Ppa Overview Tioga Energy 2009 04 13 2 Ppa 1

Paul Detering

CEO, Tioga Energy

13 April 2009

Overview of the Solar

Power Purchase Agreement (PPA)

2

Overview

First seminar in a series of five. Each seminar will cover various

aspects of PPAs

Time: 11:30 a.m. - 1:30 p.m. + Q&A

Your Presenter:

– Paul Detering, CEO of Tioga Energy

3

Today’s Agenda PPA background

– What is a PPA

– Value and market emergence

– Ancestry

Problems solved by solar and solar PPAs– Rising electricity rates, societal & environmental issues

– PV cost & risk

How the PPA works– PPA structuring - behind the scenes & customer view

– Pricing, value of solar, ideal ―Host‖ profile

– Process & timing

PPA implementation– Design & EPC implications

– Operations & Maintenance (O&M)

– Performance tracking and monitoring

Case Studies

4

Customers

What is a Solar PPA?

Provide Renewable Energy from PV

• Design, engineer, construct

• Finance, own, operate, maintain

• RECs, rebates & incentives

• Energy metering, billing

Purchase Renewable Energy

• 20-year term

• Early purchase options at yr 7, 15 & 20

• Fixed annual & step-up escalators

• End-of-term: renew, purchase, have system removed

Benefits– Price stability, affordability, hedge

– Environmental benefits — e.g. LEED

Without risks– No capital

– No project management

– No system performance risk

– No distractions from customer’s core business

PPA

Provider

5

A Brief History of PPAs 1978 PURPA (Public Utility Regulatory Policies Act)

– Meant to promote renewable energy

– Created market for non-utilty electric power producers

Drove construction of cogen plants

~2002/2003 Solar Commercial and Industrial (C&I) retail PPAs

pioneered

– Renewable Ventures (nee Nuon?)

– Sun Edison (2004)

2007 – CA CSI program launches first wave of significant

adoption

2008 – ~75% of C&I solar installations in US are completed

using a PPA structure

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PPAs are the Driving Force Behind Solar

Source: Solar Power Services How PPAs are changing the PV Value Chain

Greentech Media

$835M

$1,126M

7

PROBLEMS SOLVED BY

SOLAR AND SOLAR PPAS

8

Electricity costs are on the rise and are increasing

volatile…driving up the difficulty of budgeting

Budgets are increasingly tight

The need for green energy is greater than ever

Why the Need for Solar PV

9

Illustrative Rate Increases – PG&E

PG&E Rate Increase March 1 2008 - March 1, 2009 & Year-To-Date

Demand Charges Energy Charges

% Increase % Increase

Year-To-Date Year-Over-Year Year-To-Date Year-Over-Year

A6 Average -----> 3% 8%

A10 Average -----> 8% 16% 9% 13%

A10 TOU Average -----> 8% 16% 9% 13%

E-19 Average -----> 5% 12% 11% 16%

E-20 Average -----> 4% 12% 11% 14%

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Illustrative Rate Increases – SDG&E

SDG& Rate Increases2008 - 2009

% Increase Year Over Year

Demand Energy

AL TOU 21% 10%

A 6 20% 5%

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-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1970 1975 1980 1985 1990 1995 2000 2005

Perc

en

t C

han

ge

Year

Average Price Change Electricity in Key Solar PPA States

U.S. Government Energy Information Administration, official energy statistics. State energy consumption, price and

expenditure estimates (SEDS). Complete 2005 data, released February 29, 2008.

http://www.eia.doe.gov/emeu/states/_seds.html

15%+

10%+↑ 80%

Historically

– Rates up 28X out of 35 yrs.

– Rates down 8X, avg. -2.7%

Spikes

– 10%+ 7X

– 15%+ 3X

Most volatile

– 1970s oil crisis

– Early 2000s Electric Market Restructuring

– Likely to continue

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What will happen to rates in the future?

13

Take Control

Solar = Smart

14

Societal Concerns

Environmental impacts

Energy security

Resource depletion

15

Government action

benefits solar

– Financial incentives

Renewable Energy

Credits

– Tax breaks

– Targets

…PPAs make these

benefits available to

all

California Solar Initiatives

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Solar Advantages

Cost competitive

Price stability

Clean and reliable

Proven

Positive community

message

Solar PV global

solution

17

Solar

Capital intense

Project complexity

Operations & maintenance

Maximizing initiative funds

and tax credits

Challenge

Minimize Cost

Risk

18

Customers

PPAs Resolve the Challenges of Solar

Benefits– Price stability, affordability, hedge

– Environmental benefits— e.g. LEED

Without risks– No capital

– No project management

– No system performance risk

– No distractions from customer’s core business

PPA

Provider

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HOW THE PPA WORKS

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PPAs, Com. Op.

Tioga Integrated

Turnkey EPC

Equip.

