Past, Present and Future of Solar Finance Presented to: Intersolar Solar Finance and Asset Symposium IV July 7, 2014 San Francisco Michael Eckhart Managing Director Global Head of Environmental Finance Corporate & Investment Banking Citigroup Capital Markets, Inc. michael.eckhart@citi.com PERSPECTIVE 1839-1959: Invention of PV 1839: • Photovoltaic effect first observed in science by Edmond Becquerel, Paris 1888: • Edward Weston receives first US patent for "solar cell" 1922: • Nobel Prize awarded to Albert Einstein for his 1905 mathematical explanation of the photovoltaic effect 1954: • Bell Labs produced the first functioning solar cell 1959: • NASA launched Vanguard 1, the first spacecraft using solar PV (still in orbit!) 1973-1976: Oil Crisis and OECD Reply 1973: • Ford Foundation Study: “solar and efficiency” by David Freeman • “Solar Energy in the Service of Mankind”, Paris: Wolfgang Palz • Solarex founded by Peter Varadi and Joe Lindmeyer • Arab oil embargo 1974 -1976: • International Energy Agency IEA) • Federal Energy Administration (FEA) • Energy Research & Development Administration (ERDA) • Congressional Solar Coalition, Scott Sklar • Oil industry begins investing in solar PV development: – ARCO -- Texaco -- Chevron – Exxon -- Shell -- Mobil 1977-1979: U.S. Government Action 1977: • DOE founded by merger of agencies: FEA, ERDA, NASA Solar, Coal research • Solar Energy Research Institute (SERI) established in Golden, CO • DOE sets PV cost goal = 50¢/Wp ($1976) 1978: • PURPA enacted: creating Qualifying Facilities (QFs) • Energy Tax Act created the first business tax incentives for solar, leading to first leasing structures –Keith Martin, Chadbourne & Parke • BAH study for the White House: “Assessment of Solar PV Technology, Industry and Policy”: Eckhart et al 1979: • ARCO Solar produces 1 MW of PV in one year 1979-1989: The Lost Decade 1979: • Iranian hostage crisis and oil price increase 1980: • Ronald Reagan elected; beginning of major cutbacks in Federal funding 1983: • Solarex acquired by Amoco, commercial applications for PV 1985: • Solar tax credits allowed to lapse 1986 • Oil and gas prices collapse 1990-1996: Rebirth of Renewables 1990: • SERI renamed NREL 1992: • EPAct1992: EWGs and wind PTC • Aachen Model, Germany – precursor to the FIT • SELF founded by Neville Williams 1995: • Founding of Nth Power, first VC in renewables, by Nancy Floyd • Founding of E+Co, the Rockefeller-funded finance fund for SMEs 1996: • World Bank-Rockefeller joint task force on Solar Financing 1997-1999: Kyoto and EU White Paper 1997: • Kyoto Protocol • European “White Paper on Renewable Energy” by Wolfgang Palz • World Bank hosts “Village Power” conference 1998 • SolarBank Initiative in South Africa, Mike Eckhart, Reinhold Viljoen, Sake Kotse et al • SolarBank Initiative in India: training 1,000 bankers by Mike Eckhart, Griff Thompson, Harish Hande, KM Udupa, Rahul Arora, Aesha Grewal • German 100,000 roofs program, Hermann Scheer • California AB 32 solar subsidy 1999: • First RPS in Texas for 2,000 MW of wind power • Founding of the Shell-Eskom Solar Energy Co. in South Africa using pre-payment • Siemens Solar achieves 100 MW produced – announces 25-year warranty 2000-2001: Stage-Setting 2000: • German FIT for solar PV plus KfW solar loan program – Hermann Scheer • EU Publishes “Take-Off for Renewable Energy” • Net Metering • PowerLight hires Greg Rosen, first full-time financier of solar 2001: • ACORE founded, Mike Eckhart, Scott Sklar, Dan Reicher, Michael Ware, John Mullen, Mark Riedy, Hank Habicht and many others. • 9/11 • Enron bankruptcy - ending of utility restructuring 2002: • Solar leasing offered by Stella Group – Scott Sklar • Rio+10 meeting in Johannesburg: renewables blocked 2003-2005: Policy for Financing 2003: • First REFF-Wall Street – repeated annually since then by Mike Eckhart, Ken Locklin, Dan Reicher, Michael Ware et al • New Energy Finance founded, Michael Liebreich • SunEdison founded – PPA model for rooftop solar, Jigar Shah 2003-2004: • German 20-year FIT for all renewables, Hans Josef Fell et al 2004: • Bonn Renewables 2004 – Gerhard Schroeder, Jurgen Trittin, Hermann Scheer • Increasing RPS in the US 2005: • Increased VC investment: John Doerr at KPCB, Stephan Dolezalek at VPCP, Raj Atluru at DFJ, Erik Strasser at Mohr Davidow, Nancy Floyd