Jan.Expanding Utility Solar Ownership Opportunities Slides
Securitization, Utility Investment, and Distributed Assets
Solar Electric Power Association January 16th, 2014 Michael Mendelsohn, Dylan Cutler NREL NREL is a national laboratory of the U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.
Agenda • Utility PV/Storage Ownership Concepts • Cost-Effectiveness Case Studies • Solar Industry Activities to Facilitate Securitization
2
Utility PV/Storage Ownership Concepts
3
Distributed PV Growth 100,000
Non-Residential
Annual PV Systems Installed
90,000
Residential
80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2000
2002
2004
2006
2008
2010
2012
4
Utility Investment in DG: win-win? • Utilities have access to low-cost capital • Utilities need capital investment to ensure healthy returns to their shareholders • Distributed assets can provide grid resiliency benefits: From storms and other natural disasters o Combinations of PV & storage tested o
• Avoided T&D • Customer retention 5
Constraints to Utility Investment • Complex RE financial structures require very specific expertise o
Tax equity for those without tax appetite
• Concerns solar remains uneconomic compared to traditional generation technologies • Regulatory constraints: o o
Fear of market dominance or Self-selection by utilities
• “Normalization” accounting rules – require tax benefits spread over the asset life o
Appears to favor non-utility investment 6
Utility DG Investment – as Customer Service • PV/storage combinations may provide discounts to the customer demand and energy charges • Equipment is placed at customer sites • Utilize common equipment lease arrangements • Utility and the customer split the savings • Other Benefits: o o o o o
Sales retention Customer retention Grid resiliency Fulfill RPS / storage requirements Avoid T&D
• Short, medium, or long-term – o
Securitization represents a valuable take-out option 7
Cost-Effectiveness Case Studies
8
REopt Overview • REopt is a platform for energy system integration and optimization o
o
Recommend an optimal mix of RE to most cost-efficiently meet energy goals Integrates – – – –
o
GIS resource data DSIRE incentive data RE technology info Cost information
Performs – time-series integration – Optimization (MIP)
o
Techno-economic model
http://www.nrel.gov/tech_deployment/tools_reopt.html 9
Overview of Analysis • 3 Locations/2 Building Types o o o
Las Vegas, Chicago, Boulder Medium office building (53,000 ft2), strip mall (22,500 ft2) Tariff Structures from OpenEI Utility Rate Database
Las Vegas
Chicago
Boulder
Tariff
Demand Usage ($/kW) ($/kWh)
Tariff
Demand Usage ($/kW) ($/kWh)
Tariff
Demand Usage ($/kW) ($/kWh)
Peak
8.57
0.052
Peak
8.59
0.084
Summer
18.90
0.037
Off-Peak
8.57
0.052
Off-Peak
8.59
0.084
Winter
15.94
0.037 10
Technology and Economic Parameters • PV o o
Capital cost: $2760 / KW (before federal tax incentives) O&M: $31 / KW / Year (includes inverter replacement)
• Batteries (Li-Ion) o o o o
$1400 / kWh (before federal tax incentives) Can fully charge / discharge within 1 hour Minimum SOC = 20% Round-trip efficiency = 85%
• Economics o o o o
Electricity escalation rate: 2.5% Inflation rate: 0.9% Analysis period: 25 years Discount rate (cost of capital): 9.0%
11
Chicago - Office Scenario Base case PV Battery PV + Battery
Chicago, Office Building PV (kW)
Battery (kWh)
Present Value of Costs ($)
NPV ($)
-
-
1,369,300
-
9.5
-
1,369,170
+130
-
23.6
1,365,090
+4080
12.6
35.5
1,364,680
+4500
12
Results for All Sites • Low usage rates in Boulder rule out PV o
Load Duration Curve - July
Corresponding high demand rates lead to large storage sizes
• “Peakier” load in Chicago leads to larger storage sizes than Vegas o
Max of 386 kW vs. 249 kW with similar average load Cost-Optimal Results (PV Size/Battery Size) Las Vegas
Chicago
Boulder
PV (kW)
Batt (kWh)
PV (kW)
Batt (kWh)
PV (kW)
Batt (kWh)
Office
52.2
19.3
12.6
35.0
0
73.7
Mall
19.2
1.3
18.9
2.8
0
13.8 13
Results for All Sites: Storage - $1000/kWh Cost-Optimal Results (PV Size/Battery Size) Las Vegas
Chicago
Boulder
PV (kW)
Batt (kWh)
PV (kW)
Batt (kWh)
PV (kW)
Batt (kWh)
Office
47.5
30.0
15.1
62.9
0
122.5
Mall
21.6
6.0
30.8
6.3
0
21.3
