”  or  sustainable  image   o  The  “green  revolu*on”  is  real   o  Huge  marke*ng  dollars  are  being  spent  by  organiza*ons  going  “green”   o  Solar  allows  you  to  be  “green”  and  save  “green”  at  the  same  *me   4
  5. 5. Brief  History  of  RE  Finance     Timeline   •  2000  –  Solar  incen*ves  become  prolific  in  CA  and  some  other  states  soon  to   follow   •  2000  to  2003  –  Solar  projects  s*ll  rela*vely  small  but  growing…  banks   become  more  interested  as  project  size  increases  with  aggressive  developers   •  2004  –  Launch  of  the  early  “giants”  of  solar  PPAs  who  pioneered  the  model   with  both  customers  and  the  banks  behind  the  transac*ons   •  2007  –  Wave  of  venture  backed  solar  financing  start-­‐ups  hits  the  US   •  2007  to  2008  –  Hyper-­‐compe**on  is  rampant…  many  un-­‐bankable  deals   •  2009  –  Global  financial  crisis  sends  large  commercial  solar  project  financing   into  a  tailspin…  weathering  the  storm  is  difficult   •  2010  –  Financial  markets  are  sojening  again,  and  PPAs  and  leases  return  to   the  forefront  of  commercial  solar  PV  systems   •  Beyond  2010  –  Projects  will  con*nue  to  get  larger…  wholesale  PPAs  (provider   direct  to  u*lity)  will  become  more  common…  more  strict  credit  constraints   for  DG  hosts     5
  6. 6. Brief  History  of  RE  Finance     Global  Asset  Financing  for  New  Clean  Energy  Assets  ($B)  
  7. 7. Brief  History  of  RE  Finance     2007  to  Present  
  8. 8. Financial  Structures  Available  for  Solar   Primary  Types  of  Financial  Structures   •  Capital  Purchase  (Cash)   o  Use  your  corporate  liquid  capital  or  loans  (on  balance  sheet)  to  install  solar   o  You  own  and  operate/maintain  (O&M)  the  power  plant   o  Financial  analysis  centered  around  IRR  and  ROI  calcula*ons   •  Power  Purchase  Agreement  (PPA)   o  Third  party  owns  and  operates/maintains  (O&M)  the  solar  power  plant  –  zero   capital  outlay  for  your  organiza*on   o  You  buy  only  kilowao-­‐hours  (kWh),  similar  to  how  you  buy  energy  from  your   electric  u*lity   o  Financial  analysis  is  centered  around  cash  flows  and  determina*on  of   immediate  savings  poten*al   •  Lease  (Opera*ng  Leases  or  “Off  Balance  Sheet”)   o  Third  party  owns  the  power  plant,  but  you  are  typically  responsible  for  O&M   –  zero  capital  outlay,  typically  off  balance  sheet  opera*ng  leases   o  Typically  you  pay  a  fixed  monthly  fee  (not  *ed  to  kWh  produc*on)  for  term  of   contract  (~10  years)   o  Financial  analysis  is  centered  around  cash  flows  and  determina*on  of   immediate  savings  poten*al   8
  9. 9. Financial  Structures  Available  for  Solar   End  User  Comparison  of  Financial  Structures   CharacterisQcs   Capital  Purchase  (Cash)   PPA   Lease     Upfront  Capital  Requirement   Yes   No   No   System  Performance  Risk     Yes  –  The  owner  is  responsible  if  the   No  –  PPA  provider  has  ongoing   Yes  –  The  lessee  /  host  is   system  does  not  perform   responsibility  to  ensure  the  system   responsible  if  the  system  does  not   con*nues  to  operate  as  required     perform   Ongoing  Payments   Fixed  monthly  fee  if  financed  through  a   Ongoing  payments  *ed  to  electricity   Fixed  monthly  fee  -­‐    the  lessee   loan   produced  by  the  facility   bears  the  increased  cost  of   electricity  in  a  poor  solar  month   OpQmize  Tax  Benefits   No  –  Owner  may  not  get  full  benefit  if   Yes   Yes   unable  to  reduce  taxable  income  or  if   government  or  not-­‐for  profit     Ongoing  Cost   Opera*ons,  maintenance  and  insurance   No   Opera*ons,  maintenance  and   costs   insurance  costs   Guarantees/Liens  Required   Probably  if  financed   No  (assuming  host  has  sufficient   Probably   credit  ra*ng)   Length  of  Contract   N/A   20  –  25  years   7  –  10  years   Buyout  price  at  the  end  of  contract   N/A   Fair  Market  Value   Fair  Market  Value     Early  Buyout     N/A   Yes  –  ajer  year  7   Yes  –  ajer  year  7   OpQon  to  renew     N/A   Yes   No   9