Vendors

Design

Engineer

Sub

Contractors

O & M Contracts

Construction Contracts PPAs, Initial Phase

Tioga

Energy, Inc

Project

Investment

Bank

Tioga

Holdco,

LLC

Master Lease

Agreement

Tioga

Buildco,

LLC

Installation

Lender

Contractor Host

Installation

Financing Agreement

Tioga Solar

I, LLC

Tioga Solar

II, LLC

Ind.

Engineer

Utility Net

Metering

REC

Sales

State

Rebates

IRS Tax

Incentives

Investors

Project Sale

Lease Backs

Insurance

PPA Provider View(Portfolio vantage)

Construction

Loans

Ind.

Engineer

Parent Company

Guarantee

21

Tioga Energy,

Inc

Host

Customer View…

Utility Net

Metering

Solar PPA

…PPA makes it simple.

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What Drives PPA Price?

Fixed Elements

EPC cost

Energy performance

Financial markets

Incentives

– Federal ITC and MACRS

– State/local utility incentives

– State tax credits

System size

Recurring expenses

– Insurance

– O&M

– Monitoring and billing

Negotiated Elements

Term

PPA price escalator

– Rate

– Steps

Disposition of RECs

Service level commitments

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Ideal Host Profile

Credit

– Investment grade credit (BBB- or better)

– 3 years audited financial statements

Geography

– Access to incentives - CA, NJ, HI, MA, CT, AZ, MD, PA, OR, etc.

Facilities

– Host controls facility for PPA term (15+ years)

– Available space (25,000 ft2 min.)

– Available Load (150,000 kWh/yr min.)

– Minimum improvements required

– Multiple facilities ideal

Electric Rates

– Time of Use

– Commercial (vs. industrial) usage

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24

PPA Development Process

Preliminary assessment

– Gather data

Site information

Energy usage and costs

Environmental requirements

– Budgetary evaluation

Savings potential

Financial model and pricing

Firm Proposal, LOI

– Design development, costing

Contracting

– PPA, EPC

Construction, Operation

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Value of Solar And Utility Escalation Studies

Pre Sale Evaluation of Customer Energy Use

Determine which portions of utility rates solar energy will offset

and estimate near and long term financial benefit to host

– Hour by hour energy production modeling

– Review of host utility bills

– Analysis of host’s interval load data to determine demand

charge reductions

– Analysis of alternative utility tariffs and rate switch

opportunities

– Analysis of EIA data to forecast long term trends to localized

energy prices

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Value of Solar Study Results

Optimize System Design to Maximize Utility Rate

Offset

– We can often reduce post-solar utility charges to $0 by

modeling an optimal system size and output

Move Customer to Optimal Post-Solar Utility Rate

Schedule

– Minimize or eliminate demand charges

– Choose tariff with highest TOU differentials

– Optimize for net metering

Determine Savings

– Provide customer accurate year 1, buyout and term savings

over do-nothing utility base case

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SurePath Solarsm PPA Timeline

Financing,

Incentive Application

Design, Engineering,

Permitting, ProcurementInstallation, Approvals,

Interconnection

Operation and

Maintenance

PPA

3 to 6 months 3 to 6 months To 25 years

System

OnlineLOI

2 to 4

weeks

Pre

lim

ina

ry

Asse

ssm

en

t

Construction

Starts

27

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PPA IMPLEMENTATION

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Design Requirements

Safety

Detailed shading analysis

Permitting/utility approved interconnection practices

Minimize panel mismatch/multiple orientations

PPA provider-approved products

Data Acquisition System (DAS)

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PPAs, EPCs & Project Finance

PPAs use Project Finance — Each Project is Financially Self-Sufficient

– All risks are managed internally in each project

– Each project is owned by a separate subsidiary

– Project performance is secured only by project assets

– Each project has to stand on its own financial ―legs‖

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Financing Sources Utilized

Construction Period– Construction/installation loans (loan facilities recycled upon

project completion)

– Investor equity (recycled upon project completion)

Operations Period — ―Take Out‖ (Term)

Financing– Tax Equity Investors (for tax benefits)

– Term Lenders

– Grants

– Debt

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Project Assets — Collateral for Project Obligations

Construction Period:

– PPA

– EPC

Operations Period

– PPA

– Equipment / Completed Plant

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Finance-Related EPC Contract Provisions Lender controls

– Milestone payment process, engineer review, site inspection

– Punch list items and hold-back (retainage)

– Assignment of EPC & subcontracts

Contract scope and overall risk mitigation

– Fixed-price, turnkey contract; change order process, structural and/or geotechnical surveys

– Payment and performance bonds

– Indemnification and insurance

– Termination for convenience

System performance and production

– Performance guarantees (kW), testing, correction of deficiencies

– ―As-built‖ documentation

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Finance-Related EPC Contract Provisions (more)

Financial performance versus projections

– Mechanical and substantial completion dates

– Performance shortfall and delay liquidated damages, including incentive programs

