2013 recc current generation - 1st place 130128

Ross Renewable Energy Case Competition
First round presentation

CurrentGeneration
Hanson Boyd
Duncan Cooper
Travis Distaso
Jaime Martinez
Bryson Saez

Executive summary

Solar Regulation Business
Background
market scenarios plan

ERCOT will enact Capacity market
Commercial solar
new regulation to with DR/DG
is most attractive
drive capacity mandate is most
market segment
growth desirable outcome

Strategy: Large commercial solar with long-term PPA

2

Background

ERCOT background and solar opportunity

3

ERCOT generation shortfall Background

8.3 GW of new generation is needed in the next 10 years to meet reserve margins

ERCOT capacity forecasts • Current ERCOT policies are insufficient to
drive capacity growth
90
• ERCOT will enact new policies in the near
future to drive capacity growth
85

Reserve Shortfall
8.3 GW
80
GW

Reserves
75

Load
Changing ERCOT regulation to meet
70 reserve shortfall creates an opportunity
for SunEdison
65
2013 2015 2017 2019 2021

4

Calculating annual solar revenue Background

Combining production and pricing data yields expected revenue

Real-time solar output Annual value of solar generation
1.2 $180

Thousands
$156
0.8
$150
MWh

0.4 $124
$120
-
1 4 7 10 13 16 19 22 $87 $86
$90
$75
$66 $67 $68
Hourly electricity pricing
$60
$3.0
Thousands

$30
$2.0

$0
$1.0
Houston North South West

$0.0 Fixed Tracking

5

Background

Market sizing and accessibility

6

Two models for solar interconnection Background

Solar panels can operate on either the customer or the utility side of the meter

Distributed model Utility model
(Residential and Commercial)

Wholesale market

Retail market

• Customer avoids paying retail • Solar competes with other generation
rates, capturing high value from the technologies on the wholesale market
system

7

Solar LCOE calculations Background

Calculated solar LCOEs are 250%-400% higher than average market prices

• Solar LCOEs vary based on regional Solar LCOEs
insolation and observed market prices
$400
• Competitiveness should be assessed
compared to prices for conventional grid
energy $300

$200
300% gap
250% gap
$100
400% gap

$0
Utility Commercial Residential
Solar is closest to being competitive in Electricity price
the commercial market
LCOE

8

SunEdison’s best opportunity: Background

Large-scale commercial users consume $200 MM in electricity per year

Opportunity 100% 2%
• The total addressable market for
commercial-scale solar is $387 MM
75% 52%
• Larger projects will allow SunEdison to
operate at scale, increasing
profitability 50%

Challenges
25%
• Wide geographic distribution of
customers
• Need to develop in-state resources 0%
and personnell # of Businesses % of Energy
Consumption

Small Medium Large

9

Background

New ERCOT regulation scenario analysis

10

Support for demand response Background

Negative impact on utility solar

Reduced wholesale electricity prices
Peak shaving from demand response
• Addition of virtual peaking plants to the grid

MW
• Peak shaving reduces price at peaks times Demand
response
• Reduces revenue for all IPP including utility solar

Small effect on short-term retail electricity prices
Predicted Load
• Wholesale electric price reductions decrease costs
for LSE and REP
Time
• Additional expense to demand response providers
• Savings in wholesale electricity may not be passed
down to ratepayers

Effect on SunEdison:
Residential: Minimal
Commercial: Minimal
Utility: Negative

11

Increased SWOC to $9000/MWh Background

Positive benefit for utility solar

Total hours at Increase in % available to Maximum
SWOC in 2011 SWOC price solar (summer) potential value

$87,210
28.5 hours $4,500 68%
per MW/yr

Short-term
• Increased revenue for utility solar (max ~$10/MWh)

Long-term
• Incentives new generation in the long-term Effect on SunEdison:
• No relative advantage for new solar investment Residential: Minimal
Commercial: Minimal
Utility: Positive

12

New forward capacity market Background

Positive impact on utility solar

Capacity market gives additional revenue stream to help finance solar projects
• 3 year forward period gives general advantage to solar whose price has historically fallen
faster than other generation

Solar will not be able to bid all of its nameplate capacity in auctions
• New England ISO rules: intermittent power resources will bid at the median power produced
during defined “reliability hours”
• Residential and commercial will not feasibly be able to bid at all

Commercial: Minimal
Utility: Positive

13

13.75% reserve mandate Background

Minimal impact on all solar segments

• Load Serving Entities (LSE) will invest in new generation to increase reserve ratio
• LSE will construct lowest LCOE projects that fulfill this requirement
• Utility, Commercial, and Residential solar do not have the lowest LCOE

