WELCOME! SAME Energy and Sustainability Committee Cracking the Contracting Code for Large-Scale Solar Webinar

Transcription

1 WELCOME! SAME Energy and Sustainability Committee Cracking the Contracting Code for Large-Scale Solar Webinar Committee Chair: Col. John Mogge, RA, F.SAME, USAF (Ret.), CH2M HILL Committee Vice Chair: Chris Silkie, P.E., LEED AP, CEM, Cardno TEC Speakers: Kevin Prince, Project Development Manager, SunPower, Federal Programs Calvin Kawamura, Renewable Program Office Project Manager, NAVFAC SW 1

2 Agenda Federal Solar Financing Options Historical Barriers to Large-Scale Solar NAWS China Lake Case Study Lessons Learned & Project Checklist 2

3 A Solar History Perspective MW Estimated System Cost $6.15/W <$3.00/W US Solar Installation Annual 200 MW 3,300 MW Global Solar Installed to Date 1,100 MW 9,500 MW Record for Cell Efficiency 20.0% 24.2% SunPower Largest Project 10 MW 610 MW SunPower Years in Business Warranty Length 10 years 25 years 3

4 What Drives Project Viability Project Risks Offtaker Interconnection Land Contracting & Financeability Assignment Term Length T4C Economic Drivers Rates Rebates Resource 4

5 Overview of Financing Options 5

6 Federal Solar Financing Structures Structure Offtaker Interconnection Land (Site Risk) Scalable Cash Host Host Low Low Utility PPA Utility Utility Low Low Utility EPC Utility Utility Low Low EUL Other Utility or Host High Low ESPC Host Host Low Medium PPA Host Host Low High 6

7 Typical PPA Model System Host / DoD Installation Solar generated electricity Electricity Payments SunPower Corporation System Sales Fee Design and Construction (EPC) PPA Project Co, LLC (Owns the Solar Panels) Performance Guarantee O&M Contract 100% Equity Contribution and Ownership of ProjectCo PPA Revenue + Tax Benefits Tax Equity Investor 7

8 PPA Under 2922a Benefits to System Host (Government / DoD Installation) Renewable Energy Goals No Performance Risk No Operational Risk Decrease Fossil Fuel Usage Support Base Microgrid Operating Cost Hedge United States Air Force Academy 8

9 PPA Under 2922a Benefits to Investor Strong Credit of Offtaker Stable Site Access Opportunity for Scale Largest Land Owner Largest US Energy Consumer Provide Capital for what is seen as a National Security Issue Nellis Air Force Base 9

10 Historical Barriers to Large-Scale Solar 10

11 Public-Private Contracting Challenges Termination for Convenience / Termination Values Assignment and Novation Contracting Term Site Access Take-or-Pay 11

12 Termination for Convenience Termination for Convenience / Termination Values The FAR allows the government to terminate the contract at its convenience. This reduces the project s attractiveness to the investment community. Potential investors evaluating the risk of a Federal project compared to a commercial project other tax equity investments will have an unfavorable view of the tax recapture risk as well as the risk of not being made whole. In order to make the project financeable, the investor must believe that the investment will not be at risk. 12

13 Assignment Assignment and Novation The key economic driver under a PPA is the monetization of the tax credits and depreciation. Neither the Government nor the developer can efficiently monetize tax benefits. Therefore, a large institutional investor with tax appetite must own the system. To complete the transaction, the solar contract holder sells the solar system to a passive tax equity investor. 13

14 Site Access Site Access A solar PPA is dependent upon site access for purposes of routine maintenance and operation of the facility. Contractually, investors require a commercial provision called quiet use and enjoyment of the property for the life of the agreement. Typically, a recordable lease is used to ensure the system owner can access the system. Government options for providing site access consist of a lease, an enhanced use lease (EUL), a license, or an easement. 14

15 Take-or-Pay Take-or-Pay Investor requirement for a predictable income stream (holding the developer accountable for performance) 15

16 Contracting Term Contract Term Length The economics for the investor are dependent upon the known cash flows of the project. If the PPA ends after 10 years, to the investor, the asset is stranded. Therefore 20 years of cash flows have to be captured in just 10 years making a 10 year PPA 30% to 50% higher cost than a 20 year PPA. 16

17 Summary of Barriers Overcome Contracting Issues Nellis USAFA China Lake 1) Termination Values 2) Assignment and Novation 3) Site Access 4) Take-or-Pay 5) Termination for Convenience 6) Long Term Contracting Authority 7) Conditions Precedent 17

18 NAWS China Lake Case Study 18

19 China Lake: At A Glance Year PPA (First in Federal Gov t) MW System Offsets 30% of Base Load 3. Fixed Price PPA Below Utility Rate 4. Buy-American Compliant Modules 5. Operation Commitment date 9/ High Efficiency Modules maximized land use 19