• Storage sizes increase by 40-60% • In almost all cases, optimal PV size increase as well
14
Solar Industry Activities to Facilitate Securitization
15
Project History NREL Goal Expand availability of capital Lower cost of capital Reduce transaction cost, time to access capital
3 Yr. DOE Award: Advanced Financing to Achieve SunShot
Organize the industry around: • Standard documents • Best Practices • Robust datasets Conduct analysis to comprehend opportunities and barriers Promote adoption by developers, financiers, lenders, etc. 16
Value: Expand the Availability of Capital Most managed funds do not invest in renewable energy. To tap this capital, investors need a liquid, tradable product priced by the market Pension funds Insurance funds
Conventional Assets
Mutual funds Sovereign Wealth Private equity
Non-Conventional Assets
Hedge funds ETFs Private Wealth 0
10 20 30 40 Global Assets under Management ($ trillions)
50
Source: The CityUK Hatched sources of capital currently invest in RE, but not necessarily from all investment buckets
17
Securitization: $500 billion market 2012 Issuances in $ billions Due to reduced activity in Mortgage Backed Securities and changes in regulation, there is currently more demand for securities than supply. Capital markets are seeking new asset classes, and there is considerable interest in solar but also high risk perception
U.S. Public, $208
U.S. Rule 144A, $182.6 Non-U.S., $120.9
18
SAPC: Approx. 150 Participant Entities Developers
Legal
Investment
Advisory
Manuf. / Other
Altus Power
Akin Gump
B of A Merrill Lynch
Black & Veatch
Enphase
Amicus Solar
Bingham McCutchen
CalCef
Capital Fusion Partners
Hanwha Q-Cells
Borrego Solar
Chadbourne & Parke
Citi
Citi Trust Services
KACO
Distributed Sun
Chapman & Cutler
Clean Power Finance
First Associates
SMA
Enfinity
Cooley
Credit Agricole
GL Garrad Hassan
Solectria
Duke Energy
Coronal Mgt
Credit Suisse
Kroll Bond Ratings
Energi
HelioPower
Covington
EcoPower Capital
KPMG LLP
CleanPath
Main Street Power
Dechert
Energy One Finance
Lease Dimensions
Skystream Markets
NextEra
DLA Piper
Foresight Group
Locus Energy
PV Evolution Labs
OneRoof
Hunton & Williams
Global Capital Finance
Mercatus
Solar Electric Power Ass.
PsomasFMG
K&L Gates
Hannon Armstrong
Novogradac
Global Cool Cities
Recurrent
Milbank
kW Financial
Power Factors
Demeter Power
Rosendin
McCauley Lyman
Macquarie
PwC
Tioga Power
SolarCity
Orrick, Herrington…
MorganStanley
Rocky Mtn. Institute
Rottman & Associates
SPG Solar
Patton Boggs
Rabobank
SAIC
Amp Solar
Sungevity
Sidley Austin
Seminole Financial
Sol Systems
Department of Energy
SunPower
Skadden Arps
Union Bank
Standard and Poor’s
SunSpec
SunRun
Stoel Rives
US Renewables Group
Trepp
Birch Tree Capital
Vivint Solar
Troutman Sanders
Wiser Capital
TUV
Nancy LaPlaca 19
SAPC Activities • Standard Contracts – –
Residential Lease (aggregated, disaggregated) Commercial PPA
• Develop Best Practices – – –
O&M Installation Independent Engineering
• Develop mock filing to rating agencies • Build Performance Dataset: oSPARC • Engage Solar & Investment Bank/Investor Communities 20
NREL’s oSPARC Data Initiative
21
Standard Contracts and Loan Documents • Benefits of Adoption: o
Lower transaction costs
o
Speed deployment
o
Improve customer protection
o
o
Facilitate cash flows to be pooled into securities to access capital market investment Greater liquidity in projects among portfolios
22
Mock Securitizations • Several planned: Residential vs. Commercial o Pre vs. Post Recapture (i.e., Tax Equity ownership) o Various iterations of tranching, overcollateralization & priority of payments o
• First suite presented to rating agencies: Pool of residential leases, Senior/Sub structure o Detailed legal term sheets o Structuring and cash flow analyses o
23
Disclaimer Statements •
This document is provided by the National Renewable Energy Laboratory (“NREL”), which is operated by the Alliance for Sustainable Energy LLC (“Alliance”) for the U.S. Department of Energy (the “DOE”). This document has been authored by employees of the Alliance for Sustainable Energy, LLC (“Alliance”) under Contract No. DE-AC36-08GO28308 with the U.S. Department of Energy (“DOE”).
