Repetti T Final Presentation
Utility Solar Lending Business Model
Ted Repetti Program Manager, PSE&G Solar Loan Program April 28, 2015
Public Service Electric & Gas Company • PSE&G is one of the largest combined electric and gas companies in the United States and recently celebrated its 112th anniversary • PSE&G was named America’s Most Reliable Electric Utility in 2012 • PSE&G ranks highest in customer satisfaction with business natural gas service and large business electric service in the east, according to J.D. Power. • Our parent company, PSEG, is headquartered in Newark, New Jersey with total assets of $35 Billion (2014) and approximately 12,000 employees
PSEG Solar Divisions PSEG
PSEG Power Solar Source
PSE&G
Solar4All
Solar Loan
PSE&G Solar Loan Program • A part of PSE&G, the largest utility in NJ • Provides term loans to qualified commercial and residential customers for photovoltaic solar energy systems • Program established by PSE&G and approved by utility regulator as a means of encouraging solar development in NJ • Since 2008, more than 1,000 PSE&G customers have financed over 80MW of solar on homes and businesses in NJ • Solar Loan III was approved in 2013 to support the installation of 97.5 MW of solar capacity over 3 years 4
Solar Loan Program ConEdison Solutions / Port Authority of NY & NJ 600KW-DC. Newark, NJ.
LPS Industries 700 KW-DC. Carlstadt, NJ.
Dow Jones 4.1MW-DC. South Brunswick, NJ
Integrys Energy / Camden County Muni. Utility Authority 1.8MW-DC. Camden, NJ
5
New Jersey Solar Market Net-Metered Solar MWs Installed in New Jersey
A national leader
•
NJ ranks 3rd in the country in installed
300
solar capacity with 1,451MW
200
46
250 MW
•
350
Through 2014, cumulative net metered capacity stood at
38 47
150
15
100 50 0
1,091MW, of that, 540MW was
5 14
5 32
83
2008
2009
2010
Growth continues NJ ranked 6th nationally based on total 2014 installed capacity In 2014, NJ installed 166MW of new net metered capacity
2011
116
2013
2014
Residential
300 250 200
15
150
14
100 50
5 1 3
1 10
51
2008
2009
2010
104
2011
Non-Residential Data Source: SEIA, NJ Clean Energy Program
145
350
0
6
2012
50
Net-Metered Solar MWs Installed in PSE&G Territory
MW
•
187
Non-Residential
installed in PSE&G territory •
284
16 162 93
2012
2013
Residential
Data Source: NJ Clean Energy Program Note: Data excludes grid connected projects.
17 39
2014
The Challenge and Solution The Challenge • Net metered solar capacity results in lost revenues for the utility
The Solution • By lending to solar installations in our service territory, PSE&G has found a way to participate in the investment in these assets, helping to offset lost revenues 7
Loan Product • Loan repaid using Solar Renewable Energy Certificates (SRECs) – Structured so SRECs cover monthly payment – No out of pocket payments required if system performing as planned
• Minimum floor value for the SRECs – Provides SREC price certainty – Guaranteed for life of loan – Determined by the borrower’s bid price
• Loan sized according to: – – – – 8
SREC floor price Interest rate Loan term Expected generation of the solar system
1,000 kilowatt hours = 1 SREC
Regulatory Construct • SREC Floor Price – PSE&G does not need SRECs to meet the state’s Renewable Portfolio Standard – Auction SRECs collected under the solar loan program – If SRECs are auctioned at a price less than the floor price, this difference is recovered from electric customers – Competitive bidding / review process used to ensure cost effective floor prices
• Defaults – If incur losses given a default, loss can be recovered from customers – Detailed credit review, structuring and risk mitigation techniques used to reduce probability of default and losses
• Program Costs – Interest charged to Borrowers to cover utility’s rate of return – Fees charged to Borrowers to cover the Program’s administration expenses
9
Loan Terms • 10-year loan term • Guaranteed SREC floor price based on borrower’s bid price • Loan sized so expected future SRECs will cover monthly principal and interest payments (typically 45-55% loan to total system cost) • 11.179% interest rate • Fees charged to fund program administrative costs • Loan funds disbursed post construction • Collateral includes first priority security interest in all system assets, including equipment and project documents step-in rights
10
Our Approach SREC Floor Price Setting • Floor price bid in by applicants • Third party economic consulting firm analyzes bids and determines if bid should be accepted or rejected • Decision made on whether the bid is cost effective Risk Mitigation • Non-Residential: – Account with PSE&G must be in good standing – Underwrite risk like a bank – Secured by system collateral – Credit enhancements (e.g. reserves or guarantees) • Residential: – 680 FICO – No bankruptcy in last 7 years – PSE&G account in good standing 11
Our Process
Application
2 weeks
12
Application Review
6 weeks
Underwrite & Approval
Project Specific
Installation & Inspection
Project Specific
Pre-Closing Due Diligence
Closing
+/- 6 weeks
+/- 1 week
Program Benefits Utility • •
Earn a return on net-metered solar installations without needing ownership Downside protection from regulatory construct that allows potential SREC price loss and default loss to be shared among electric customers
Electric Customers • • • •
Utility’s rate of return comes through loan interest rather than electric customers paying for capital investment and return Ongoing costs of the program recovered through fees paid by borrowers Competitive bidding and review process results in cost effective SREC floor prices Underwriting and structuring approach mitigates risk of loss
Borrowers •
13
Get both term financing and a hedge that provides stability and long term SREC price certainty on a normally unpredictable incentive
Thank you
Questions?
