mintz levin us financing slides
TRANSCRIPT
U.S. RENEWABLE ENERGY PROJECT FINANCE:
2010 - 2013 OVERVIEW & FUTURE OUTLOOK
Jordan Collins, Director of Government Relations
Mark Riedy, Member
Audrey Louison, Member
Moderator: Andrew Krulewitz, Solar Analyst – GTM Research
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AGENDA
• INTRODUCTIONS
• KEY FINDINGS
• PROJECT FINANCE OVERVIEW
• RETROSPECTIVE: 2010-2011
• OUTLOOK: 2012-2013
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INTRODUCTIONS
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KEY FINDINGS
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MAJOR DEBT & EQUITY PROVIDERS: 2010
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SOLAR PROJECT FINANCE UPDATE: 2011
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• Recovery Act incentives and financing programs catalyzed the greatest domestic
investment in renewable power generation ever seen in the United States.
The 1603 Treasury Grant program supported over 5,195 projects representing over 15 GW in
installed capacity and $35.9 billion in total investment.
DOE’s 1705 Program provided $16 billion in loan guarantees to 28 projects, representing
over 4 GW of installed capacity and $22 billion in total project investment.
• USDA’s 9003 Biorefinery Loan Guarantee Program is supporting the first commercial
U.S. advanced biofuels projects by allowing developers to tap the institutional investor
market through credit-enhanced, project company bond offerings.
• State-level Renewable Portfolio Standards (RPS) provided demand drivers in more
than 30 states.
THE BOOM YEARS: 2009 – 2011
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• Demand for renewable energy project finance will continue on a growth trajectory with a
compound annual growth rate (CAGR) of 16.2%.
• During 2012-2013, overall ~ 17-18 GW of renewable power generation assets are projected
to seek financing.
• Projects using commercial technologies, sponsored by seasoned developers, and with
creditworthy off-takers / feedstock suppliers / EPCs will continue to secure project
financing.
• However, capital formation for renewable projects will become increasingly difficult due to:
Expiration of 1603 Grant Program + potentially other key tax incentives for renewables (PTC) /
biofuels in a fickle regulatory environment
Recovery Act programs winding down
European banks reducing exposure to U.S. markets as the sovereign debt crisis persists
Power generation substitutes such as natural gas remain inexpensive, challenging renewable power
State RPS uncertainty
DEMAND & SUPPLY DIVERGENCE: 2012-2013
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• The near-term role of Federal support for clean energy deployment is evolving:
DOE Loan Guarantee Program: Although $170m in credit subsidy appropriations remain
available under the 1703 Program, the program is effectively in a holding pattern.
USDA Energy Programs (2008 Farm Bill | Title IX): Expires on September 30, 2012.
Production Tax Credits (PTC): Wind expires on December 31, 2012, with remaining PTC-
eligible technologies (e.g. biopower) expiring in 2013.
Department of Defense (DoD): Drop-in biofuel emphasis & significant use of existing
authorities + Congressional mandates provide opportunities for utility-scale power generation.
• A budget-conscious 112th Congress, the 2012 election year cycle, and the recent use of
federal clean energy programs as political talking points makes constructive legislation
difficult.
• The Administration, industry advocates, and policymakers continue commitment to
pursuing extensions of existing incentives through available legislative vehicles,
leveraging existing authorities, as well as exploring innovative approaches to clean
energy financing.
STATUS OF FEDERAL POLICY SUPPORT MECHANISMS TODAY
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PROJECT FINANCE OVERVIEW
• CORPORATE STRUCTURES
• COMMERCIAL TERMS: DEBT & EQUITY
• CAPITAL FORMATION FACTORS & BLENDS
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RENEWABLE PROJECT FINANCE STRUCTURING OVERVIEW
*Technology Risk Insurance *Credit-Enhanced Bonds
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COMMERCIAL TERMS: DEBT & EQUITY RATES
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RETROSPECTIVE: 2010 - 2011
• SOLAR
• WIND
• ADVANCED BIOFUELS
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• In 2011, 1,855 MW of PV was installed, up from 887 MW in 2010.
• Top 3 States in 2011: California, New Jersey and Arizona.
• PV CAPEX continue to decline, improving project economics.
• Recovery Act programs catalyzed over $23.8 billion in solar project financing:
1603 Cash Grant Program (as of Feb 21, 2012):
• 4,469 projects represented 85% of total grant recipients, including 75 MW Martin Next Solar, world’s
largest PV plant.
• $1.98 billion represented 18.4% of receipts, inducing more than $6.6 billion in total investment.
1705 Loan Guarantee Program:
• 12 projects representing 3.4 GW of installed capacity including Ivanpah, world’s largest CSP plant.
