Solar PV project development

Green Intelligence at your side

Rooftop Solar PV projects for landlords and investors

What you should know prior to meeting a solar salesman

Last Updated August, 2012

Agenda

• Ontario FIT2.0 program

• Property requirements for a solar PV project

• Different ownership models – roof lease, system ownership & ownership with development

• An overview of project progression from idea to commissioning

• Aspects of solar PV technology that affect property owner – financing and taxation

Copyright GreenQ Partners Inc 2

FIT Program Overview

• Program started with the Green Energy Act in May 2009. New Rules were introduced in August 2012.

• Established rules under which businesses can sell to the grid electricity produced with renewable energy generation technologies, such as solar PV, wind, bio-energy

• Electricity is bought by the OPA on the basis of a 20-year fixed price contract

3Copyright GreenQ Partners Inc

Ontario FIT Rates for PV


Project Size Rooftop, C$/kWh Ground, C$/kWh

≤10 kW 0.549 0.445

> 10 ≤ 100 kW 0.548 0.388

> 100 ≤ 500 kW 0.539 0.388

> 500 kW 0.487 0.35 (up to 5MW)

0.347 (over 5MW

FIT Program Requirements

To qualify for FIT rates project must:

• Be located in Ontario

• Pass the transmission/distribution availability test

• 60% of implied project cost* should be incurred in Ontario

• Meet OPA’s size requirements per kW

* While determining compliance with domestic content requirement OPA assigns portions of costs to project activities and materials regardless of actual costs.


FIT

Site suitability


RoofElectrical

Room

Location

Suite Suitability - Roof

• Orientation

– South or South-West

• Roof space

– 40,000 sq ft => 250kW system– Other equipment may use up roof space

• Shading

– None or very little

• Roof condition

– Membrane should last at least for 20 years (ideally)

• Structural capacity

– Roof structure must allow for additional 3-7 psf load to accommodate dead and wind load and possible additional snow accumulation


How it looks


Ballasted mounting from SolarDock

Ballasted mounting from Unirac

Example of a penetrating mounting system

Costs of Roof Imperfections

• Not true south orientation

– 10o off => 0.2% less energy

– 25o off => 1.5% less energy

• Below optimal tilt (<30o)

– 20o => 2.3% less energy

– 10o => 6.3% less energy

– Flat => 12.1% less energy (may lower costs)

• Dirt & snow on panels

– Higher tilt allows for better self cleaning


Site Suitability - Electrical

• Electrical room

– Space for inverter, connector box,meter, disconnects, etc

– Equipment weight

– Equipment delivery constraints

• Sufficient distribution line to yourbuilding

Images are property of Satcom (top) and Xantrex.


http://www.xantrex.com/web/id/11/p/1358/pt/23/product.asp

Site Suitability - Location

• LDC capacity availability

– Pre-application consultation with LDC is required to determine if project can be connected

• Local weather conditions

– Snow belt area will have higher losses than Toronto

• Air cleanliness & dirt accumulation

– You only harness the sun that gets to the panels


How involved do you want to be?

Greater involvement leads to greater:

• Required investment

• Return on investment

• Risks

Develop & Ownthe system

Own the system

Lease roof


“Lease” Option

You invite a company to install, own and operate a solar system on your roof and charge them fixed lease payment.

• Investment required– No capital investment

– Legal and organisational costs, pre-application assessments

• Expected revenues: – Around $0.5 per sq ft of used roof per year

• Risks– Roof: Leakage, structural damage, roof traffic, conflicting use during 20 years

of contract,

– Default of your solar tenant


“Own” Option

You invite a company to develop and install a system; you collect payments for produced electricity from the OPA.

