U.S. Solar Market Overview

U.S. Solar Market OverviewNew Mexico Energy Investment Initiatives

July 2008

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MMA Renewable Ventures Overview

MMA Renewable Ventures is the leading owner and financing source for renewable energy and energy efficiency assets in the U.S.

— 27 MW of solar PV projects in operation; — 13 MW of projects currently under construction— 30+ customers, 10 integrators/installers

Recently entered into wind, biomass, and large-scale energy efficiency deals

Pipeline of $1 billion of identified opportunities for 2008-09

Delivering reliable and affordable clean energy with proven

— Project finance— Due diligence— Physical asset management

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U.S. market will develop around strong financial partners that can U.S. market will develop around strong financial partners that can manage risks for developers, customers, investors, and manufacturers. manage risks for developers, customers, investors, and manufacturers.

DEVELOPER Financing Risk

Implementation Risk EPC Risk

Real Estate Risk Regulatory/Rebate

DEVELOPER Financing Risk

Implementation Risk EPC Risk

Real Estate Risk Regulatory/Rebate

INVESTOR Maintenance Risks Operating Expense

Credit Risk Regulatory Risk Production Risk

INVESTOR Maintenance Risks Operating Expense

Credit Risk Regulatory Risk Production Risk

CUSTOMER Implementation Risk

Relationship Risk Regulatory/Rebate Risk

CUSTOMER Implementation Risk

Relationship Risk Regulatory/Rebate Risk

Financial Sponsorship

MANUFACTURINGTechnology Risk

Brand Protection RiskRegulatory Risk

MANUFACTURINGTechnology Risk

Brand Protection RiskRegulatory Risk

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High Potential U.S. Market

Germany United States

Source: Solar Energy Industries Association (SEIA)

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Growing Market Potential for PV

• Rising electricity prices– Global demand for coal and

natural gas– Popular opposition to coal plants– Cap-and-trade system may

increase electricity prices by 20% (assuming $40/ton carbon)

• Falling tech and project costs

• Favorable trend in policy, e.g.,

– Renewable Portfolio Standards – Net metering and interconnection– Federal cap-and-trade system’s

distribution of allowances / auction proceeds to renewable energy

2Avg. Retail Electricity Prices

6

7

8

9

10

11

12

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

U.S

. ($

.00)

1012141618202224

Haw

aii

($ .

00)

U.S. Hawaii

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U.S. PV Installation Growth

MW installed

2000: 17 MW

2006: 141 MW (+31%)

2007: 259 MW (+83%)

2008: 491 MW (+90%)

2009: 913 MW (+86%)

2010: 1590 MW (+74%)

• More than 60% large commercial Sources: US PV grid-tied module use 2006

IREC and Larry Sherwood, PV News, July 2007Greentech Media and Prometheus Institute, 2008

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U.S. Non-Residential PV Installations

• California remains over half the U.S. market

• Power Purchase Agreements (PPA) growing quickly

By State

0

10

20

30

40

50

60

70

2003

2004

2005

2006

2007

Meg

awat

ts (

AC

)

California New Jersey Rest of States

Source: Greentech Media

By Financing Model

0

20

40

60

80

100

120

140

2003

2004

2005

2006

2007

2008

*

2009

*

Meg

awat

ts (

AC

)

PPA Non-PPA *ForecastSource: Greentech Media

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U.S. PV Industry Market Trends

• Utilities entering owner – operator space

• Policy uncertainties are becoming a barrier to sustained development

• Rapid expansion (or everyone’s got the “solar bug”)

• Emerging dominance of Power Purchase Agreements (PPAs)

• Utility-scale projects becoming commonplace – hundreds of MWs

0%

100%

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Power Purchase Agreement: Opening Markets for Solar

• Complicated financial incentives than Europe require PPA + third party ownership

– Capital conservation: no up-front capital expenditure

– Limited operational risk for customer – key differentiator from lease buyback model

– System purchase options for the energy end-user

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The Power Purchase Agreement: A Long Marriage

The PPA is a long term contract in which the customer buys the electricity from the system owner on a set price schedule

SYSTEM OWNER RESPONSIBILITIESCUSTOMER RESPONSIBILITIES

Buys System Electricity10—25 year span

Provides System Site (for retail systems)

Site lease agreement

Develop & FinancePermittingDesignProcurement Installation

Own & OperateOperationsMaintenance Insurance

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PV Projects with Third Party Ownership: Competing Interests on the Path to Standardization

Use new technology Commitments before $ Make customers happy Sell high

Secure tax benefits Minimize risk

— Credits, Technology, Operations

Buy low

INVESTORDEVELOPER

“Just this once and then we can replicate.”