• Stimulated $18.8 billion in total investment, with fully installed costs for CSP ranging from $3.55 –
$7.87 / W.
U.S. SOLAR PROJECT FINANCE: 2010 - 2011
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U.S. SOLAR PROJECT FINANCE: 2010 - 2011
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U.S. WIND PROJECT FINANCE: 2010 - 2011
• In 2010, 4.9 GW of onshore wind was installed and over ~ 6.7 GW in 2011: 37% Annual Increase.
Onshore Wind: Top 3 States in 2011: California, Illinois & Iowa. Europe Stagnant. Growth in India + China.
Offshore Wind: 0 MW in U.S., while European and Asian markets grow.
• Recovery Act programs catalyzed over $26.9 billion in onshore wind project financing:
Treasury 1603 Cash Grant Program:
• 251 projects represented only 4.8% of total cash grant recipients, but sector was largest funding recipient.
• $8.1 billion represented 75% of receipts, inducing over $26.9 billion in total investment.
DOE 1705 Loan Guarantee Program:
• 4 projects representing 1GW of installed capacity including largest wind farm in the world (Shepherds
Flat)
• Stimulated $2.8 billion in total investment, with installed costs ranging from $2.28 – $4.93 / W.
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ADVANCED BIOFUELS PROJECT FINANCE: 2010 - 2011
DOE & USDA Programs supported significant capital investments in advanced biofuel projects.
• USDA 9003 Biorefinery Assistance Program:
New rules blessing innovative bond financing structures increased program uptake since 2010.
USDA has closed or conditionally committed guarantees for $855 million in project debt to eight (8)
advanced biorefineries representing $1.3 billion in total investment, and production of 100 million
gallons / year (mgy) cellulosic ethanol.
• DOE 1705 Loan Guarantee Program:
Abengoa’s $132.4 million loan guarantee will support 23.8 mgy cellulosic ethanol plant in Kansas.
Diamond Green Diesel (Valero + Darling International JV) declined $241 million loan guarantee for a
137 mgy Louisiana renewable diesel project, instead on Valero's balance sheet.
POET declined $105 million loan guarantee for Emmetsburg, IA cellulosic plant in January 2012
project, instead on Royal DSM N.V.’s balance sheet.
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• Securing Power Purchase Agreements (PPA) & Financeable Terms for Renewable
Power Projects.
• Securing Long Term Feedstock and Off-take Contracts for Advanced Biofuels Projects.
• Project Size & Technology Maturity – Pilots and Demonstration Units can be a must.
• Financial Strength of Project Sponsor.
• Ability of Creditworthy EPC to Provide Performance Guarantees.
• Scope of Participation by Other Capital Providers – Project Sponsors, Strategic Equity,
O&Ms, EPCs, etc.
• Tax Appetite of Financial Institutions and Development of New Tax Equity Markets.
• Gearing Ratios (Project Leverage) – Equity's Role Becomes More Prominent In Debt-
Equity Ratios.
• Availability of Federal & State Incentives.
• Favorable Environmental Attribute Markets (RECs and RINs).
CAPITAL FORMATION: FACTORS & VARIABLES
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PROSPECTIVE SCENARIOS: 2012 - 2013
• SUPPLY & DEMAND FORECASTS
• POLICY OUTLOOK
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SUPPLY & DEMAND FORECAST: 2012-2013
DEMAND SUPPLY
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U.S. SUPPLY & DEMAND FORECAST: OBSERVATIONS & ASSUMPTIONS
• Impact of 1603 Grant Program Expiration:
50% reduction in available financing due to return of tax equity structures. (USPREF)
If extended: 2 – 3.6 GW in additional solar installations over baseline. (SEIA)
• Production Tax Credit (PTC) Uncertainty:
GTM assumes extended through 2013 occurs in lame duck session.
No extension: Wind investment drops 66%. > 75% decrease in new installations. (AWEA)
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U.S. POLICY OUTLOOK: 2012-2013
• Tax Landscape :
1603 Grant Program & Wind PTC: 1-year extension in Stabenow (D-MI) amendments to
Highway Reauthorization Bill (S.1813) failed on 49-49 vote. Lame duck still possible.
PTC / ITC Alignment: Potential 2013 initiative to unify credits through 2016.
Advanced Biofuels: Industry proposal for 5-year extension of tax credits and cellulosic
biofuels plant depreciation allowance.
• Trade Landscape:
Solarworld AG AD/CVD Case: U.S. imposition of tariffs and subsequent retaliatory action
by Chinese government could drive up module prices.
Latest: Department of Commerce is expected to issue preliminary countervailing duty
determination by March 19th, and preliminary antidumping duties on May 12th .