at Nth Power, plus NEA, others 2006-2007: China and California 2006: • China enacts Renewable Energy Law: Li junfeng • California Solar initiative: $3 billion over 10 years 2007: • SolarCity, SunRun, Sungevity founded • Sale-leaseback financing of a utility-scale PV project for SunEdison, Keith Martin, Chadbourne & Parke • Inverted Lease for resi-rooftop created by US Bank and Morgan Stanley: Marshal Salant and Jason Cavaliere • First solar set-aside established in the Colorado RPS 2008-2009: Financial Crisis/Incentives 2008: • WIREC 2008 world meeting by ACORE, Mike Eckhart, Jim Connaughton, Reno Harnish, many others • Partnership flip financing by SunEdison • Financial crisis: Lehman Bros bankruptcy • ERRA: 30% ITC for 8 years, Rhone Resch; beginning of the new era of tax equity for solar 2009: • IRENA founded • $*9 Billion ARRA with cash grant, loan guarantees and R&D funding • EU enacts 20/20/20 by 2020 • CPF Founded: Nat Kreamer 2010-2011: Loan Guarantees 2010: • China has 523 companies manufacturing solar PV, begins dropping prices • RBF convenes off-site to advance FITs to the US: Michael Northrop, Craig Lewis 2011: • Fukushima nuclear power accident in Japan • ARRA loan guarantees awarded for CSP to BrightSource, SolarReserve and Abengoa • ARRA loan guarantees awarded for PV to First Solar, SunPower, Cogentrix • $2.3 billion Desert Sunlight financing with first solar project bonds by Citi, Stuart Murray et al 2012-2014: Capital Markets 2012: • Japanese FIT enacted • China PV installation program enacted • SolarCity IPO: Lyndon Rive, Bob Kelly, Ben Cook et al • Solar Mosaic founded creating first crowd funding: Daniel Rosen and Billy Parish • SAPC founded by NREL: Michael Mendelsohn • Birth of Community Solar – cooperative financing 2013: • First REIT: Hannon Armstrong Sustainable Investment IPO: Jeff Eckel • First solar securitization by SolarCity: Credit Suisse • First Yieldco by NRG, David Crane working with Citi • TruSolar founded by Distributed Sun: Chase Weir, Jeff Weiss, Doug Payne • “Banking on Solar” founded 2014: • Green Bond Principles developed by Citi and BAML and adopted by over 50 banks, investors and issuers: $20.5 Billion issued YTD. Summary: Phases of Innovation 1970 - 2020 Environmental Policy Innovation Clean Air Act Kyoto EPA Technology Innovation ERDA / USDOE ARRA RD&D Funding Market Structure Innovation PURPA EPAct 1992 RE Policy Innovation FIT, Net Metering, RPS, tax credits Financial Innovation LG, CG, ITC, Interest Rates 1970 1980 1990 2000 2010 2020 Global Solar PV Global Installations 2007-2015 (GW/Year) 46.3 ROW India 36.3 30 30.5 China US 18.2 6.6 Japan 7.7 2.8 2007 EU 2008 Western Europe 2009 2010 2011 Eastern Europe Japan Source; BNEF 2013 2012 US 2013 China India 2014 2015 Rest of World U.S. Solar PV Installations 2006-2013 (S Millions) Utility-Scale Small-Scale Future of Solar Finance: Near-Term Drivers Drivers trending towards solar: • Global markets driving down hardware costs • Interconnection and permitting • Grid and distribution system upgrades • Storage • Continued PV technology advancement and cost reduction Drivers trending away from solar: • ITC and other direct supports • Net metering and resolution of utility rates • Interest rates Future of Solar Financing: Long-Term Drivers Drivers trending towards solar: • Global market pull on PV success • Power economics with environmental and climate costs • Public attitudes on climate and environment • Public acceptance of solar • Infusion of climate policy in utility decision making Drivers trending away from solar: • None Future of Solar Finance Continued innovation: • Easy credit for residential rooftop • Credit backstop mechanisms for C&I financing • Portfolio financings for substation-level projects • Risk mitigation and credit enhancement M&A and consolidation: • Solar installation companies • Solar financing companies Scale-up of issuances to the capital markets: • Solar securitizations • Yieldcos – Carve-outs, Newcos, REITs, and maybe MLPs • Green bonds and the return of balance sheets Thank You Michael Eckhart Managing Director Global Head of Environmental Finance Corporate & Investment Banking Citigroup Capital Markets, Inc. michael.eckhart@citi.com IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. 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