Financing in the Solar Market. Jimmy Chuang Director of Structured Finance Group, MMA Renewable Ventures

Transcription

1 Financing in the Solar Market Jimmy Chuang Director of Structured Finance Group, MMA Renewable Ventures

2 Jimmy Chuang Director of Structured Finance, MMA Renewable Ventures Mr. Jimmy Chuang is a Director in the Structured Finance Group at MMA Renewable Ventures, where he is responsible for acquiring, developing, and investing various renewable energy projects as well as raising tax-advantaged equity capital and construction / permanent debt facilities. Mr. Chuang is also leading the company s early stage venture capital initiative. Since joining MMA Renewable Ventures, Mr. Chuang has raised over $100 million of construction / permanent debt facility and funded approx. $200 million of solar projects. Prior to joining MMA Renewable Ventures, Mr. Chuang was a key member of the Restructuring / leveraged finance group at Chanin CapitalPartners, specializing in bankruptcies and distressed M&A. Previously, Mr. Chuang was an associate at Standard &Poor s Corporate Finance and analyst at SoundView Technology Group (now UBS Capital Markets). In addition, he also co-founded and held a senior management position in a nanotechnology company, Nanosense Corporation, sponsored by University of California, Berkeley and Defense Advanced Research Projects Agency ( DARPA ). He began his career with Merrill Lynch Investment Banking Division. Throughout his career, Mr. Chuang has executedvarious transactions for an aggregate value of $50.0 billion that included mergers and acquisitions, restructurings, recapitalizations, divestitures, private placements, public equity / debt offerings, and other financial advisory services. He has advised and worked with companies including AT&T Wireless, Calpine, Cypress, ebay, Hewlett-Packard, Microsoft, Nokia, Oracle, Virgin America, Yahoo, and among others. Mr. Chuang received a Bachelor of Science degree in Business Administration from the Haas School of Business at the University of California, Berkeley, where he was elected to Phi Beta Kappa. In 1999, he was named as Bill Gates Scholar/Fellow and University of California,Regents Scholar. 2

3 Financing in the Solar Market: Realities, Responsibilities, and Returns Jimmy Chuang MMA Renewable Ventures

4 Summary MMA Renewable Ventures Background Overview of Solar Photovoltaic (PV) / Project Finance Market How to Finance a Solar Project Case Study: A Typical Solar Project Questions 4

5 MMA Renewable Ventures Overview MMA Renewable Ventures Overview MMA Renewable Ventures is a premier Independent Power Producer (IPP) for Solar PV Assets in North America Offering Power Purchase Agreements (PPAs) since 2002 Funded 42 MW / $350+ million of Solar PV Projects to date (30 MW in operation; 12 MW under construction) Raised approximately $135 million of tax equity (closed into projects) 30+ Solar PV Projects, 21 different customers in 10 states (municipalities, corporations, military, retailers, etc.) Range of technologies: (crystalline, thin film, CIGS, etc.) Proven capabilities in project finance, due diligence, and physical asset management 5

6 A Diversified Renewable Energy Team Solar DG, Solar US, Energy Efficiency, and Others Engineers vs. Non-Engineers Others (1) Energy Efficiency (6.8%) (18.2%) Solar Utility Scale Solar Distributed Generation (61.4%) Non-Engineers (60.0%) Engineers (40.0%) (13.6%) (1) Including Accountant, Executive, General Counsel, New Initiatives, and Office Manager. 6

7 PPAs Can Work Across Multiple Technology, Integrators, and Customer Segments \ \ \ 7 17 different Manufacturers (30 different types of modules) 13 different system integrators / installers 21 different customers Municipalities, Corporation, Military Base, Agriculture, Big Box Retailers Investment Grade and Non-Investment Grade Customers

8 Global Outlook for Renewables and PV $145.6 billion of investment in renewables in % of global energy infrastructure 1% of global fixed asset investment. By 2020, global installed solar capacity could be 20 to 40 times its level today. 3% - 6% of installed electricity generation capacity 1.5% - 3% of output in PV cost reductions impacted by increasing production capacity, which is driven by federal and state incentives Sources: New Energy Finance, McKinsey 8

9 Solar PV Market Solar PV Market (MW) CAGR 2008B 2009P 2010P 2011P 2012P Worldwide Solar PV Module Demand (1) 4,764 6,188 8,938 11,110 13, % US Solar PV Module Demand (2) ,240 1,920 2, % US Solar PV Module Demand (PPA Only) - Grid-connected & Commercial (3) ,128 1, % (1) Goldman Sachs Research (2) PV News, Goldman Sachs Research (3) Industry Estimates (Greentech Media and Solar Buzz) and MMA RV Estimates US Solar PV Module Dem and 3,500 3,000 2,500 (MW) 2,000 1,500 1, Yr CAGR of 63.4% 2008B 2009P 2010P 2011P 2012P 9

10 U.S. Market Concentrated in a few States U.S. Non-Residential PV Market Source: GreenTech Media 10

11 U.S. Solar PV Market vs. Other Renewables U.S. PV Market ~800 MW total installed capacity (roughly half grid-connected) ~400 MW to be installed in 2008 U.S. Wind 19,549 MW total installed 9,022 MW under construction U.S. Biomass 11,000 MW total installed Sources: Goldman Sachs, International Energy Agency, American Wind Energy Association 11