•
It is recognized that disclosure of these Data is provided under the following conditions and warnings: (1) these Data have been prepared for reference purposes only; (2) these Data consist of forecasts, estimates or assumptions made on a bestefforts basis, based upon present expectations; and (3) these Data were prepared with existing information and are subject to change without notice.
•
This document was prepared as an account of work sponsored by an agency of the United States government. Neither the United States government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recommendation, or favoring by the United States government or any agency thereof. The views and opinions of authors expressed herein do not necessarily state or reflect those of the United States government or any agency thereof.
•
USERS OF THIS DOCUMENT AGREE TO INDEMNIFY DOE/NREL/ALLIANCE, AND ITS AFFILIATES, OFFICERS, AGENTS, AND EMPLOYEES AGAINST ANY CLAIM OR DEMAND, INCLUDING REASONABLE ATTORNEYS' FEES, RELATED TO YOUR USE, RELIANCE, OR ADOPTION OF THESE DATA FOR ANY PURPOSE WHATSOEVER. THESE DATA ARE PROVIDED BY DOE/NREL/ALLIANCE "AS IS" AND ANY EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY DISCLAIMED. IN NO EVENT SHALL DOE/NREL/ALLIANCE BE LIABLE FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES WHATSOEVER, INCLUDING BUT NOT LIMITED TO CLAIMS ASSOCIATED WITH THE LOSS OF DATA OR PROFITS, WHICH MAY RESULT FROM AN ACTION IN CONTRACT, NEGLIGENCE OR OTHER TORTIOUS CLAIM THAT ARISES OUT OF OR IN CONNECTION WITH THE USE OR PERFORMANCE OF THESE DATA.
24
Thank You Michael Mendelsohn National Renewable Energy Lab [email protected] Dylan Cutler National Renewable Energy Lab [email protected]
25
Solar Electric Power Association January 16th, 2014 Michael Mendelsohn, Dylan Cutler NREL NREL is a national laboratory of the U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.
Agenda • Utility PV/Storage Ownership Concepts • Cost-Effectiveness Case Studies • Solar Industry Activities to Facilitate Securitization
2
Utility PV/Storage Ownership Concepts
3
Distributed PV Growth 100,000
Non-Residential
Annual PV Systems Installed
90,000
Residential
80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2000
2002
2004
2006
2008
2010
2012
4
Utility Investment in DG: win-win? • Utilities have access to low-cost capital • Utilities need capital investment to ensure healthy returns to their shareholders • Distributed assets can provide grid resiliency benefits: From storms and other natural disasters o Combinations of PV & storage tested o
• Avoided T&D • Customer retention 5
Constraints to Utility Investment • Complex RE financial structures require very specific expertise o
Tax equity for those without tax appetite
• Concerns solar remains uneconomic compared to traditional generation technologies • Regulatory constraints: o o
Fear of market dominance or Self-selection by utilities
• “Normalization” accounting rules – require tax benefits spread over the asset life o
Appears to favor non-utility investment 6
Utility DG Investment – as Customer Service • PV/storage combinations may provide discounts to the customer demand and energy charges • Equipment is placed at customer sites • Utilize common equipment lease arrangements • Utility and the customer split the savings • Other Benefits: o o o o o
Sales retention Customer retention Grid resiliency Fulfill RPS / storage requirements Avoid T&D
• Short, medium, or long-term – o
Securitization represents a valuable take-out option 7
Cost-Effectiveness Case Studies
8
REopt Overview • REopt is a platform for energy system integration and optimization o
o
Recommend an optimal mix of RE to most cost-efficiently meet energy goals Integrates – – – –
o
GIS resource data DSIRE incentive data RE technology info Cost information
Performs – time-series integration – Optimization (MIP)
o
Techno-economic model
http://www.nrel.gov/tech_deployment/tools_reopt.html 9
Overview of Analysis • 3 Locations/2 Building Types o o o
