overview of rooftop solar pv model 11713v2

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Copyright 2011 The Brattle Group, Inc. www.brattle.com

Overview of Rooftop Solar PV Green Bank Financing Model

Sponsored by The Connecticut Clean Energy

Finance and Investment Authorityand

The Coalition for Green Capital

Developed byBob Mudge & Ann Murray, The Brattle Group

January 17, 2013

2Disclaimer

Disclaimer:

Asfurtherdescribedintheexplanatorynotes,thisExcelfinancialmodel(theModel)wasdevelopedbyTheBrattleGroup,Inc. undertheauspicesoftheConnecticutCleanEnergyFinanceandInvestmentAuthority(CEFIA)tohighlightthepotentialimpactofcapitalinputsandpublicincentivesonthecostofbehindthemetersolarphotovoltaicinstallationsataconceptuallevel.TheModelisbeingreleasedtothirdpartyusers(Users)tofacilitatecalculationsbysuchUsersbasedstrictlyontheirownstipulatedassumptions.

TheModelisprovidedasiswithoutwarrantyofanykind,eitherexpressorimplied,includingbutnotlimitedtotheimpliedwarrantiesofmerchantabilityandfitnessforaparticularpurpose,andshallbeusedbyUsersattheirownrisk.AlthoughtheModelpresentsaframeworkforperformingUserscalculations,itisnotintended,andshouldnotbeusedasthebasisforinvestmentdecisions.NoUsershouldrelyontheModelsresultsasapredictionoffutureoutcomes;actualeventsmaydiffersignificantlyfromthoseproducedbytheModel.

NeitherCEFIAorTheBrattleGroup,Inc.acceptanydutyofcaretoUsers,includinganyresponsibilityforanyUsersuseoftheModel.AlthoughneitherCEFIAnorTheBrattleGroup,Inc.areunderanyobligationtoprovideupdatestotheModel,CEFIAretainstherighttochange/amendtheModelwithoutnoticetoUsers.

InnoeventshallCGC,CEFIAand/orTheBrattleGroup,Inc. beliableforanydamageswhatsoever,includingbutnotlimitedtodirect,indirect,incidentalconsequential,lossofbusinessprofits,orspecialdamages,regardlessoftheformofaction,whetherincontract,tort,orotherwise.

3Contents

1. Background

2. Illustrative Base Case

3. Model Mechanics

4. Potential Impact of Green Bank Debt

41. Background

Focus on incremental benefits of Green Bank funding at project level

Based on illustrative specifications provided by CT Clean Energy Finance and Investment Authority (CEFIA) and the Coalition for Green Capital (CGC)

Model derives key metrics for behind-the-meter solar:

Specifications including:

Installed costs

Regional capacity factors [a]

State policies and incentives [a]

Capital structure including Green Bank Debt

Key metrics:

Retail cost [b]

Equity returns

Installed capacity per dollar of Green Bank Debt

[b] In the form of a 2013 levelized cost of electricity, net of state incentives and RECs.

[a] Initially shown for Connecticut.

51. Background (Contd.)

62. Illustrative Base Case

Key Assumptions:

Aggregate portfolio of 20MW

Installed cost of $4.5/ Watt

25-year underlying project life

Regional capacity factors applied per NREL data

Operating costs modeled @ $27/ kW-Year

Annual degradation modeled at 0.5%

State incentives modeled at $0.225/ kWh for 6 years

Renewable Energy Credits (RECs) modeled at $0.030/ kWh under financeable 15-year contract

72. Illustrative Base Case (Contd.)

3rdpartyownership(targetreturn=15%)

RelianceonTaxEquity(targetreturn=12%)

PrecedentofCTSolarLeaseProgram

Expectationofdebtsecuritization(interestmodeledat6%)

CAPITALIZATION

BehindtheMeterHost(s)

ProjectOwner(Fund)

ProjectSponsor

FederalGovt.

StateGovt.