– Suppliers, manufacturers, installers warranties

– Installer default and owner remedies

Ownership & title

– Conditional / unconditional lien waivers

– Passage of title, clear title

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O&M Requirements & Procedures

Preventative Maintenance

– Combiner box fuse – terminal checks

– Combiner box source circuit measurements

– Inverter checks

– Racking and mounting system inspection

– DAS maintenance checks

– Panel inspection

– Panel cleaning / site landscaping

– Reporting – checklists

On-Call Services

– Monitoring/dispatch

– Diagnostics & repair – response time is critical

– Spare parts - inventory is key

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Power Grid - System Diagram

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Performance Monitoring & Alerts

Lobby

Display –

Kiosk

Viewer

Power

Profile

Solar &

Load

Daily

Power

Monitoring

Performance

Monitoring &

Optimization

Alerts & Alarms

38

CASE STUDIES

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City of Santa Barbara Case Study

Central California Coast

Population 400,000

Committed to Sustainability– Fuel cell generator at wastewater

treatment plant

– 15 kW solar power system on fire

station

– 384 kW solar PPA for public

works campus

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City of Santa Barbara Solar Project

Challenge – Install largest PV

array possible given limited

space

Solution – Solar PPA

Benefits– Leverage tax incentives

– Hedge against utility costs

– No upfront capital

– No ongoing maintenance

– No project development

resources

– Supports City’s sustainability

goals

System Details

• Public Works campus

• 385 kW DC

• 1,830 SunTech solar modules

• 4 Hi-E SatCon inverters

• Roof mounted, fixed-tilt array

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How the PPA Works

CoSB contracts to buy solar electricity at a

predictable, low price

PPA provider handles all details

– Design, engineering, and construction

– Financing and RECs

– Rebates and incentives

– Operation, maintenance, insurance, repair

– Energy metering and billing

COSB pays ONLY for electricity delivered

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Electric Rate CAGR Probability Distribution

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Probability of Savings

44

Potential Cumulative Savings

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Summary of Economic Analysis*

EIA Electricity Price Data Set CA, Statewide average electricity price

Average Historical Utility CAGR 5.91%

Most Probable Future Utility CAGR 5.93%

Annual Electricity Consumption, kWh 850,000 kWh/yr

Utility Rate Offset by Solar, $/kWh $0.125/kWh

Solar Power System Size, kW 384 kW

PPA Initial Rate, $/kWh $0.119

PPA Escalator, % 4.5%

Estimated 1st Year Production, kWh 514,520

Annual Production Degradation, % 0.50%

Estimated Percentage of Energy Requirement Provided by Solar: 60.5%

Host Discount Rate, % 8.00%

Financial Results

Most probable first-year savings $5,000

Most probable cumulative 20-year savings $465,000

Most probable Net Present Value (NPV) of savings $173,000

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Non-Economic Benefits

Highlight community sustainability policies

Support CA environmental initiatives

Help reduce greenhouse gas emissions

Environmental Benefits, Annual (CO2) Reduction Equivalencies

Vehicle miles not traveled 270,000

Gallons of gasoline conserved 14,100

Passenger vehicles taken off the road 23

Barrels of oil conserved 290

Number of tree seedlings grown for 10 years 3,200

Acres of pine or fir forests storing carbon for one year 28

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Athenian School Case Study

Bay Area Private College Prep School

75-acre campus

450 students, grades 6-12

Committed to Environmental

Stewardship– One of five founding principles

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Athenian School Solar Project

Challenge – Deploy a large

solar array w/o sizable up-

front capital

Solution – solar PPA

Benefits– No upfront capital investment or

ongoing maintenance

responsibilities

– Hedge against rising utility costs

– System provides nearly 50% of

the school’s electricity, saving

money from day 1

System Details

• 220 kW

• 1,296 Mitsubishi PV Modules

• 2 – 100kW Xantrex inverters

• Ground mounted, fixed-tilt array

• Offsets significant energy use

51

How the Athenian PPA Works

Athenian contracts to buy solar electricity at a

predictable, low price

PPA provider handles all details

– Design, engineering, and construction

– Financing and RECs

– Rebates and incentives

– Operation, maintenance, insurance, repair

– Energy metering and billing

Athenian pays ONLY for electricity delivered

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Non-Economic Benefits

Supports commitment to environmental stewardship

Provides hands-on curriculum for renewable energy

Send positive message to current and prospective

students

Environmental Benefits, Annual (CO2) Reduction Equivalencies

Vehicle miles not traveled 503,500

Gallons of gasoline conserved 26,500

Passenger vehicles taken off the road 44

Barrels of oil conserved 543

Number of tree seedlings grown for 10 years 6,000

Acres of pine or fir forests storing carbon for one year 53

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Q&A

Any questions?

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Thank you.

www.tiogaenergy.com