Las Vegas, Chicago, Boulder Medium office building (53,000 ft2), strip mall (22,500 ft2) Tariff Structures from OpenEI Utility Rate Database
Las Vegas
Chicago
Boulder
Tariff
Demand Usage ($/kW) ($/kWh)
Tariff
Demand Usage ($/kW) ($/kWh)
Tariff
Demand Usage ($/kW) ($/kWh)
Peak
8.57
0.052
Peak
8.59
0.084
Summer
18.90
0.037
Off-Peak
8.57
0.052
Off-Peak
8.59
0.084
Winter
15.94
0.037 10
Technology and Economic Parameters • PV o o
Capital cost: $2760 / KW (before federal tax incentives) O&M: $31 / KW / Year (includes inverter replacement)
• Batteries (Li-Ion) o o o o
$1400 / kWh (before federal tax incentives) Can fully charge / discharge within 1 hour Minimum SOC = 20% Round-trip efficiency = 85%
• Economics o o o o
Electricity escalation rate: 2.5% Inflation rate: 0.9% Analysis period: 25 years Discount rate (cost of capital): 9.0%
11
Chicago - Office Scenario Base case PV Battery PV + Battery
Chicago, Office Building PV (kW)
Battery (kWh)
Present Value of Costs ($)
NPV ($)
-
-
1,369,300
-
9.5
-
1,369,170
+130
-
23.6
1,365,090
+4080
12.6
35.5
1,364,680
+4500
12
Results for All Sites • Low usage rates in Boulder rule out PV o
Load Duration Curve - July
Corresponding high demand rates lead to large storage sizes
• “Peakier” load in Chicago leads to larger storage sizes than Vegas o
Max of 386 kW vs. 249 kW with similar average load Cost-Optimal Results (PV Size/Battery Size) Las Vegas
Chicago
Boulder
PV (kW)
Batt (kWh)
PV (kW)
Batt (kWh)
PV (kW)
Batt (kWh)
Office
52.2
19.3
12.6
35.0
0
73.7
Mall
19.2
1.3
18.9
2.8
0
13.8 13
Results for All Sites: Storage - $1000/kWh Cost-Optimal Results (PV Size/Battery Size) Las Vegas
Chicago
Boulder
PV (kW)
Batt (kWh)
PV (kW)
Batt (kWh)
PV (kW)
Batt (kWh)
Office
47.5
30.0
15.1
62.9
0
122.5
Mall
21.6
6.0
30.8
6.3
0
21.3
• Storage sizes increase by 40-60% • In almost all cases, optimal PV size increase as well
14
Solar Industry Activities to Facilitate Securitization
15
Project History NREL Goal Expand availability of capital Lower cost of capital Reduce transaction cost, time to access capital
3 Yr. DOE Award: Advanced Financing to Achieve SunShot
Organize the industry around: • Standard documents • Best Practices • Robust datasets Conduct analysis to comprehend opportunities and barriers Promote adoption by developers, financiers, lenders, etc. 16
Value: Expand the Availability of Capital Most managed funds do not invest in renewable energy. To tap this capital, investors need a liquid, tradable product priced by the market Pension funds Insurance funds
Conventional Assets
Mutual funds Sovereign Wealth Private equity
Non-Conventional Assets
Hedge funds ETFs Private Wealth 0
10 20 30 40 Global Assets under Management ($ trillions)
50
Source: The CityUK Hatched sources of capital currently invest in RE, but not necessarily from all investment buckets
17
Securitization: $500 billion market 2012 Issuances in $ billions Due to reduced activity in Mortgage Backed Securities and changes in regulation, there is currently more demand for securities than supply. Capital markets are seeking new asset classes, and there is considerable interest in solar but also high risk perception
U.S. Public, $208
U.S. Rule 144A, $182.6 Non-U.S., $120.9
18
SAPC: Approx. 150 Participant Entities Developers
Legal
Investment
Advisory
Manuf. / Other
Altus Power
Akin Gump
B of A Merrill Lynch
Black & Veatch
Enphase
Amicus Solar
Bingham McCutchen
CalCef
Capital Fusion Partners
Hanwha Q-Cells
Borrego Solar
Chadbourne & Parke
Citi
Citi Trust Services
KACO
Distributed Sun
Chapman & Cutler
Clean Power Finance
First Associates
SMA
Enfinity
Cooley
Credit Agricole
GL Garrad Hassan
Solectria
Duke Energy
Coronal Mgt
Credit Suisse
Kroll Bond Ratings
Energi
HelioPower
Covington
EcoPower Capital
KPMG LLP
CleanPath
Main Street Power
Dechert
Energy One Finance
Lease Dimensions
Skystream Markets
NextEra
DLA Piper
Foresight Group
Locus Energy
PV Evolution Labs
OneRoof
Hunton & Williams
Global Capital Finance
Mercatus
Solar Electric Power Ass.
