Renewable Energy
Project Finance and Funding
Future Energy Conference
Seattle, Washington
November 9, 2010
Fred Greguras
Palo Alto Office
fred.greguras@klgates.com
650.798.6708
PL45556v2
Renewable Energy
Project Finance Basics
Are the numbers financeable by lenders and other investors?
Spreadsheet analysis of costs, revenue streams and investor ROI
Are the revenues predictable enough for investor comfort?
Sources of revenue
Project Costs
Land
Equipment
Construction
Transaction
Financing
Operations and maintenance
Sources of funding
1
Sources of Funding
Sponsor Equity
15-20%
Skin in the game
Loan
40-50%
Tax Equity
35-40%
Federal investment tax credit/1603 cash grant in lieu of ITC
Federal depreciation
85% of the basis
2
Loan Guarantees (Credit Support)
Purpose is to reduce credit cost and make the financing math work better
Guarantors
Sponsor
Vendor
Department of Energy
Borrower and other principals must make a significant cash investment in
the project.
Guarantees are generally limited to 80% of project costs.
Cost of complicated application process may offset credit cost savings
Other federal and state programs
3
Sources of Project Revenue
Power purchase agreement
Creditworthiness of power purchaser
Price per kWh
Predictability of receiving the revenues-PPA terms
Feed in tariff
utility (Contrast with Germany, Spain, Italy)
Land rights/Junk on the roof
Impact of Oct 21 FERC decision on calculating avoided cost
Federal 30% cash grant in lieu of investment tax credit or ITC
Renewable Energy Certificates created to help satisfy state renewable portfolio standards
(RPS). Teeth needed in RPS requirements to increase demand
State subsidies
utilities
Production Based Initiative rebate (California)
does not include sales to
4
Federal Cash Grant in Lieu of Investment Tax Credit
(Section 1603)
30% cash as opposed to ITC
Single most important federal incentive and simplest to implement
Available only until 12/31/2010; thereafter reverts to ITC only unless extended by
Congress.
Unlikely to be extended prior to 12/31; best possibility is extension in some form in
the Spring, 2011
Project must be under construction by 12/31/2010 to qualify
5% of the cost has been paid or incurred prior to 12/31
Begin physical work of a significant nature
No extension will reduce number of new generating installations and increase cost of
tax equity investment
5
Job Creation
Section 1603 cash grant
Federal Advanced Energy Manufacturing Tax Credit (48C)
$2.3B fully allocated
Prospects for additional funding
State and local incentives for manufacturing
Washington, Arizona, Oregon
6
Summary
Successful project finance depends on making the numbers work for investors with a
high degree of predictability
There will be more utility financed and owned projects as well as projects financed by
vendors but ratepayer and financial statement impacts will require other financing
structures
No single government incentive or policy is sufficient to enable financing; a tool kit of
incentives and policies is needed that can be applied at the same time
The federal 30% cash grant is the single most important incentive in the U.S. but is
not sufficient by itself to finance a project even a temporary expiration will delay new
financings
The consequences of failing to meet RPS requirements must be more severe in
order to have a meaningful impact on financing
Renewable energy projects create jobs
7