• Investment required– Around $4,500 per kW of installed system, capital and preparation costs

• Expected revenues

– $450-500 per kW pa on a commercial scale system (100-500kW AC)

– 11% IRR (100% equity financing)

• Risks

– Roof risks, same as in “lease” option

– Performance risks, maintenance risks


Owning a system:Performance Factors

PV technology

• c-Si panels produce more kWh/sft of roof

• Thin film panels are more tolerant to high temperatures, but less productive

• “Shadow resistant” panel designs help avoid some losses

Mounting

• Orientation: ideal is true South and 30° tilt

• Best performance tilt may be not cost effective due to wind load

• Higher tilt => more roof space required, lower tilt => lower wind load

• Roof warranty and mounting warranty

• Ease of temporary relocation

Inverter

• Efficiency, Cooling, Life expectancy

• Reliability, warranty, service

System design

• Losses in cables, due to panel heating, overshadowing, service needs, panel mismatch, etc

• Need for cleaning

• Downtime

• Array capacity vs. inverter capacity

Local conditions

• Local sun access conditions (shadow, smoke, dust, steam, etc)


“Develop & Own” Option

You develop an in-house team that can procure and install the system. The rest is the same as in Own Option. This option is most viable for owners of multiple rooftops.

• Investment required– Cost to setup in-house facility + per-system costs lower than in “own” option

• Expected revenues– $450-500 per kW pa on a commercial scale system

– 11% IRR (100% equity financing) on system

• Risks– Roof risks and Performance risks as in Own option

– Design and procurement (parts) risks


Sample Project

For a 40,000 sq ft, problem-free roof one can expect:

• System size of 250kW DC

• Investments:– Feasibility & Organizational costs - $10-30K (depending on project

complexity)– System cost (“own” option) - $1M

• Revenues– “Lease” revenue - $20,000 pa– “Own” revenue - $110,000 - $120,000 pa

• Bonus for “own” option – 50% depreciation rate on solar equipment; can used against other profits


Project Progression

1. Project Assessment

– Evaluation of site suitability

– How involved do you want to be?

2. Project setup

– OPA Contract

– Developer Selection

– Project Financing

3. Construction & Operation

Highest impact decisions are made at project assessment stage


Project Setup - OPA Contract

• The party that owns roof access rights should apply for OPA contract

– The application fee is 0.5$ per kW (up to $5,000)

– Application security of $20 per kW is also required. Refundable if project goes into construction

• LDC approval for future system is required

• Contracts are granted based on priority points

• The processing time for an application varies, with “OPA target” of 60 days


Project Setup - Developer Selection

• Free assessment is never free and never unbiased

• Look at IRR and risks; not just cost or performance

• Warranties: for roof, equipment and performance; is developer worth the offered warranty? How is warranty going to work?

• Maintenance schedule: who, when, how


The decision you are making will be binding for at least 20 years

Project Financing

• Debt and equity financing is available from different sources

• CEPP Funding for Ontario organizations can be used to cover soft costs

• Bank loans may be obtained only for projects using bankable equipment

– Banks will typically finance up to 70% of cost for projects that meet their criteria

– Will require adequate project structure and documentation


Other Aspects of Project Setup

• Internal team set-up

– Technical and technology advisors

– Legal advisor

– Financial advisor

• Establishing project schedule and its impact on other activities

• DBF or DBFM approach


Construction – Major Concerns

• Who is responsible for damages to roof? To system?

– Cooperation with roofing company

• Permitting and unexpected fees

• Construction financing

• Interference with primary business

– Length of construction

– Scheduling


Operation – Major Concerns

• Roof warranties during operation

– Cooperation with roofer during construction

• Roof repairs

– Contractual provisions

• System repair and maintenance

– Defined maintenance plan

– Problem response – timing & warranties

– Value of monitoring system


Taxation Considerations

• Income tax

– System costs are subject to 50% depreciation

– In some cases depreciation can be used against other income

• Property taxes

– System should be treated as “equipment”

– Rooftop PV should not affect property taxes


Conclusion

For a landlord a solar PV project should not differ much from any other investment project:

• All investment rules apply

• No need to be a pro in solar to benefit from it

• To maximize return – stay within core competence and

assign direct solar risks to solar developer, who can

manage them at a lower cost


When done right, solar PV investment is like bond,

but with 11% IRR


Questions

Solar PV project development

Technology

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