• Advanced Biofuels:
Defense Production Act (DPA): Potentially $510m for Drop-in Jet Fuels.
Farm Bill : Reauthorization? Repurposing? Amending Existing Programs?
Reopening of RFS2: Potential Adverse Impact on RIN Market.
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U.S. POLICY OUTLOOK: THINKING OUTSIDE OF THE BOX
• New Markets:
Department of Defense: “Federal RPS” 25% by 2025
International: USG (Ex-Im / OPIC), Multilaterals (IADB / World Bank), National Funds (UK / AUS / CAN)
• New Tax Strategies:
New Market Tax Credits (NMTCs): Treasury awarded $3.6 billion to 70 entities (February 2012)
Expanding Tax Equity Participants & Strategic Investors
Foundations: Program-Related Investments (PRIs)
• New Financial Instruments:
Insurance Products to Wrap Technology Risk
Credit Enhanced Bond Financing
State Economic Development Entities and Bond Authorities (Residential PACE)
• New Corporate Structures:
Real Estate Investment Trusts (REITs)
Master Limited Partnerships (MLPs)
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THANK YOU - Q&A JORDAN M. COLLINS Director of Government Relations | ML Strategies
MARK J. RIEDY Member | Mintz Levin
AUDREY LOUISON Member | Mintz Levin
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(202) 434-7462
(202) 434-7380
(202) 434-7474
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JORDAN M. COLLINS Director of Government Relations | ML Strategies
• Served as in-house consultant advising both previous and current Administration officials at
U.S. Department of Energy from 2007-2011 in both:
Office of Energy Efficiency & Renewable Energy
Office of Policy & International Affairs
• Portfolio includes clean energy financing mechanisms, tax policy, federal procurement,
market transformation, international trade, legislative analysis, and technology
commercialization
• Extensive knowledge of existing and proposed clean energy programs, authorities, and
initiatives at Federal & State levels
• Licensed attorney admitted to bar in District of Columbia and State of Texas
(202) 434-7462
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MARK J. RIEDY Member | Mintz Levin
• Represent renewable power generation and biofuel clients in domestic and international matters,
including: Project development, debt and equity financing contracts, mergers and acquisitions,
technology outsourcing, investment fund structuring, venture capital structuring, and regulatory
and legislative issues
• Founder and/or General Counsel to several significant renewable energy organizations over 35
years including the American Council On Renewable Energy.
• Admitted to practice in the District of Columbia, and before the D.C. Court of Appeals; the U.S.
Court of Appeals, D.C. Circuit; U.S. District Court, District of Columbia; U.S. Court of Appeals,
Federal Circuit; the U.S. Court of International Trade; the U.S. Court of Claims; and the U.S. Tax
Court.
• J.D. Georgetown University Law Center ,B.A., summa cum laude University of Michigan
(202) 434-7474
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AUDREY LOUISON Member | Mintz Levin
• Power sector project development and finance attorney specializing in all aspects of renewable
power generation, including:
Complex Commercial Transactions
Mergers & Acquisitions
Private Equity Investments
Sales & Acquisitions
• Client portfolio includes clean energy developers, investors, owners, lenders, utilities, supply
companies, trading companies, and manufacturers.
• J.D. from Boston College, B.S. in Foreign Service from Georgetown University.
• Admitted to practice in the DC, Virginia, and Massachusetts.
(202) 434-7380
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THOMAS R. BURTON, III Member | Chair, Energy & Clean Technology Practice | Mintz Levin
• Founded in 2004, and currently chairs, the firm’s Energy & Clean Technology Practice,
which serves more than 300 clients
• Regularly represents emerging growth energy and clean technology and life sciences
companies, as well as larger established public companies
• Involved in the formation, financing, and sale of numerous energy and clean technology
companies in markets such as solar and wind, smart grid and energy efficiency, water
technologies, waste treatment, biofuels, electric vehicles, and green buildings.
• J.D., magna cum laude, Boston College Law School, B.A. magna cum laude Boston College.
(617) 348-3097
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SAHIR SURMELI Member | Co-chair Energy & Clean Technology Practice | Mintz Levin
• Represents emerging growth and established energy and clean technology, life sciences, and
information technology companies in public offerings and private financings, as well as,
underwriters and issuer clients in traditional energy fields, including oil and gas, pipeline and
exploration financings, and mergers and acquisitions.
• Provides counsel on complex financing structures in a broad range of sectors, including
energy and clean technology, telecommunications, information technology, satellite, biotech,
aerospace and semiconductor.
• Admitted to practice in Massachusetts and New York.
• J.D. University of Chicago Law School , M.B.A., University of Chicago Graduate School of
Business
(617) 348-3013