Renewable Energy Projects on a large scale and its effect on the economy of PR.

Cámara de Comercio de Puerto Rico

Energy and Water Forum

Condado Plaza Hilton Hotel

February 26, 2014

Renewable Energy: A New Industry for PR Economic Benefits

$5,400

The development of Renewable

Energy sources for compliance

with Law 82 of 2010 results in a

fresh capital injection to the

Puerto Rico’s economy.

Millions

Renewable Energy: A New Industry for PR Economic Benefits

The construction of the necessary infrastructure for utility scale renewable energy generation provides Puerto Rico with:

19,000

jobs (direct, indirect and

induced)

Economic Impact - Construction

Requirements of Law 82 of 2010

Dollars (in millions) 2015

Quota 2020

Quota

Investment in Construction $927.79 $1,264.40

Direct employment 9,729 2,210

Indirect and induced employment 9,097 2,066 Total employment 18,825 4,276

Direct salaries (annual) $229 $54

Indirect and induced salaries $261 $62 Total Salaries $490 $116

Prepared by Estudios Técnicos, Inc.

Economic Impact - Permanent

Requirements of Law 82 of 2010

Dollars (in millions) 2015

Quota 2020

Quota

Direct employment at end of period 1,008 1,076

Indirect and induced employment 1,936 2,066 Total Employment 2,945 3,143

Direct salaries at end of period $16 $17

Indirect and induced salaries $9 $9 Total Salaries $25 $26

Prepared by Estudios Técnicos, Inc.

Fiscal Impact 2013-2019

Note: Includes 60% exemption applicable to taxes associated with construction.

CONSTRUCTION PHASE

Fiscal Impact

$112.65

Municipal Tax

$17.8

State Tax

$94.9

Prepared by Estudios Técnicos, Inc.

OPERATIONAL PHASE

Fiscal Impact

$121.13

Income Taxes

$63.01

Property Taxes

$58.12

Fiscal Impact during period – per phase (millions of dollars)

Study Comparison and Validation

Puerto Rico

Total employment= 18,825

MW = 1,261

Jobs/MW= 14.9

California

Jobs/MW= 13.0

Established and mature market.

Many solar PV projects.

Job Creation Impact per MW

Study Comparison and Validation

Puerto Rico

Total employment= 18,825

MW = 1,261

Jobs/MW= 14.9

United States

Total employment solar only= 142,698

MW = 10,250 (Q3 2013)

Jobs/MW= 16.0

Job Creation Impact per MW

US Information:

1- Total employment The Solar foundation February 2014

2- SEIA (Solar Energy Industries Association) Q3 2013

3- NREL National Renewable Energy Laboratory

Re-Scaling According to Siemens’ Report Economic Impact - Construction

Based on Recommended MW Connection

Dollars (in millions) Additional 450 MW

Investment in Construction $460 (Total Investment of $2,000)

Direct employment 3,023

Indirect and induced employment 2,827 Total employment 5,850

Direct salaries (annual) $86

Indirect and induced salaries $98 Total Salaries $184

Based on study prepared by Estudios Técnicos Inc.

Re-Scaling According to Siemens’ Report Economic Impact - Permanent

Based on recommended MW connection

Dollars (in millions) Additional 450 MW

Direct employment at end of period 378

Indirect and induced employment 726 Total Employment

1,104

Direct salaries at end of period $6.0

Indirect and induced salaries $3.4 Total Salaries $9.4

Based on Study prepared by Estudios Técnicos, Inc.

Re-Scaling According to Siemens’ Report

Fiscal Impact 2013-2019

Note: Includes 60% excemption applicable to taxes

associated with construction.

CONSTRUCTION PHASE

Fiscal Impact

$42.0

Municipal

$6.7

State

$35.3

Based on study prepared by Estudios Técnicos, Inc.

OPERATIONAL PHASE

Fiscal Impact

$45.0

Income Taxes

$23.40

Property Taxes

$21.6

Fiscal Impact during period – per phase (millions of dollars)

Impact

• Developing industry: Provide a new industry with a substantial growth curve. Diversity of developers, investors and operators (US, Europe, Asia, Latin America) New high-tech industrial “cluster”.

• Impact to Multiple Sectors:

Service Academia Research and Development Repair and refurbishing centers Export to Caribbean and Latin America

• Diversity of new and different corporations:

Samsung Toshiba Mitsubishi ABB

• The renewable energy industry can make these corporations gain interest in establishing other businesses in Puerto Rico.

Renewable Energy

A few notes and comments on Renewable Energy costs

and savings

Cost and Savings - Assumptions

• For the analysis, the following has been assumed:

Aguirre Gas Port on-line by 2015 (Yearly savings starting in 2016).

For 2015, generation using gas will include Ecoelectrica, Aguirre 1 & 2,

Aguirre CC, and South Coast 5 and 6.

Gas imports to Puerto Rico will come from the Atlantic Basin until 2019

(Atlantic Basin Prices trade at 12% to 14% discount to oil indexed to Brent).

Also in 2019, gas will be available in the north for the San Juan CC (units 5

& 6).

Gas from the US will be available to Puerto Rico by 2019 (Yearly savings

starting in 2020).