20 PPA Economic Feasibility For the Installation, cheaper PV power replaces power that would have been purchased anyway Cheaper because: Federal ITC for Investor (30%) Accelerated Depreciation (1-7 years) Higher rate of escalation for Brown Power (4% in CA) If current rate for Brown Power is equal to or more (or close) State incentives (CSI at $0.05 to $0.15 per kwh) where applicable 20

21 NPV ($) NPV Net Present Value (NPV) Evaluation The value of solar is measured in terms of total savings and total energy produced over the system s lifetime Comparing first cost alone does not compare true system value 4,000,000 China Lake NPV Analysis 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, , ,000 6,500 8,000 9,500 11,000 12,500 14,000 15,500 17,000 18,500 20,000 System Size (kwp) System Output Primary Evaluation Metric is Maximizing NPV 21

22 Perceived PPA Risks For Government Take or Pay Unknown cost of brown power in out years Lot of Terms and Conditions in industry PPA not consistent with government contract Termination Liability Who is responsible for performance? Very little precedent, no true boilerplate Too hard Insert Presentation Title 22

23 Perceived Risks For Industry Termination for Convenience Lack of Lender accommodations (Assignment, Step in Rights) Fear and loathing of FAR (and FAR clauses) Dispute Resolution Take or Pay (ability to take all that s produced) Site Access/Real estate documentation 23

24 Mitigating the Risks Intent of T for C is that Government will pay for costs incurred and costs associated with termination Termination schedule (comfort level of what to expect for industry) Assignment: Gov t needs to recognize these arrangements up front (contrary to how typical assignments are allowed) Transfer of title and obligation to perform (successor of interest) Developer can remain fully liable for performance Take or Pay: Investor wants guaranteed revenue stream vs. Gov t pays for only what it consumes. 24

25 Project Execution At A Glance 20 Year PPA (First in Federal Gov t) 14 MW System Offsets 30% of Base Load Fixed Price PPA Below Utility Rate Buy-American Compliant Solar Panels Operation Commitment date 9/2012 High Efficiency Modules maximized land use Pre-RFP Timeline June-Dec March 2008 March 2009 Market Research Site Selection - NEPA RFP Development RFI Issued RFP Issued 25

26 Project Timeline Post-RFP July 2009 February 2010 April 2010 May 2011 September 2011 November 2011 September 2012 Competitive Bids Due Solar MAC Award Task Order Discussions PPA Negotiations Complete OSD Approval & Task Order Award Financing Closed Construction Begins Construction Complete 26

27 Lessons Learned & PPA Checklist 27

28 Lessons Learned: China Lake Informed Chain of Command for 2922a process Early engagement with legal and contractual requirements Economic viability Understanding of minimum guarantees Understanding of termination liability Utility Interconnection requirements 28

29 Lessons Learned: SunPower Prepare a site evaluation for solar feasibility Select the contracting vehicles (IDIQ/MAC, Lease) Select a technically competent team Select a very experienced Contracting Officer and legal advisor Prepare the Approvals in Advance Bring the entire team to the table early Get the contractor to explain the steps that will occur after the award 29

30 Checklist: Keys to Successful Solar Project Development Complete NEPA study in advance Engage subject matter experts early Use experienced legal and contracting officers Understand local utility interconnection requirements Use NPV as key evaluation metric Follow what has been successful in the past 30

31 What Drives Project Viability Project Risks Offtaker Interconnection Land Contracting & Financeability Assignment Term Length T4C Economic Drivers Rates Rebates Resource 31

32 Questions? Kevin Prince SunPower Corporation Calvin Kawamura NAVFAC SW 32

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34 Appendix

35 The Importance of 10 USC 2922a Allows for the DOD to enter into year energy contracts Aligns the contract term with standard project financing terms Requires OSD approval (authority already delegated down) 35

36 Not all PPAs are Created Equal Project Nellis USAFA China Lake Offtaker Base CSU Base Authority EUL / FAR Part USC a Energy Term 1 year Options 25 year 20 year Site Access Lease Easement License Site Access Term 20 Years 25 Years 20 years Buy American No Yes Yes FAR Contract Yes No* ( 2 ARRA FARs) Yes Scalable No No Yes 36

37 Naval Air Weapons Station China Lake Location: China Lake, CA System Size: 13.78MW China Lake Energy Offset: > 30% Contract Mechanism: 20-Year PPA under 2922a Incentives RECs: Developer Tax: ITC and Depreciation Design Technology: SunPower Oasis T0 Tracker Yield: 2,297 kwh / kwp First Year Output: 31.7M kwh 37