12 Creating Markets Insolation, Incentives, Sponsorship GERMANY UNITED STATES 1380 MW to be installed in 2008* ~400 MW to be installed in 2008* Sources: Goldman Sachs, Wall Street Estimate 12

13 Outlook for Solar Project Financing in the U.S. Most solar projects in the U.S.: Still too small/unique for traditional project financing Can benefit from advantageous financing through aggregation Recent Financial Crisis / Credit Meltdown affecting Solar Financing Third Party Capital Supply & Demand Interest Rate PPAs will continue to dominate market VC/PE investors moving into market segment Gap between VC funded Technology vs. Deployed Technology Recent announcements in CA could indicate the dawn of utility-scale PV Final regulatory approval Aggressive price points Policy/Regulatory hurdles State incentives Site and Transmission Source: GreenTech Media 13

14 How to Finance a Solar Project Non-recourse financing for a special purpose entity Long-term offtake agreement (PPA) with utility or other customer Incentives Federal Investment Tax Credit (ITC) State-level rebate, mandatory Renewable Portfolio Standard (RPS), voluntary Renewable Energy Credit (REC) market (Tax) Equity Investors Usually want to exit before end of the PPA 14 Debt Construction-debt financed or balance-sheet financing Permanent debt FLORIDA POWER & LIGHT, FLORIDA Commissioned October, 2007

15 A Typical Commercial-Scale Solar Transaction Customer Governmental Entity (municipalities, schools, etc), Private and Public Companies Location Primarily: California, New Jersey, Nevada, and Colorado Sunny states with incentive programs Size >300kW Technology Solar PV rooftop or ground mounted tracker Key Financial Parameters 10 to 25-year term PPA Initial PPA price competitive with current utility rate PPA price escalates at certain % per year PPA supplemented with federal ITC and statelevel incentives Customer motivation: Immediate savings compared to utility rates Long-term hedge on utility rates Sustainability initiatives Capital conservation DENVER INTERNATIONAL AIRPORT 15

16 Most Common Solar Project Financing Structures Levered Partnership Flip Structure Unlevered Partnership Flip Structure Sale Leaseback Structure Balance Sheet Finance 16

17 Levered Partnership Flip Structure Tax Equity Installation Debt Cash Equity State Rebates Permanent Debt ~12 Month Period Placed in Service Date 17

18 Unlevered Partnership Flip Structure Tax Equity Installation Debt Cash Equity State Rebates ~12 Month Period Placed in Service Date 18

19 Sale Leaseback Structure Installation Debt Lease investor (tax equity) ~12 Month Period Placed in Service Date 19

20 The Solar Struggle: United Goals. CUSTOMER SYSTEM INTEGRATOR / DEVELOPER INVESTOR Bring Down the Cost of Solar Spur Adoption of Solar Access Tax Benefits / Incentives Make Attractive Profits 20

21 .But competing Interests DEVELOPER/EPC PROVIDER INVESTOR Spur Technological Innovation Gain Commitments Before Expending $ Sell at a high price Make customers happy Secure Tax Benefits Remove most risk Safe Credits Safe Technology Safe Operations Buy at low price 21

22 PPA Solution as a Bridge A step in reducing the cost of solar Buying fuel upfront for 30 years Managing risk for the customer Managing risk for the EPC provider Managing risk for the investor INVESTOR DEVELOPER CUSTOMER 22

23 Financial Sponsor s s Point of View System & Power Purchase Agreement Tip of the Iceberg Customer Credit Risk Technology and Warranty Production Risk Cash Flow Risk Tax Monetization, Project Timing Public incentives - Change of Law Risk Installer Track Record Financial Structure Whole Iceberg Much HARDER than it appears 23

24 Case Study Large-Scale Solar PV Nellis Air Force Base, Nevada MMA RV: INVESTED, FINANCED, OWNED, AND OPERATED ~$100MM project on Nellis Air Force Base (AFB) property 14.2 MW with sun tracking system 140 acres with 75,000 modules Largest solar PV plant in North America Electricity sold to U.S. Air Force under 20 year PPA RECs (portfolio credits) sold to NV Energy utility Helps them meet their renewable portfolio standard obligation 24

25 Case Study Medium Size Solar PV Denver International Airport MMA RV: INVESTED FINANCED, OWNED, AND OPERATED ~$13M project on Denver International Airport (DIA) property in Denver, CO 1,999 kw ground-trackers APS Tracker with Sharp modules Electricity sold to DIA under 20 year PPA and provides enough power to run the internal rail system RECs (portfolio credits) sold to Xcel under a 20 year agreement Helps them meet RPS / Solar Carve-out Obligation 25

26 Solar.or other investments? Low Risk Investment Tax Equity: Mainly Reliant on ITC and Depreciation Benefits Permanent Debt: Long-Term Contracted Cash Flow from Investment Graded or Strong Credit Off-Takers Social Responsibility Offset Carbon Footprint Climate Change / Global Warming 26

27 Final Thoughts on Financing in the Solar Market Critical to incentivize a portfolio of renewable energy options Long-term offtake agreement with Creditworthy counterparts Work with strong partners who will mitigate your risks and not merely provide financing I'd put my money on the sun and solar energy. What a source of power! I hope that we don't have to wait until oil and coal run out before we tackle that Thomas Edison 27

28 Thank you CSU FRESNO, CALIFORNIA COMMISSIONED OCTOBER 2007 Jimmy Chuang Director