Financing
Renewable Energy
Projects: Issues and Opportunities
Peter Y. Flynn
Bostonia Partners
July, 2013

• Renewable Energy Financing Basics
• Key Drivers of Renewable Energy Economics
• Importance of Long Term Authority
• Financing & Contracting Options
• Discussion of Capital Stack and Developer Returns
• Critical Issues – Financing Perspective
• Conclusions
Proprietary Information Of Energy 2013 www.bostonia.com

• Founded in 1998, Bostonia Partners is a full-service investment bank with primary market focus in energy and real estate, and additional services in structured finance and advisory – over $5B in Federal projects
• Bostonia Global Securities, the broker/dealer affiliate, provides direct access to investors and daily participation in the capital markets
• Bostonia ranks 7 th among all banks for domestic private placements in 2009 – 2012
Private Placement Market, League Table, 2009 - 2012 Summary
Rank Domestic Traditionals 2009 - 2012, $M
Issuer
Count
Market
Share
6
7
8
4
5
1
2
3
13
14
15
9
10
11
12
BAML
JP Morgan
Wells Fargo
Citi
US Bank
Bostonia
RBS
Mitsubishi
KeyBanc
Barclays
Goldman Sachs
Deutsche Bank
Morgan Stanley
Direct
BNPP
22,660
16,023
6,605
6,469
3,371
2,916
2,659
2,393
2,361
2,243
2,237
2,157
1,982
1,844
1,521
163
105
70
45
37
78
23
21
14
9
9
31
23
10
17
26.33%
18.62%
7.67%
7.52%
3.92%
3.39%
3.09%
2.78%
2.74%
2.61%
2.60%
2.51%
2.30%
2.14%
1.77%
Proprietary Information Of Energy 2013 www.bostonia.com

• Renewable Energy financing is “ project finance ”
• Cash flow driven
• Non-recourse
• Projects are capital intensive (low cash flows vs. high project costs) with important requirements
• Investment grade developer and Power Purchase Agreement counterparty
• Large projects required to justify tax equity structure / achieve economies of scale
• Proven Technologies
• Capital stack typically consist of various sources
• Debt (supported by PPA revenue and contracted RECs)
• Tax equity
• Sponsor equity
Proprietary Information Of Energy 2013 www.bostonia.com

• Generation Market with electricity prices to support Power Purchase
Agreement at “grid parity” with or without escalators
• Renewable Portfolio Standard – Renewable Energy Credits (RECs)
• Federal and State Tax Incentives
RPS Policies Average Price per kWh
Proprietary Information Of Energy 2013 www.bostonia.com

• PPAs efficient way to secure energy at an installation, and for developers and financiers to raise capital for RE projects
• PPAs provide fixed long-term energy price certainty and protection against rising energy costs
• Revenues generated from PPAs drive debt and equity returns; long term PPA necessary to secure financing
• No initial outlay of capital to procure energy
Proprietary Information Of Energy 2013 www.bostonia.com

•
Based on 10 MW Solar Project @ 2.50 / watt All-in Cost
E SPC w/ Tax
Equity
ESPC – no incentives
Tax Equity – ITC and Depreciation
Monetization
40%
Debt
100%
Debt
4.5% yield
60%
4.5% Yield
PPA – EUL
Sponsor Equity
Tax Equity - ITC and Depreciation
Monetization
5%
40%
Debt
5.75% Yield
55%
•
8.5 cents / KWh
– 25 year PPA
• 9.5 cents / KWh
-- 25 year PPA
• 12.5 cents / KWh
– 25 year PPA
Proprietary Information Of Energy 2013 www.bostonia.com

•
Based on 10 MW Solar Project @ 2.50 / watt All-in Cost
E SPC w/ Tax
Equity
ESPC – no incentives
Tax Equity – ITC and Depreciation
Monetization
40%
Debt
100%
Debt
4.5% yield
60%
4.5% Yield
PPA – EUL
Sponsor Equity
Tax Equity - ITC and Depreciation
Monetization
5%
40%
Debt
5.75% Yield
55%
•
8.5 cents / KWh
– 25 year PPA
•
20 cents / KWh
– 10 year PPA
• 9.5 cents / KWh
- 25 year PPA
• 24 cents / KWh
– 10 year PPA
• 12.5 cents / KWh
– 25 year PPA
• 30 cents / KWh –
10 year PPA
Proprietary Information Of Energy 2013 www.bostonia.com