ITC

Utility

RECMarket

Taxincentives,grants*

TaxEquityInvestors

CommercialLenders

(emerging)

Equity

PotentialBackleverage

*Subjecttofunding,legislation

* Assumed Structure Before Green Bank Loans


12%

44%48%

13%

40% 42%

0%

20%

40%

60%

80%

100%

UpfrontCapitalization

LifetimeCost(25Years)

%

o

f

C

a

p

i

t

a

l

C

o

s

t

s

PercentageCostComponents

CommercialDebt

GreenBankLoans

TaxEquity

DeveloperEquity


OPERATIONSBehindtheMeterHost(s)

ProjectOwner(Fund)

1.O&M

2.DebtService

3. Capex/Rsvs.

4. TaxEquityAllocation

5. CashEquityAllocation

CommercialLenders

(emerging)

ProjectSponsor

TaxEquityInvestors

FederalGovt.

StateGovt.

ITCandaccelerateddepreciation

Utility

RECMarket

PPA/Lease

Debtservice

PerformanceBasedIncentives

PotentialBackleverage

10


Under above assumptions, reliance on:

Tax Equity

State Incentives

RECs

would hold retail costs at $0.210/ kWh (without Green Bank Debt)

RECs

StateIncent.

0.050

0.100

0.150

0.200

0.250

0.300

0.350

$

p

e

r

k

W

h

(

2

0

1

3

$

)

DerivationofRetailCost(over25YearLife)

Operations

CommercialDebt

GreenBankLoans

TaxEquity

DeveloperEquity

NetRetailCost

AvgResidentialPrice(CT)

AvgCommercialPrice(CT)

11

3. Model Mechanics

Users can stipulate financing cost assumptions Base Case before adding Green Bank Debt is shown below:

% Maturity TargetReturns(AT) 9.0%

Min Avg 2013$State Subsidies 0%

Debt

Commercial (not < 0) 40% 6 6.0% 0.121

Green Bank:

Subordinated 0% 15 0.0% -

Tax Equity 48% 12.0% 0.037 Developer Equity 12% 15.0% 0.127

Total 100% 0.286

ProjectCapitalStructure

KEY FINANCING INPUTSLevelizedCosts

($/kWh)

KEY OUTPUTSTotalDSCR

1.35 1.37

12

3. Model Mechanics (Contd.)

Users can stipulate revenue source assumptions:

Basic model calculation sets net PPA/ Lease rate sufficient to satisfy capital cost requirements.

% 2013$/MWh Escalation

2013$Capital 0.286 Operations 0.025

Gross 0.311 Less State Incentives 225.0 N 0.082

Less RECs 30.0 N 0.020

Net PPA/ Lease 210.1 Y 0.210

ProjectRevenueSources($/MWh)

LevelizedCosts

($/kWh)

13


Base Case Cash Flow Summary ($M; Nominal Basis)

