“Shaking the Money Tree”
Session B: Finance and Affordability
Maryland Clean Energy Summit
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October 16, 2013
Answers for infrastructure and cities.
What Do You Need to Know to Successfully Finance
a Distributed Generation Project?
• Developer’s Perspective
• Elements of a Financeable Project,
Portfolio
• Financing Sources and Solutions
• Steps to Financing
• Scalability Challenges
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Developer’s Perspective on Executing Distributed
Generation Projects
Development
Strategy
• Site and host
opportunity
assessment
Project ID
and Planning
Project
Development
Project
Financing
• Site selection and
permitting
• Finalize site
development
• Pro-forma
management
• Technology options
assessment
• Technology
selection and
commitments
• Contract
management
• Revenue stream and
path assessment
• PPA and REC path
confirmation
• Equipment
warranties,
performance
guarantees
• Financial structuring
options assessment
• Financing
assumptions
• Off-take
commitments
• RE resource or fuel
supply assessments
• Detailed resource
assessment
• Regulatory process
and approvals
• Value proposition
case development
• Host provisions and
commitment terms
• Financing pro-forma
• Conditions
precedent met
• Finalize EPC
• Financial close
• EPC and O&M
strategy, options
• Develop EPC and
O&M contracts
• Finalize O&M
contract
• Operations or
contract sell-down
strategy
• Develop extension
and termination
rights
• Start construction
draw and
management
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• Vendor
• Finalize equity and
debt commitments
• Address due
diligence issues
• Finalize regulatory
commitments
• Legal / contractual
review
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Project / Asset
Management
• O&M management
• Fiduciary / contract
management
• Risk management
• Credit and collateral
management
• Environmental asset
management
• Financial reporting
and management
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Elements of a Financeable Project, Portfolio
Reliable,
monetized
revenue
streams
Strong
O&M and
availability
guarantees
Financing
Credible sponsor
and technology
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Strong unlevered returns
on equity
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Financing Sources & Solutions
Financing Sources
Strategic
Tax
Term
Constr
Bridge
Credit
Equity
Equity
Debt
Debt
Debt
Support
State
Grants
Incentives
PACE
Other
Project Class
Solar
Wind
Bio Fuels
CHP
DR
Key
Excellent capital availability for well-structured projects
Average capital availability with emerging challenges
Good capital availability for well-structured projects
Significant challenges to capital availability
Not available, or only in special cases
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Steps to Financing
Development &
Partnering
Financing
Structuring and
Securitization
Develop Bankable
Project Portfolio with
Strong Site, Host and
Revenue Features
Optimize Capital
Components to
Generate Requisite
Returns
Provide Performance
Guarantees and
Supplemental Security
Create stakeholder interests among equity, off-take,
lenders and vendors
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Scalability Challenges
Macro Environment
Project – Specific
Financing
Macro
Environment
Incentives’ Horizons
Replication across
Sites & Hosts
Sponsor Quality
and Experience
Incentives’ Horizons
Avoided Cost Curve
Resource Variation
Term of Revenue
Streams
Avoided Cost Curve
Declining Technology
Costs (Wait)
SG&A Costs
Credit Support,
Reserve
Requirements
Declining
Technology Costs
(Wait)
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What is a Partnership and Lease?
These structures unlock the value of tax incentives (ITC/PTC, MACRS)…
A (leveraged) tax partnership creates a pass thru LLC
• Allocates income and loss to separate LLC members
• Allocable items are tax credits, cash, depreciation, and interest deductions
• Tax equity investors (TEI) are preferred, ownership flips once yield is achieved (JP
Morgan)
COD
• Ownership TEI @ 95%; Dev. @ 5%
• Depreciation Allocations TEI @ 95%; Dev. @ 5%
Yr 6
• Ownership TEI @ 5%; Dev. @ 95%
• Depreciation Allocations TEI @ 5%; Dev. @ 95%
A (leveraged / single investor) lease is essentially debt
• Project is sold by lessee (the developer) to lessor (the bank)
• Bank monetizes the tax equity capacity of the asset
• Lessee operates the project and pays rent to lessor
• An agreement is a lease if it meets both GAAP and Tax (IRS) requirements
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What are the Differences?
There are pros and cons to each financing structure, for developers and
their financial partners.
Structural (Risks / Rewards - Developer)
Partnership
Lease
Larger up front developer fee
Up front equity investment required
Long-term ownership option
Higher cost of buyout option
Preferred structure for lower performing project/s
Greater complexity
Higher transaction & ongoing SG&A costs
Market interest and familiarity with structure
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Thank You
For more information,
please contact:
Bo Poats
702.227.2164
bo.poats@Siemens.com
Page 10
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