LCOE by generation technology
$600

$500

$400
($ per MWh)

$300

$200
$100
$0
Commercial: Minimal
Coal Nuclear Wind Solar Gas
Utility: Minimal

14

Customer sited-resource mandate Background

10% reserve margin DR/DG mandate benefits residential and commercial

Mandate to Load Serving Entities for 10% of their reserve margin to come from distributed
generation and demand response
• Residential and commercial solar will compete with demand response
• 1,100 MW needed of total customer-sited resources
• In some cases solar could be the only option to fulfill mandate

1,100 MW Mandated DG and DR
11,000 MW Reserve margin
86,000 MW Total capacity

Residential: Positive
Commercial: Positive
Utility: Minimal

15

Water tax or fee Background

New water tax is mildly beneficial for all solar segments

Water is consumed for traditional power but not solar
• Condensers in Rankine cycle (Coal, nuclear, gas)
• Water injection for gas turbines (Gas)
• Hydraulic fracturing (Gas)
• 108 million gallons consumed in tradition power generation

All solar segments receive slight benefit depending on tax
• Increased operating costs raises electricity prices
• Solar become more attractive relative to traditional power

Residential: Positive
Commercial: Positive
Utility: Positive

16

Net metering Background

Lack of net metering reduces optimal system size by 60-75%

Residential load profile
6%
5%
ERCOT lacks universal net metering laws 4%
3%
2%
Load
Net metering allows projects to reach scale 1%
25%
Solar
• Solar installations can be sized for total 0%

energy usage rather than power usage 1 3 5 7 9 11 13 15 17 19 21 23

• Energy generated in excess of consumption is Hour

kept as a credit
Commercial load profile
Without net metering: 6%
5%
• Commercial load profile better matches solar 4%
generation 3%
2% 32% Load
1% Solar
0%
1 3 5 7 9 11 13 15 17 19 21 23

Hour

17

Policy analysis summary Background

Weeding out policy recommendations

Potential policy initiatives

Benefits other generation
more than solar
• Reserve mandate

Beneficial to all production
• Raising SWOC

Marginal impact
• DR support
• Water tax

• Net metering Of the wide variety of possible
• Capacity markets policy changes in ERCOT,
• 10% customer sided assets few make solar more attractive

18

Regulation scenario ranking Background

Most beneficial regulations scenarios for SunEdison

• Forward market bidding gives the opportunity to secure PPA
Forward market with
Rank
reserve mandate • Beneficial for IPP investment in new solar installations
1
(10% from DR and DG)
• DR and DG mandate creates market opportunity for residential solar

• Forward market bidding gives the opportunity to secure PPA
Forward market with
Rank • Beneficial for IPP investment in new solar utility installations
reserve mandate and
2
water tax
• Water tax raises electricity prices making solar more attractive

Rank Energy market with
3 water tax • Water tax raises electricity prices making solar more attractive

19

Background

SunEdison business plan and go to market strategy

20

Business model Background

Commercial approach is the most attractive

Capacity
Long-Term PPA $ $ payment

Solar system Addition to
installation reserve margin

Lease
payments
Considerations plus tax and
depreciation
• Geography Lease Solar
benefits
system
• Ownership structure
$
• Risk mitigation
• Economics
Purchase $
• Target market / scale
Diversified IPP
Solar System

21

Go to market strategy Background

Targeting large scale commercial users

Considerations Recommendation

Most compatible with ERCOT regulation changes Install >100 kW PV systems
on large commercial
rooftops with a long-term
LCOE is most attractive
PPA
Secure financing using a
Solar systems benefit from economies of scale
diversified IPP with stable
PPAs (and possibly capacity
Easiest to target with fewer sales force payment revenues)

22

SWOT analysis Background

As market leader in Texas, SunEdison can exploit positive regulatory changes

STRENGTHS WEAKNESSES
• Solar market leader • Small
in Texas
• Mostly utility
• Experienced sales experience
Internal staff
• Financially
• Go-to-market undiversified
previous experience
SunEdison’s
Industry
Outlook
OPPORTUNITIES THREATS
• Potential favorable • Strong competition in
changes in regulation solar installation
• ERCOT partnerships • Low electricity prices
External
• Precedent from other • Minimal regulatory
solar success incentives
• Low margins

