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Transcript of Power Purchase Agreements and the Future of Project ... · Power Purchase Agreements and the Future...
FUNDING SOLAR,
BIOENERGY, WIND,
& ENERGY EFFICIENCY
Power Purchase Agreements Power Purchase Agreements
and the Future of and the Future of
Project Finance in CaliforniaProject Finance in California
4th Germany California Solar Day
Matt Cheney
Chief Executive Officer
MMA Renewable Ventures
2
AgendaAgenda
1. MMA Renewable Ventures Overview
2. Power Purchase Agreements: Growing Fast in Popularity
3. Project Finance: Managing Risk and Complexity
4. Case Study and Final Thoughts
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MMA Renewable Ventures OverviewMMA Renewable Ventures Overview MMA Renewable Ventures OverviewMMA Renewable Ventures Overview
� MMA Renewable Ventures is a leading owner and sourc e of financing for renewable energy and energy efficiency assets in the U.S.
— 25 MW of solar PV projects in operation; 13 MW of projects under construction — Owns the largest PV system in the North America (14 MW), at Nellis Air Force Base, Nevada — Pipeline of $1 billion of identified project opportunities for 2008—2009 in solar, wind, biomass, and
energy efficiency
� We bring together sophisticated project finance wit h in-depth due diligence and asset management capabiliti es to deliver to customers reliable and affordable clean energy
— Comprehensive market knowledge and solid origination relationships
— Demonstrated expertise in structuring financing around incentives
— Institutional fiduciary / investment management experience
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MMA Renewable Ventures TimelineMMA Renewable Ventures Timeline
Dutch utility NUON launched business unit to exploit renewable
energy opportunities in U.S. in 1999
Pioneered PPAs for utility and on-site
photovoltaics in the U.S. in 2002
1999 2004 2008
Renewable Ventures spun out in management buy-out i n 2004
Investment favored U.S. tax payers
Technology and regulatory risks in nascent industry not appropriate for utility
SF based Renewable Ventures acquired by MMA in 2006 to supercharge capital raising
and pipeline development
2008 – PV, wind, and biomass
(25 MW solar PV portfolio)
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MMA RV Photovoltaic Projects MMA RV Photovoltaic Projects :: PPAs Across Multiple Customer Segments
21 different customers; 10 different engineering/co nstruction providers to date — Municipalities, corporations, military, agriculture, big box retailers — Investment grade and non-investment grade customers — 10 different states
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The PPA Value Proposition The PPA Value Proposition
� Retail PV market shifting to Power Purchase Agreeme nt (PPA) model because of its customer value proposition
— Capital conservation: no up-front capital expenditure — Immediate savings compared to utility rates — Long-term hedge on utility rates — Limited operational risk for customer
� Wholesale PPA helps utilities avoid risks around ne wer technologies
� PPA manages risk for the investor and developer as well � PV PPA model began with non-residential systems; no w being
modified for residential systems
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Photovoltaic PPA EmergesPhotovoltaic PPA Emerges
0%
20%
40%
60%
80%
100%
2003 2004 2005 2006 2007 2008* 2009*
Non-PPA PPA
Power Purchase Agreements (PPAs) are growing quickly
Source: Greentech Media, Feb 2008
*Forecast
U.S. Non-Residential PV Installations
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The PPAThe PPA : : A Long MarriageA Long Marriage
The PPA is a long term contract where the customer buys electricity from the system owner at pre-determined prices
SYSTEM OWNER RESPONSIBILITIES
1. Develops and finances the entire system — Permitting — Design — Procurement — Installation
2. Owns and operates the system
— Operations — Maintenance — Insurance
CUSTOMER RESPONSIBILITIES
1. Buys system electricity for 10-25 years
2. Provides the system site
— Roof top or adjacent land — Long-term access under Site
Lease
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Features of the Photovoltaic PPA in the UFeatures of the Photovoltaic PPA in the U ..SS..