PsomasFMG
K&L Gates
Hannon Armstrong
Novogradac
Global Cool Cities
Recurrent
Milbank
kW Financial
Power Factors
Demeter Power
Rosendin
McCauley Lyman
Macquarie
PwC
Tioga Power
SolarCity
Orrick, Herrington…
MorganStanley
Rocky Mtn. Institute
Rottman & Associates
SPG Solar
Patton Boggs
Rabobank
SAIC
Amp Solar
Sungevity
Sidley Austin
Seminole Financial
Sol Systems
Department of Energy
SunPower
Skadden Arps
Union Bank
Standard and Poor’s
SunSpec
SunRun
Stoel Rives
US Renewables Group
Trepp
Birch Tree Capital
Vivint Solar
Troutman Sanders
Wiser Capital
TUV
Nancy LaPlaca 19
SAPC Activities • Standard Contracts – –
Residential Lease (aggregated, disaggregated) Commercial PPA
• Develop Best Practices – – –
O&M Installation Independent Engineering
• Develop mock filing to rating agencies • Build Performance Dataset: oSPARC • Engage Solar & Investment Bank/Investor Communities 20
NREL’s oSPARC Data Initiative
21
Standard Contracts and Loan Documents • Benefits of Adoption: o
Lower transaction costs
o
Speed deployment
o
Improve customer protection
o
o
Facilitate cash flows to be pooled into securities to access capital market investment Greater liquidity in projects among portfolios
22
Mock Securitizations • Several planned: Residential vs. Commercial o Pre vs. Post Recapture (i.e., Tax Equity ownership) o Various iterations of tranching, overcollateralization & priority of payments o
• First suite presented to rating agencies: Pool of residential leases, Senior/Sub structure o Detailed legal term sheets o Structuring and cash flow analyses o
23
Disclaimer Statements •
This document is provided by the National Renewable Energy Laboratory (“NREL”), which is operated by the Alliance for Sustainable Energy LLC (“Alliance”) for the U.S. Department of Energy (the “DOE”). This document has been authored by employees of the Alliance for Sustainable Energy, LLC (“Alliance”) under Contract No. DE-AC36-08GO28308 with the U.S. Department of Energy (“DOE”).
•
It is recognized that disclosure of these Data is provided under the following conditions and warnings: (1) these Data have been prepared for reference purposes only; (2) these Data consist of forecasts, estimates or assumptions made on a bestefforts basis, based upon present expectations; and (3) these Data were prepared with existing information and are subject to change without notice.
•
This document was prepared as an account of work sponsored by an agency of the United States government. Neither the United States government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recommendation, or favoring by the United States government or any agency thereof. The views and opinions of authors expressed herein do not necessarily state or reflect those of the United States government or any agency thereof.
•
USERS OF THIS DOCUMENT AGREE TO INDEMNIFY DOE/NREL/ALLIANCE, AND ITS AFFILIATES, OFFICERS, AGENTS, AND EMPLOYEES AGAINST ANY CLAIM OR DEMAND, INCLUDING REASONABLE ATTORNEYS' FEES, RELATED TO YOUR USE, RELIANCE, OR ADOPTION OF THESE DATA FOR ANY PURPOSE WHATSOEVER. THESE DATA ARE PROVIDED BY DOE/NREL/ALLIANCE "AS IS" AND ANY EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY DISCLAIMED. IN NO EVENT SHALL DOE/NREL/ALLIANCE BE LIABLE FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES WHATSOEVER, INCLUDING BUT NOT LIMITED TO CLAIMS ASSOCIATED WITH THE LOSS OF DATA OR PROFITS, WHICH MAY RESULT FROM AN ACTION IN CONTRACT, NEGLIGENCE OR OTHER TORTIOUS CLAIM THAT ARISES OUT OF OR IN CONNECTION WITH THE USE OR PERFORMANCE OF THESE DATA.
24
Thank You Michael Mendelsohn National Renewable Energy Lab [email protected] Dylan Cutler National Renewable Energy Lab [email protected]
25