  10. 10. Customer  QualificaQon   ConsideraQons  for  All  Medium  to  Large  Scale  Solar  Projects   Includes,  but  not  limited  to:   •  Geographic  loca*on…  financial  incen*ves  cri*cal   •  Poten*al  customer  must  have  enough  physical  space  (roof/ ground/other)  to  accommodate  enough  PV  for  their   historical  electrical  load   www.dsireusa.org   •  If  Capital  Purchase,  does  the  poten*al  customer  have   enough  tax  appe*te  to  mone*ze  the  ITC  (if  installa*on   begins  ajer  2010)?   PPAs  (and  most  leases)   •  Must  have  3  years  of  audited  financial  statements  available   for  review…  non-­‐starter  if  statements  are  not  audited   •  Should  have  about  4  to  5  *mes  the  EPC  value  of  the  solar   project  in  their  Current  Assets,  less  inventories,  on  their   audited  financial  statements  (not  in  Total  Assets)   •  Should  have  Current  Assets  greater  than  Total  Liabili*es   (eg.  a  “strong”  Current  Ra*o  greater  than  1).    The  higher   the  Current  Ra*o,  the  beoer.   •  S&P  ra*ng  of  BBB-­‐  or  beoer,  if  available   10
  11. 11. Focus  on  PPAs   Value  ProposiQon  for  the  Solar  PPA   •  Providers’  primary  goal  is  to  deliver  solar  electricity  at   rates  lower  than  the  incumbent  u*lity   •  Solar  PPA  provider  and  EPC  contractor,  together,  handle   all  details  for  the  host  customer   –  Design  and  engineering   –  Construc*on  and  maintenance   –  Financing  and  RECs   –  Rebates  and  incen*ves   –  Energy  metering  and  billing   •  Predictable  electricity  rates  guaranteed  for  life  of   contract   •  LEED  points,  if  applicable   11
  12. 12. Focus  on  PPAs   Standard  PPA  Terms     Solar  PPA  provider  typically  proposes  20  year  PPA  terms…  15  or  25   years  some*mes  possible,  depending  on  source  of  funds     Early  purchase  or  buyout  op*ons  typically  star*ng  at  7th  anniversary  of   commercial  opera*on  of  facility     Banks/investors  need  about  6  years  to  mone*ze  all  incen*ves     Greater  of  Fair  market  Value  (FMV)  or  terminal  value     Fixed  Annual  Escalator  (eg.  4.5%  per  year)   or  7th  Year  “Step”     End-­‐of-­‐term  Op*ons     Renew  the  agreement  for  a  second  term     Purchase  the  system  outright  from  PPA  provider  at  the  Fair  Market  Value  price     Have  the  system  removed  at  PPA  provider’s  expense   12
  13. 13. Focus  on  PPAs   Solar  Renewable  Energy  CerQficates  (SRECs)     Also  known  as  Green  tags,  Renewable  Energy  Credits,  Renewable   Electricity  Cer*ficates,  or  Tradable  Renewable  Cer*ficates  (TRCs)     Tradable,  non-­‐tangible  energy  commodi*es  in  the  United  States  that   represent  proof  that  1  megawao-­‐hour  (MWh)  of  electricity  was   generated  from  an  eligible  renewable  energy  resource  (renewable   electricity)     Can  be  sold,  traded  or  bartered     Owner  of  the  SRECs  can  claim  to  have  purchased  green,  renewable   energy     In  considera*on  of  PPAs,  ownership  of  the  SREC  represents  about   $0.01/kWh  (+/-­‐  $0.005/kWh)  on  the  PPA  start  rate  in  CA     SRECs  in  CA  are  much  lower  value  than  in  NJ,  for  example  (eg.  $15  to   $50/SREC  in  CA  vs.  $693+/SREC  in  NJ)   13
  14. 14. Focus  on  PPAs   OperaQons  &  Maintenance  /  System  Performance  Monitoring   •  PPA  provider  responsible  for  all  O&M  for  en*re  term  of  contract   •  If  system  not  opera*ng,  PPA  provider  will  lose  revenue  expected…  huge   mo*va*on  to  keep  system  opera*ng  at  peak  performance   •  Typical  O&M  services:   •  Panel  cleanings  (with  or  without  water)…  2x  per  year  in  most  parts  of  CA   •  Torque  sewngs  in  inverter  and  combiner  boxes   •  Security     •  PPA  providers  use  same  performance  monitoring  equipment  as  specified   when  customer  purchasing  with  cash  /  capital,  such  as:   •  Energy  Recommerce   •  Fat  Spaniel   •  Draker  Labs   14