23

Market runway Background

SunEdison has a very large potential market to expand into

Total commercial electric market

Total capacity required with
86,000 MW 13.75% reserve

Size of the reserve margin
11,000 MW

1,100 MW 10% of the reserve margin

880 MW Value at current 80% share

Max SunEdison market = 880 MW

24

Marketing strategy Background

Finding our target market

Product: Large scale commercial
solar

Promotion:
Cold Price:
calls, referrals, co Target Competitive PPA
nferences, industr Customer pricing, $3.23 per
y-specific watt installed
magazines

Place: All of Texas, especially
targeting West Texas and
congested nodes

25

Market opportunity for SunEdison Background

SunEdison can generate $500 MM in sales over the next 5 years

Implementation $250 $240 600
• Repurpose sales staff from
other states $200 500
$200
• Gradually create dedicated

Cumulative MW Installed
Texas sales and support staff 400

Revenue ($ MM)
$150
• Continue to pursue while
Texas market matures 300

$100
Assumptions 200

• $8 MM per sales person per $50
year 100

• Five new sales staff per year $10
for first five years, one per $- 0
year thereafter 1 2 3 4 5 6 7 8 9 10

• Increasing sales efficiency Years

Sales revenue Cumulative MW sold

26

Conclusion Background

SunEdison going forward

• >100 kW systems on large, commercial rooftops
• Utilize long-term PPA
Recommendation:
• Finance with diversified IPP
• Possibly capture payment revenues

• One year capacity market
Lobby for: • DG eligible for capacity payments
• Net metering

• Create solar sales force and marketing plan
Next Steps:
• Locate and begin contacting potential customers

27

Monthly solar generation by zone

Houston South
350 350

250 250
MWh/MW

MWh/MW
150 150

50 50

(50) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec (50) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Tracking Fixed Tracking Fixed

North West
350 400

300

MWh/MW
250
MWh/MW

200
150
100
50
-
(50) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec


29

Appendix - Distribution of ERCOT market prices

Houston South
25% 25%
20% 20%
Probability

Probability
15% 15%
10% 10%
5% 5%
0% 0%

Price ($) Price ($)

North West
25% 25%
20% 20%
Probability

Probability
15% 15%
10% 10%
5% 5%
0% 0%

Price ($) Price ($)

30

Appendix - Value of solar generation by region

Houston South
$30 $30
Thousands

Thousands
$25 $25
$20 $20
$15 $15
$10 $10
$5 $5
$0 $0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec


North West
$30 $30
Thousands

Thousands
$25 $25
$20 $20
$15 $15
$10 $10
$5 $5
$- $0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec


31

Appendix - All Segments Assessment

Energy-only Forward Capacity Market
13.75% Reserve
Increased Increased SWOC New water 13.75% Reserve 13.75% Reserve Mandate (10% from Mandate, new water tax or
SWOC with DR-support tax or fee Mandate customer-sited resources) fee
Residential
Commercial
Utility

32

Appendix - Forecasts for natural gas and electricity

Forecast Electricity & Natural Gas Prices
$7 $50

$6
$40
$5 Goldman Sachs Gas Forecast
High Prices
$4 Low Prices
$30
Whole-sale Electricity Price
$3

$2 $20
1-Nov-05 1-Nov-07 1-Nov-09 1-Nov-11

33

Appendix - ERCOT 101, Congestion

Congestion: Two Key Aspects
• Grid Operation and management for over
85% of the deregulated electrical market
Congestion Congestion
in Texas
Revenue Right: Costs:
• Operates under the “energy-only model,”
the owner of this a measure of
market is driven only by energy price
signals right receives the inefficiency in
difference of what the system. It is
is paid in a calculated by
congested system what would have
and the amount been paid in an
paid to the uncongested
generators. system
subtracted by
congestion rent.

34

Appendix - ERCOT 101 Nodal Wholesale Market Design

• 4,000 Node Network used to:
– Increase system dispatch efficiency.
– Lower risk of blackout.
– Lower prices through Improved price
signaling.
– Direct assignment of local congestion.
• This system creates:
– Day-ahead market (DAM)
– Reliability unit commitment (RUC)
– Real-time or security constrained
economic dispatch (SCED)
– Congestion revenue rights (CRRs)

35

Appendix - IPPs account for 51% of capacity growth since 2000

30

• Properly incentivizing IPPs is critical to
inducing growth ERCOT capacity
13.5
20
GW

6.6

3.4
10
14.5
11.8
9.4

-
Privately-Held Publicly-held Muni/Coop REP Large
IPPs IPPs Customers

Pre 2000 Since 2000

36

2013 recc current generation - 1st place 130128

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