� Two common types — Retail: “behind the meter” PPA customized for electricity customer — Wholesale: utilities provide “standard-offer” PPAs to system owners
� Electricity prices are predetermined by PPA, with s et
escalation/steps tailored to customer needs � Performance-based: customer only pays for the power produced � System purchase option available after the 6 th year of operation � Environmental attributes (RECs, greenhouse gas attr ibutes) can
be included in the PPA or sold separately
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Competing Interests Competing Interests
� Use new technological
� Gain commitments before expending $
� Make customers happy
� Sell at a high price
� Secure tax benefits
� Remove most risk — Safe Credits
— Safe Technology
— Safe Operations
� Buy at low price
INVESTOR DEVELOPER
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UU..SS. . market will develop around strong financial sponsor s that can market will develop around strong financial sponsor s that can manage risks for developersmanage risks for developers , , customerscustomers , , and investors and investors
DEVELOPER Financing Risk
Implementation Risk EPC Risk
Real Estate Risk Regulatory/Rebate
DEVELOPER Financing Risk
Implementation Risk EPC Risk
Real Estate Risk Regulatory/Rebate
INVESTOR Maintenance Risks Operating Expense
Credit Risk Regulatory Risk Production Risk
INVESTOR Maintenance Risks Operating Expense
Credit Risk Regulatory Risk Production Risk
CUSTOMER Implementation Risk
Relationship Risk Regulatory/Rebate Risk
CUSTOMER Implementation Risk
Relationship Risk Regulatory/Rebate Risk
Industry must understand and manage risks
Industry needs a successful track
record
Financial SponsorshipFinancial Sponsorship
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Capital Providers in UCapital Providers in U ..SS. . PV Project FinancePV Project Finance
� Equity investors with tax appetite and strong energy knowledge (ownership stage). Tend to be passive and highly risk adverse. Mainly investment banks, commercial banks, insurance companies
� Cash equity investors seeking higher returns (development stage)
� Capital equipment leasing providers
� Developers with patient capital
� European debt providers
� U.S. debt providers
NELLIS AIR FORCE BASE
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Meeting Equity Investor and Lender ConcernsMeeting Equity Investor and Lender Concerns
� Review of underlying contracts (traditional project finance diligence)
— Deals are highly structured
— Focus on tax and accounting issues under tax credit-based policies
� System production estimates require careful validat ion
� Debt service coverage ratio needs to account for variability in production
� Whether / how to value environmental attributes in cash flow analysis
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A Typical UA Typical U ..SS. . Solar Fund SyndicationSolar Fund Syndication
� Diverse Financial Products — Aggregation of PV projects – diversification of risk — Leveraged structure with senior debt at the project level — Majority of returns come from federal tax benefits (Investment Tax Credit
and accelerated depreciation)
— Partnership structure – not a lease
� Yields — Matching risk & return. Depends on fund-level risk, amount of leverage, and
credit protection coming from financer, customer, and system integrator. Since each deal is unique, risk/return profile differs with each financing
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Looking ForwardLooking Forward : : Utility-Scale PV
� PV price / technology mix getting closer to meeting peak wholesale price and reliability targets
� Projects like Nellis prove these systems can be bro ught into operation quickly and with utility-grade quality
� Of nearly all renewable energy options, only “distr ibuted-generation” utility-scale PV plants can be built qu ickly, efficiently, and without transmission constraints
� Partnership (not just procurement) with qualified d evelopers and owners is important to help utilities bridge risks of creating a real future of clean energy infrastructure
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� ~$100MM project on Nellis Air Force Base property, eight miles northeast of Las Vegas, Nevada
� Ground mounted tracking system that covers 140 acres,
utilizing approximately 75,000 solar modules. At 14.2 MW, largest solar PV plant in North America
� Partnered with SunPower Systems to design, install,
and maintain system � Electricity sold entirely to U.S. Air Force under 20 year
Power Purchase Agreement contract � Renewable energy certificates (RECs) sold to the
regional utility Nevada Power under contract. Helps them meet their Renewable Portfolio Standard obligation
Case Study Case Study –– Large Scale PV Large Scale PV Nellis Air Force Base, Nevada
FINANCIER – OWNER – OPERATOR
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� U.S. PV market is still in its infancy, but is very promising — More supportive federal policy likely in the medium term, including greenhouse
gas cap-and-trade policy and long term extension of federal tax credit
� Sponsor and third-party capital necessary for growt h of the industry. Smart money = Smart growth
� Risk allocation and mitigation key to closing deals
� Lower costs & economies of scale will be needed to maintain momentum
Summary Summary & & Final ThoughtsFinal Thoughts
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Thank youThank you
Matt Cheney
[email protected] D: 415.229.8801 M: 415.244.6787 www.mmarenewableventures.com
Matt Cheney
[email protected] D: 415.229.8801 M: 415.244.6787 www.mmarenewableventures.com