  15. 15. Anatomy  of  the  PPA   View  from  PPA  Provider   Parent  Company   Guarantee     Construc*on   Master  Lease   Financing  Agreement   Agreement   Construc*on   Project  Sale   Insurance Loans   Lease  Backs   Equip. PPA  Provider   Vendors Integrated   Design Engineer Sub Contractors Turnkey  EPC   O  &  M  Contracts   PPAs,  Com.  Op.   Construc*on  Contracts   PPAs,  Ini*al  Phase   15
  16. 16. Anatomy  of  the  PPA   View  from  Host  Customer   Solar  PPA  contract     16
  17. 17. Focus  on  PPAs   Value  of  Solar  kWh  vs.  Average  Cost  of  Energy   •  This  is  a  founda*onal  concept  to  understand   •  Average  Cost  of  Energy  =      Total  Dollars  Spent  /  Total  kWh  Consumed   •  Value  of  Solar  kWh  (a.k.a.  avoided  cost)  =      Factor  of  Time  of  Use  (TOU)  rates  versus  Solar  Array  kWh   Produc*on  and  Net  Metering…  Savings  /  Solar  kWh  Produc*on   •  Under  net  metering,  the  u*lity  credits  the  host  customer  for  energy   generated  by  solar  arrays  at  retail  rates   •  Because  peak  TOU  rates  are  always  highest  during  the  day,  and   solar  energy  is  produced  during  this  most  expensive  *me  during  the   day,  the  host  realizes  CREDITS  from  the  u*lity  at  their  highest  rates   thus  driving  the  Value  of  Solar  kWh  higher  than  the  Average  Cost  of   Energy  
  18. 18. Focus  on  PPAs   The  Value  of  Solar  kWh  or  JusQficaQon  of  PPA  Rate   Typical Commercial Load Profile Solar Array Production Profile 18
  19. 19. From  LBNL  report,  “ The  Impact  of  Retail  Rate  Structures  on  the  Economics  of  Commercial  Photovoltaic  Systems  in  California”,  July  2007  
  20. 20. Focus  on  PPAs   JusQficaQon  of  Annual  Escalator   Average Electricity Price in Key Solar PPA States (CA, NJ, AZ, PA, CO, NV, MA, CT) $0.14 $0.12 $0.10 $0.08 $/kWh $0.06 $0.04 $0.02 $0.00 1970 1975 1980 1985 1990 1995 2000 2005 Year U.S.  Government  Energy  Informa*on  Administra*on,  official  energy  sta*s*cs.  State  energy  consump*on,  price  and  expenditure  es*mates   (SEDS).  Complete  2005  data,  released  February  29,  2008.  hop://www.eia.doe.gov/emeu/states/_seds.html   20
  21. 21. Focus  on  PPAs   JusQficaQon  of  Annual  Escalator  
  22. 22. Focus  on  PPAs   JusQficaQon  of  Annual  Escalator   22
  23. 23. Focus  on  PPAs   Hedging  Against  VolaQlity   Average Price Change Electricity in Key Solar PPA States 50% 45% 40% 35% 30% 25% Percent Change 20% 15% 10% 5% 0% -5% -10% 1970 1975 1980 1985 1990 1995 2000 2005 Year U.S.  Government  Energy  Informa*on  Administra*on,  official  energy  sta*s*cs.  State  energy  consump*on,  price  and  expenditure   es*mates  (SEDS).  Complete  2005  data,  released  February  29,  2008.  hop://www.eia.doe.gov/emeu/states/_seds.html   23
  24. 24. Focus  on  PPAs   Financial  Analysis  –  25  year  term,  fixed  annual  escalator  
  25. 25. Focus  on  PPAs   Financial  Analysis  –  25  year  term,  7th  year  “step”  escalator  
  26. 26. Per  Unit  Energy  Cost  Comparison   25  Years,  No  Solar  vs.  With  Solar  
  27. 27. QuesQons?  
  28. 28. Thank  you.   Stellar  Energy  has  delivered  safe,  reliable,  clean  energy  to  a  diverse  range  of   businesses  and  ins9tu9ons  including  industrial  complexes,  government  facili9es,   mines,  distribu9on  warehouses,  wineries,  offices,  and  food  processing  facili9es.   MaO  Lugar,  Vice  President  of  Sales   Stellar  Energy  GP,  Inc.   1500  Valley  House  Drive   Suite  210   Rohnert  Park,  California  94928   mao.lugar@stellarenegy.com,  email   (707)  992-­‐3208,  direct  work   (650)  833-­‐9008,  mobile    

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