14
Ted Repetti Program Manager, PSE&G Solar Loan Program April 28, 2015
Public Service Electric & Gas Company • PSE&G is one of the largest combined electric and gas companies in the United States and recently celebrated its 112th anniversary • PSE&G was named America’s Most Reliable Electric Utility in 2012 • PSE&G ranks highest in customer satisfaction with business natural gas service and large business electric service in the east, according to J.D. Power. • Our parent company, PSEG, is headquartered in Newark, New Jersey with total assets of $35 Billion (2014) and approximately 12,000 employees
PSEG Solar Divisions PSEG
PSEG Power Solar Source
PSE&G
Solar4All
Solar Loan
PSE&G Solar Loan Program • A part of PSE&G, the largest utility in NJ • Provides term loans to qualified commercial and residential customers for photovoltaic solar energy systems • Program established by PSE&G and approved by utility regulator as a means of encouraging solar development in NJ • Since 2008, more than 1,000 PSE&G customers have financed over 80MW of solar on homes and businesses in NJ • Solar Loan III was approved in 2013 to support the installation of 97.5 MW of solar capacity over 3 years 4
Solar Loan Program ConEdison Solutions / Port Authority of NY & NJ 600KW-DC. Newark, NJ.
LPS Industries 700 KW-DC. Carlstadt, NJ.
Dow Jones 4.1MW-DC. South Brunswick, NJ
Integrys Energy / Camden County Muni. Utility Authority 1.8MW-DC. Camden, NJ
5
New Jersey Solar Market Net-Metered Solar MWs Installed in New Jersey
A national leader
•
NJ ranks 3rd in the country in installed
300
solar capacity with 1,451MW
200
46
250 MW
•
350
Through 2014, cumulative net metered capacity stood at
38 47
150
15
100 50 0
1,091MW, of that, 540MW was
5 14
5 32
83
2008
2009
2010
Growth continues NJ ranked 6th nationally based on total 2014 installed capacity In 2014, NJ installed 166MW of new net metered capacity
2011
116
2013
2014
Residential
300 250 200
15
150
14
100 50
5 1 3
1 10
51
2008
2009
2010
104
2011
Non-Residential Data Source: SEIA, NJ Clean Energy Program
145
350
0
6
2012
50
Net-Metered Solar MWs Installed in PSE&G Territory
MW
•
187
Non-Residential
installed in PSE&G territory •
284
16 162 93
2012
2013
Residential
Data Source: NJ Clean Energy Program Note: Data excludes grid connected projects.
17 39
2014
The Challenge and Solution The Challenge • Net metered solar capacity results in lost revenues for the utility
The Solution • By lending to solar installations in our service territory, PSE&G has found a way to participate in the investment in these assets, helping to offset lost revenues 7
Loan Product • Loan repaid using Solar Renewable Energy Certificates (SRECs) – Structured so SRECs cover monthly payment – No out of pocket payments required if system performing as planned
• Minimum floor value for the SRECs – Provides SREC price certainty – Guaranteed for life of loan – Determined by the borrower’s bid price
• Loan sized according to: – – – – 8
SREC floor price Interest rate Loan term Expected generation of the solar system
1,000 kilowatt hours = 1 SREC
Regulatory Construct • SREC Floor Price – PSE&G does not need SRECs to meet the state’s Renewable Portfolio Standard – Auction SRECs collected under the solar loan program – If SRECs are auctioned at a price less than the floor price, this difference is recovered from electric customers – Competitive bidding / review process used to ensure cost effective floor prices
• Defaults – If incur losses given a default, loss can be recovered from customers – Detailed credit review, structuring and risk mitigation techniques used to reduce probability of default and losses
• Program Costs – Interest charged to Borrowers to cover utility’s rate of return – Fees charged to Borrowers to cover the Program’s administration expenses
9
Loan Terms • 10-year loan term • Guaranteed SREC floor price based on borrower’s bid price • Loan sized so expected future SRECs will cover monthly principal and interest payments (typically 45-55% loan to total system cost) • 11.179% interest rate • Fees charged to fund program administrative costs • Loan funds disbursed post construction • Collateral includes first priority security interest in all system assets, including equipment and project documents step-in rights
10
Our Approach SREC Floor Price Setting • Floor price bid in by applicants • Third party economic consulting firm analyzes bids and determines if bid should be accepted or rejected • Decision made on whether the bid is cost effective Risk Mitigation • Non-Residential: – Account with PSE&G must be in good standing – Underwrite risk like a bank – Secured by system collateral – Credit enhancements (e.g. reserves or guarantees) • Residential: – 680 FICO – No bankruptcy in last 7 years – PSE&G account in good standing 11
Our Process
Application
2 weeks
12
Application Review
6 weeks
Underwrite & Approval
Project Specific
Installation & Inspection
Project Specific
Pre-Closing Due Diligence
Closing
+/- 6 weeks
+/- 1 week
Program Benefits Utility • •
Earn a return on net-metered solar installations without needing ownership Downside protection from regulatory construct that allows potential SREC price loss and default loss to be shared among electric customers
Electric Customers • • • •
Utility’s rate of return comes through loan interest rather than electric customers paying for capital investment and return Ongoing costs of the program recovered through fees paid by borrowers Competitive bidding and review process results in cost effective SREC floor prices Underwriting and structuring approach mitigates risk of loss
Borrowers •
13
Get both term financing and a hedge that provides stability and long term SREC price certainty on a normally unpredictable incentive
Thank you
Questions?
14