PPA UESC / ESPC EUL
Proprietary Information Of Energy 2013 www.bostonia.com

$30 000 000
$25 000 000
Development Stages of a Typical 10MW Project
Shovel Ready
$200,000 $26,250,000
COD
Tax Equity
$117,194
Project Equity
$4,251,224
$20 000 000
$28,700,000
Tax Equity
$11,719,393
$15 000 000
Project Equity
$2,860,064
$10 000 000
$5 000 000
Construction Loan
$21,887,500
85% of EPC
Cost
Term Debt
$14,091,612
$-
Project Equity
$200,000
Early Development (Cash) Construction Stage (Cash) Placed in Service (Cash)
Proprietary Information Of Energy 2013 www.bostonia.com

Year
18
19
20
15
16
17
10
11
12
13
14
5
6
7
8
9
2
3
4
0
1
Sponsor Tax
Benefit Allocation
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
1%
100%
100%
100%
100%
1%
1%
1%
1%
1%
Owner’s Economics
Sponsor Cash
Investment /
Refundings
-
-
-
-
-
-
-
-
-
-
-
(2,860,064)
-
-
-
-
(1,171,939)
-
-
-
-
Sponsor Project
Cash
230,568
890,760
892,046
893,185
894,172
895,001
895,666
896,161
896,480
896,617
921,564
-
425,368
467,119
464,144
461,168
458,190
689,598
686,614
683,624
680,628
Total Sponsor
Share
230,568
890,760
892,046
893,185
894,172
895,001
895,666
896,161
896,480
896,617
921,564
(2,860,064)
425,368
467,119
464,144
461,168
(713,749)
689,598
686,614
683,624
680,628
Sponsor Running
IRR
6.6%
9.2%
11.0%
12.3%
13.3%
14.1%
14.7%
15.1%
15.5%
15.8%
16.1%
0.0%
-85.1%
-51.5%
-29.4%
-15.8%
0.0%
-13.8%
-3.4%
2.1%
5.7%
Proprietary Information Of Energy 2013 www.bostonia.com

• Development Assumptions:
• Project Size: 10MW
• EPC Cost per Watt: $2.50
• Additional Development Costs: Interconnection, Site Work, Legal Fees, Financing Fees,
Construction Interest, Independent Engineer
• PPA Price: $0.10/KwH
• SREC Price: $150/MwH x 9 years
• Operations Expenses: O&M, Insurance, Property Tax, Administration
• Financing Assumptions:
• 85% Construction Loan to EPC Cost
• 10 Year Senior Loan, LIBOR swap + 350bps at a 1.35x Debt Service Coverage Ratio (48% of
Capital Stack)
• 10 Year Debt Service and O&M working capital facility
• Tax Equity investment for 99% of benefits (ITC + MACRS Depreciation) and 2% preferred cash return over 5 years (40% of Capital Stack). Buyout is sized to approximately 10% of initial investment.
• Long Term Equity 20 year hurdle rate of 15% IRR (12% of Capital Stack)
Proprietary Information Of Energy 2013 www.bostonia.com

Government Risk
• Due diligence/pre-procurement work by agency/installation
• Project selection, size and technologies sought
• Essentiality of the installation
• Track record of the Agency and facility/installation
• Every project needs a “champion”
Proprietary Information Of Energy 2013 www.bostonia.com

Developer/Contractor Risk
• Experience with technology
• Track record for on-time, on-budget performance
• Guarantees for construction and operation
• Financial Strength to cover delays
• Experience with Federal procurement
Proprietary Information Of Energy 2013 www.bostonia.com

•
•
•
Long-term contracting authority is essential for financing
• Efficient way to raise capital and keep energy pricing low
• ESPC is an important tool for meeting Federal energy goals and achieving energy security
RE projects are complex with steep learning curves
• Important to assemble the team early – including the financing
• Projects need a “ champion ” at the installation
• Work with a public/private mentality and remain adaptive and flexible
•
Markets, incentives, and technologies drive projects
Important to understand federal and state incentives, standards, and energy prices in order to determine complete revenue picture
• Important to determine what technologies are best suited to specific geographic conditions
Proprietary Information Of Energy 2013 www.bostonia.com

This information has been prepared solely for information purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any trading strategy. No representation or warranty can be given with respect to the accuracy or completeness of the information, or that any future offer of securities, if any, will conform to the terms hereof. Bostonia disclaims any and all liability relating to this information, including without limitation, any express or implied representations or warranties for, statements contained in, and omissions from, this information.
Proprietary Information Of Energy 2013 www.bostonia.com