IRR Invest. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

1 Inflation Index 1.025 1.051 1.077 1.104 1.131 1.160 1.189 1.218 1.249 1.280 1.312 1.345 1.379 1.413 1.448

2 PPA/ Lease $/kWh 0.215 0.221 0.226 0.232 0.238 0.244 0.250 0.256 0.262 0.269 0.276 0.283 0.290 0.297 0.304

3 Elec. Sales GWh 22.4 22.3 22.2 22.1 22.0 21.9 21.8 21.6 21.5 21.4 21.3 21.2 21.1 21.0 20.9

4 PPA/ Lease Revs. $M 4.8 4.9 5.0 5.1 5.2 5.3 5.4 5.5 5.7 5.8 5.9 6.0 6.1 6.2 6.4

5 State Incentives $M 5.0 5.0 5.0 5.0 4.9 4.9 - - - - - - - - -

6 RECs $M 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6

7 Total Revenues $M 10.5 10.6 10.7 10.8 10.8 10.9 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.9 7.0

8 Operations $M 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.7 0.7 0.7 0.7 0.7 0.7 0.8 0.8

9 EBITDA $M 10.0 10.0 10.1 10.2 10.2 10.3 5.4 5.5 5.6 5.7 5.8 5.9 6.0 6.1 6.2

10 Debt Service $M 6% (36.4) 7.4 7.4 7.4 7.4 7.4 7.4 - - - - - - - - -

11 Tax Equity

12 Pre-Tax $M (43.7) 2.1 2.2 2.2 2.2 2.3 0.1 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3

13 Tax Impact $M 27.1 3.0 6.6 2.5 (0.0) (0.2) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1)

14 After tax $M 12% (16.7) 5.1 8.7 4.7 2.2 2.1 0.0 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

15 Developer Equity

16 Pre-Tax $M (10.9) 0.5 0.5 0.5 0.5 0.5 2.7 5.2 5.3 5.3 5.4 5.5 5.6 5.7 5.8 5.9

17 Tax Impact $M - - - - - - (1.7) (2.1) (2.1) (2.1) (2.2) (2.2) (2.2) (2.3) (2.3) (2.4)

18 After tax $M 15% (10.9) 0.5 0.5 0.5 0.5 0.5 1.1 3.1 3.2 3.2 3.3 3.3 3.4 3.4 3.5 3.5

To Year 25

14


Under forgoing assumptions, Green Bank Debt could complement commercial debt

% Maturity TargetReturns(AT) 9.0%

Min Avg 2013$State Subsidies 0%

Debt

Commercial (not < 0) 20% 6 6.0% 0.060

Green Bank:

Subordinated 20% 15 2.0% 0.042

Tax Equity 48% 12.0% 0.035 Developer Equity 12% 15.0% 0.102

Total 100% 0.239

ProjectCapitalStructure

KEY FINANCING INPUTSLevelizedCosts

($/kWh)

KEY OUTPUTSTotalDSCR

1.75 2.44

15


with significant reduction in retail cost:

% 2013$/MWh Escalation

2013$Capital 0.239 Operations 0.025

Gross 0.265 Less State Incentives 225.0 N 0.082

Less RECs 30.0 N 0.020

Net PPA/ Lease 163.5 Y 0.163

ProjectRevenueSources($/MWh)

LevelizedCosts

($/kWh)

16


To Year 2520% Green Bank Debt Case Cash Flow Summary ($M; Nominal Basis)

IRR Invest. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

1 Inflation Index 1.025 1.051 1.077 1.104 1.131 1.160 1.189 1.218 1.249 1.280 1.312 1.345 1.379 1.413 1.448

2 PPA/ Lease $/kWh 0.168 0.172 0.176 0.180 0.185 0.190 0.194 0.199 0.204 0.209 0.214 0.220 0.225 0.231 0.237

3 Elec. Sales GWh 22.4 22.3 22.2 22.1 22.0 21.9 21.8 21.6 21.5 21.4 21.3 21.2 21.1 21.0 20.9

4 PPA/ Lease Revs. $M 3.8 3.8 3.9 4.0 4.1 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.9

5 State Incentives $M 5.0 5.0 5.0 5.0 4.9 4.9 - - - - - - - - -

6 RECs $M 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6

7 Total Revenues $M 9.5 9.5 9.6 9.6 9.7 9.7 4.9 5.0 5.0 5.1 5.2 5.3 5.4 5.5 5.6

8 Operations $M 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.7 0.7 0.7 0.7 0.7 0.7 0.8 0.8

9 EBITDA $M 8.9 8.9 9.0 9.0 9.1 9.1 4.2 4.3 4.4 4.4 4.5 4.6 4.6 4.7 4.8

10 Debt Service $M 3% (18.1) 5.1 5.1 5.1 5.1 5.1 5.1 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4

11 Tax Equity

12 Pre-Tax $M (43.6) 2.1 2.1 2.2 2.2 2.2 0.2 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2

13 Tax Impact $M 26.9 3.0 6.6 2.6 0.2 0.1 (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.1)

14 After tax $M 12% (16.6) 5.1 8.7 4.8 2.4 2.3 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

15 Developer Equity

16 Pre-Tax $M (10.9) 1.7 1.7 1.7 1.7 1.8 3.8 2.7 2.7 2.8 2.9 2.9 3.0 3.1 3.1 3.2

17 Tax Impact $M - - - - - - (1.3) (1.6) (1.6) (1.7) (1.7) (1.7) (1.7) (1.8) (1.8) (1.8)

18 After tax $M 15% (10.9) 1.7 1.7 1.7 1.7 1.8 2.5 1.1 1.1 1.1 1.2 1.2 1.3 1.3 1.3 1.4

17

4. Potential Impact of Green Bank Debt

For Illustration, Green Bank Scenarios defined per capital structure scenarios shown below:

0%

20%

40%

60%

80%

100%

120%

0% 10% 20% 30% 40%

P

e

r

c

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n

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GreenBankDebtasaPercentageofCapital

CapitalStructure

CommercialDebtGreenBankDebtTaxEquity

DeveloperEquity

18

4. Potential Impact of Green Bank Debt (Contd.)

Base Case $0.210/ kWh retail cost shown at upper left in table below

Alone, or with help from reductions in installed costs, Green Bank Debt could achieve parity with retail rates:

Cells with retail cost < average 2011 CT retail price escalated to 2013 ($0.190/ kWh) are shaded

Retail Cost ($/kWh) as a Function of Green Bank Debt and Installed Cost

Other Assumptions:

0% 10% 20% 30% 40% Developer equity return: 15%

4.5 0.210 0.187 0.163 0.140 0.117 Tax equity return: 12%

4.0 0.174 0.154 0.133 0.112 NA Total leverage: 40%

3.5 0.139 0.121 0.103 0.085 NA Commercial debt int.: 6%

3.0 0.103 0.088 0.072 0.057 NA 15-Year RECs: $0.030/ kWh

6-Year State incentives: $0.225/ kWh

Installed Cost ($/W)

% Green Bank Debt in Capital Structure

19


Green Bank Debt could help take pressure off State incentives


Retail Cost ($/kWh) as a Function of Green Bank Debt and State Incentives

Other Assumptions:

0% 10% 20% 30% 40% Installed cost: $4.5/W

0.300 0.172 0.149 0.126 0.103 NA Developer equity return: 15%


0.150 NA 0.224 0.201 0.177 0.155 Total leverage: 40%

0.075 NA NA 0.238 0.215 0.192 Commercial debt int.: 6%

15-Year RECs: $0.030/ kWh

State Incentives per kWh


20


as well as REC prices:


Retail Cost ($/kWh) as a Function of Green Bank Debt and REC Prices

Other Assumptions:

0% 10% 20% 30% 40% Installed cost: $4.5/W

0.045 0.199 0.175 0.152 0.129 0.106 Developer equity return: 15%


0.015 0.221 0.198 0.175 0.152 0.129 Total leverage: 40%

- 0.233 0.209 0.186 0.163 0.140 Commercial debt int.: 6%


REC Prices per kWh


21


At given levels of retail cost, Green Bank Debt can help developers achieve target returns:

Cells with developer return > assumed target (15%) are shaded

Developer Return (%) as a Function of Green Bank Debt and Retail Cost

Other Assumptions:

0% 10% 20% 30% 40% Installed cost: $4.5/W

0.230 17.0% 20.2% 24.7% 30.8% 38.6% Tax equity return: 12%

0.180 12.0% 14.2% 17.4% 22.4% 29.5% Total leverage: 40%

0.130 NA 8.1% 9.9% 12.9% 18.5% Commercial debt int.: 6%

0.080 NA NA NA NA NA 15-Year RECs: $0.030/ kWh


Retail Cost per kWh


22


Depending on dollars deployed and role in capital structure, Green Bank Debt could support significant MWs of solar pv installation:


MWs Installed as a Function of Green Bank Debt Deployed

Other Assumptions:

0% 10% 20% 30% 40% Installed cost: $4.5/W

Retail Cost 0.210 0.187 0.163 0.140 0.117 Developer equity return: 15%

100 - 220 110 74 55 Tax equity return: 12%

75 - 165 83 55 41 Total leverage: 40%

50 - 110 55 37 28 Commercial debt int.: 6%

25 - 55 28 18 14 15-Year RECs: $0.030/ kWh


Green Bank Debt Deployed ($M)


overview of rooftop solar pv model 11713v2

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