Solar Finance NARUC Winter Conference John Stanton, VP Policy & Markets
Annual U.S. Residential/Commercial Solar Installations (MWs) % of New U.S. Generating Capacity Distributed Generation Solar is Growing >Distributed Solar Represented 9% of New U.S. Generation Capacity in the First Half of 2013 >4,000 MW of Distributed Solar Cumulatively Installed in the United States from Q1 2010 to Q2 2013 1 1,600 1,400 1,200 1,000 800 600 400 200 0 2010 2011 2012 1H 2013 1 1 Commercial Residential Cumulative Energy Contracts 2 10% 8% 6% 4% 2% 0% Residential/Commercial Solar Installed in Leading U.S. States (MWs): 1Q11-2Q13 1,122 202 32 279 110 32 143 79 212 19 704 11 81 1 SEIA (Solar Energy Industries Association) and Greentech Media s U.S. Solar Market Insight Report 2Q13, based on a sum of residential and commercial installations and excluding utility-scale projects 2 Calculated by dividing (a) residential and commercial solar installation data from SEIA/GTM research s U.S. Solar Market Insight Report 2Q13 by (b) total MW of new U.S. generating capacity reported by FERC (Federal Energy Regulatory Commission) in its Energy Infrastructure Update report See slides 24 for relevant definitions SolarCity Confidential Slide 2
Every Unshaded Rooftop is Potentially a Clean Power Plant Range of Potential Customers 50,000 250,000 1,000,000 Total Number of Buildings in SolarCity s 14 Markets 1 42,075,441 42,075,441 42,075,441 Implied Penetration 0.1% 0.6% 2.4% Potential Cumulative Residential MW Deployed 2 300MW 1,500 MW 6,000 MW 1 US Buildings Count. Residential Homes defined as Housing Units, U.S. Bureau of the Census, Population Estimates Program. Commercial buildings Energy Information Administration s 2003 Commercial Buildings Energy Consumption Survey, assumes 110,000 buildings added per year to arrive at 2013 estimated buildings 2 Assuming a 6 kw-dc residential system average See slide 23 for footnotes and relevant definitions on slides 24 SolarCity Confidential Slide 3
Overview of Equipment Leasing Equipment leasing is found in a wide variety of capital-intensive sectors, including Transportation (railcars, planes, ships) Office equipment (computers, copy machines) Machinery (tractors, turbines) Equipment users (lessees) can use the asset without the large capital outlay associated with its ownership Additional services provided Typically, more than half of the trillion dollars invested in the U.S. in equipment and software is made possible through lease financing. Today, more equipment is financed by equipment leases than by bank loans, private placements or any other method of equipment financing. 80% of companies lease at least some of their equipment 1 out of 3 airplanes are leased More than half of all railcars are leased SolarCity Confidential Slide 4
Now These Models Are Being Applied to Solar Customers can now lease solar equipment or enter into a power purchase agreement (PPA), allowing the benefits of solar without the large upfront cost Lease: Payments on fixed schedule independent of production ($100/month) PPA: Payments based on an asset s energy production ($/kwh) All of the references in the presentation apply to both Leases and PPAs Lease and PPAs (Third party ownership) illegal in ½ of the states, i.e. VA Solar leases and PPAs both allow customers to finance their use of solar assets over time, and typically provide: System warranties, production guarantees, inverter replacements and other repairs Monitoring services Leases/PPAs are typically aggregated into portfolios which are then financed by investors Banks, insurance companies, corporate investors Partnership flip and inverted lease are dominant finance structures SolarCity Confidential Slide 5
Clean, Better Energy Solar bill paid monthly, just like a utility bill, only at a lower cost Customer Benefits No Upfront Cost of Installation, customer hosts, provider owns A Simple Switch to Solar Easily Transferable upon Moving Provider Benefits Consistent, Predictable 20-Year Cash Flows Economics Improve from Decreasing Cost of Capital and All-in Installation Costs as well as Higher Utility Rates Opportunity to Upsell Other Energy Services Note: This Chart is NOT to scale and is for illustrative purposes only SolarCity Confidential Slide 6
Additional Benefits of Solar Financing Solar panel installations are a sound investment for many homeowners and businesses Tax benefits, rebates, utility bill savings, etc But not all customers have sufficient capital or ability to use all the tax incentives Upfront cost is typically $10-50K for residential; $100k-$5M+ for commercial-scale projects Many customers prefer to buy solar electricity monthly, the way that they purchase traditional electricity from the utility Removing the high upfront investment required with solar assets has led to dramatically increased levels of solar adoption SolarCity Confidential Slide 7
Monitoring and Management Standardization Increase Transparency and Investor Confidence SolarBid TM SolarWorks TM PowerGuide TM Energy Analysis and proposal generation Solar production model Utility rate database Accurately predicts savings Massively scalable project management Project Management Permitting Engineering Supply Chain Quality Assurance A gateway in every building monitors energy A Zigbee enabled gateway is installed in every building Monitors energy usage and solar production in real time Integrated with field service and billing SolarCity Confidential Slide 8
System Maintenance Process Proprietary monitoring software increases system transparency PowerGuide monitors all systems and data is sent back to our servers every 15 minutes, 24/7 Algorithm detects system failures and performance anomalies. Systems Reliability Team confirms failure and creates a case Technician dispatched, repairs system and updates case SolarCity Confidential Slide 9
Electricity is an Essential Service 2.5% 2.0% Cumulative Net Loss Rate * 1.5% 1.0% 0.5% 0.0% Year 1 Year 2 Year 3 Year 4 Even as Risk Free Rate Rises, Solar Power s Risk Premium Is Compressing Given: Default rates for our household energy payments are historically lower than for residential mortgage payments Long-term contracts offer high visibility and predictability of cash flow Price escalators in many contracts offer an inflation hedge * Chart is depiction of the net loss rates at each of the first four year anniversaries of the original origination date of each of the respective asset backed securities highlighted (averaged across 1999 to 2011 for auto loans, 2003 to 2012 for prime residential mortgages, and 2008 to 2012 for SolarCity data). Time period for auto loans and prime residential mortgages selected to normalize for outlier effects of the financial crisis. Auto loan and prime residential data sources: A) Auto loans average cumulative auto loan loss rates reported by Ally, BMW, Chrysler, Ford, Honda, Nissan, USAA, World Omni, and Wachovia which are publicly reported by or on the respective companies websites or in company issued reports; B) Residential mortgages Sequoia Mortgage Trust (http://www.sequoia-reports.com). SolarCity Confidential Slide 10
APS, CSI, and NJCEP percentage of installations by income level and year Source: www.americanprogress.org/issues/green/report/2013/10/21/76013/solar- power-to-the-people-the-rise-of-rooftop-solaramong-the-middle-class/ SolarCity Confidential Slide 11
Questions & Answers Section Title SolarCity Confidential Slide 12