CUSTOMERS WANT TAILORED SOLUTIONS

“Just keep it simple and cover all the bases”

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Differing Views: Return Expectations

DEVELOPER INVESTOR

“Lower risk than wind” “Where’s the money?” Return Expectations IRR vs. money Valuing the PPA Provider Residual Value

“If I deliver, you fund” “Sure…just make sure

you deliver”

Financing Risk State regulatory timing issues Who bridges delays? Credit market meltdown

“No moving parts, …..solar lasts forever”

“Get me out in six” Operating Risk Less than perfect installations Taxes and changing incentives Erosion and peeling on modules

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A Typical U.S. Solar Fund Syndication

• Diverse Financial Products– Aggregation of PV projects – diversification of risk– Leveraged structure with senior debt at the project level– Majority of returns come from federal tax benefits– Partnership structure – not a lease– Proven technology

• Exit for Investor– Clear exit path, terms, and overall deal

• Yields– Matching risk & return. Consider fund-level risk, leverage, and credit

protection from each party

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Uncertainty in Federal Policy

• No long-term Federal policy is established.

• Delay in extending the 30% Solar Investment Tax Credit (ITC) undercuts installation. Industry believes another one year extension is likely, though timing is uncertain. Current ITC restrictions include:– Not available to utilities– Residential credit capped at $2000– Not available to Alternative Minimum Tax (AMT) payers

• Several carbon emissions schemes are currently under debate in the Senate. Discussion of national Renewable Portfolio Standard too.

• The leading Presidential candidates all favor a federal cap-and-trade system for carbon emissions.

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Solar Investment Tax Credit

• Extension is held up due to lack of compromise between Senate Republicans and House Democrats over funding

• Fundamentally, ITC caught up in larger political issues and election

• Industry impact from delay

– Temporary demand spike to qualify for 2008 driving up prices

– Orphaned projects

– Layoffs at project firms

– Domestic firms (and jobs!) going offshore

– Accelerate industry consolidation?

I T C

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The Solar Alliance

• An Alliance of– PV Manufacturers– Systems Integrators– Financiers

• Working at the state level to adopt cost-effective solar policies and programs

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State Rebate Programs

DSIRE: www.dsireusa.org March 2008

D.C.

Both state & utility/other programs available

State programs available

Utility/other programs available

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Solar Policy Puzzle

Insolation

Tilt & Orientation

Fixed/Tracker

Total System Cost =

Modules + BOS

InterconnectionNet Metering

Property & Sales Tax Exemptions

RPS

Utility Rates

TOU

DemandDecoupling

ITC MACRS

State Incentive

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Track Record at Scale vs PriceT

RA

CK

RE

CO

RD

PRICE

Solar Photovoltaic Crystalline

Solar – Concentrating PV

Solar – Stirling Dish

Solar Thin Film

Wind

Biomass

Solar – Parabolic Trough

Geothermal

2010—2012

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• The two biggest PV projects in U.S. are located in Nevada (Nellis) and Colorado. Both states have:

– Good solar insulation – not nearly as good as New Mexico – Stable, long-term policy regimes – state Renewable Portfolio

Standard with a solar carve-out – enabling long-term contracts with utilities

• Building similar projects in New Mexico will depend on:

– Certainty on federal ITC extension through 2010-2011– Motivated communities and stakeholders to help bring all the required

pieces into place (expedited permitting, additional financial support, etc)

Creating the Next Nellis

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Nellis Air Force Base – 14.2 MWs Ground mounted tracking system that covers 140 acres

Using over 70,000 solar modules with tilted trackers

Largest PV system in Americas

Nellis Air Force Base

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MMA RV: Financed, Owned & Operated

• ~$100MM project on Nellis Air Force Base (AFB) property, eight miles northeast of Las Vegas, Nevada

• All electricity sold to U.S. Air Force under 20 year Power Purchase Agreement contract

• All Renewable Energy Certificates (RECs) sold to Nevada Power under contract under State Renewable Portfolio Standard w/solar carve out

• Saves Nellis ~$1 Million annually

Nellis Air Force Base

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Total Third Party Construction Cost ~ $100 million

Nellis Construction Funding Schedule

* A typical solar project construction takes approx. 8 – 9 months.

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

Construction Debt Outstanding Letters of Credit from MMA

12/21/07 – Final Completion Date and Perm Debt Funded

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Final Thoughts

• U.S. is the most promising solar market in the world today

• U.S. solar industry competing with European firms

– Third party ownership facilitates entry of European firms

– ITC risk pushing U.S. firms overseas

• But, U.S. solar industry still playing catch-up with Europe, due to weaker policy environment

• Project financier and third party capital necessary for U.S. market growth due to incentives structures

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Seeking a Level Playing Field for Solar

• Congress considering permitting utilities to receive ITC (currently not permitted)

– Utilities starting to enter the North America PV generation market (SCE, Duke)

• Utilities can bring scale to industry

• But utilities are already receiving federal subsidies and regulatory advantages

• Incentives should encourage all market participants to make the solar marketplace

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Thank You!

Matt Cheneymatt.cheney@mmarenew.com

415.229.8801www.renewableventures.com