Fuel Price Projections Non-Native Energy Sources

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

$/m

mB

tu

DOE Fuel Forecast

Oil #6

Nat Gas (US)

Diesel

Nat Gas Atl. Basin

Coal

Cost Comparison Gas From USA in 2019

5.00

10.00

15.00

20.00

25.00

30.00

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

Ce

nts

/kW

h

Year

Production Costs

PREPA Prod. Cost

Renewables

SJSP CC (5&6) with Gas Gas from USA into SOUCO, Aguirre and San Juan

Aguirre Gas Port

Gas From Atlantic

Basin

5.00

10.00

15.00

20.00

25.00

30.00

35.00

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

Ce

nts

/kW

h

Year

Production Costs

PREPA Prod. Cost

Renewable Portfolio

Cost Comparison No Gas from USA

Aguirre Gas Port

Gas From Atlantic

Basin

SJSP CC (5&6) with Gas

Fuel Cost Savings – Generation Participation

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

2012 2016 2020

Year

Generation Participation

Hydrogas

SJ 7-10

PS 3&4

SJ CC

Ag CC

SC 5&6

AG 1&2

RE

AES

Eco

PS 3&4

SJ 7-10

Renewables Renewables

PS 3&4

AG CC AG CC SJ CC

SJ CC SJ CC

9.5%

9.5% 15.4% 11.73%

4.1% 5.7%

10% 10%

Under economic dispatch renewable energy will substitute inefficient generation from old infrastructure

$0.21/kWh

$0.24/kWh

12% 15%

Fuel Cost Savings

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

2012 2016 2020

$

Year

Fuel Savings from Renewable Energy

Renewables

PS & SJ 7-10$5

18

,00

0,0

00

$5

44

,00

0,0

00

Detail Fuel Cost Savings

0

200000000

400000000

600000000

800000000

1E+09

1.2E+09

1.4E+09

1.6E+09

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

$

Year

Savings from Renewable Energy

Savings

Aguirre Gas Port

Gas from Atlantic

Gas to SJ CC

Gas from US

Cumulative Savings = $17.6 billion dollars!

The Future of Solar

-USA Average Prices

-No MTR Requirements

-No Hurricane wind requirements

-Soft costs in PR are substantially higher

A few notes on pricing

& Smokescreen

Renewable Energy

Global PV Deployment

0

50

100

150

200

250

2001 2003 2005 2007 2009 2011 2013 2015

Cumulative Installed Global Capacity (GW)

66% of PV capacity

installed globally was

connected in the past

2.5 years

Cumulative installed

PV will nearly double

in the next 2.5 years

Source: GTM Research

Two thirds of the global solar PV capacity has been installed in the last 2.5 years.

Installed capacity is projected to double by 2016 to reach 200+ GW.

Renewable Energy Prices

• In the United States mainland:

– Current Fossil Fuel production is cheaper that RE.

– RE capacity construction & connection to double in less than two years.

• Only in Hawaii & Puerto Rico the price of RE is cheaper that actual energy

prices.

• Hawaii has a mandatory RPS to achieve 40% by 2030.

• An island

• Independent grid

Don’t be fooled by PPA Pricing

• Net Capacity Factor:

– Net energy production from same source is based on environmental factors:

• Irradiance

• wind velocity

• cloud coverage, etc.

– Difference can be up to 30% in net energy production

• Minimum technical Requirements (MTR)

• Construction: meet standards for environmental realities.

• Insurance: Insurance could be up 10x higher than in some states.

• Land Costs: much higher in PR.

$/K

WH

*Prices are subject to radiation factors, construction costs, land value and customer credit ratings.

** In Texas you can find PPA with different rates One as low as $0.07

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State Incentives

North Carolina – NC State Credit = 30%

of the Cost of a Project

New Jersey – SRECs started at

$.60/kWh and have gone down to

$.10/kWh

Massachusetts – SRECs started above

$.28/kWh and still remain above

$.24/KWh

California

Only for large Utility-Scale, more

irradiance, and with 100’s of MW and

30-40 companies

Don’t be fooled by PPA Pricing

Don’t be fooled by PPA Pricing • Solar and wind PPA pricing is based mostly on capital cost and O&M cost as both

the sun and wind (the fuel) are free.

• NREL (DOE) Report on Utility Scale Costs – 2010

– $3.80/Wdc +/- 8% (without PREPA MTR)

• Panel and inverter cost reductions since 2010

– Panels: $1.20/Wdc

– Inverters: $0.06/Wdc

– Total: $1.26/Wdc

• Adjusted NREL Cap. Cost for 2010: $2.54/Wdc (without PREPA MTR)

• Current Cap. Cost in Puerto Rico Market: $2.45 - $2.60/Wdc

And the longer we wait…

What is the future for Renewables in Puerto Rico?

• If Puerto Rico does not act NOW, very little.

• With the expiration of the Investment Tax Credit in 2016, there will be less and less opportunities to develop projects on the Island.

• While the rest of the World and the United States Mainland continue to increase its renewable generation, Puerto Rico lags behind.

Exodus of Tax Equity Investors

All of them have lost interest in Puerto Rico!

Tax Equity Investors

3rd Party Investors: Google San Diego Gas & Electric

Acura/Honda Hartford Insurance Santander/Sovereign Bank

Allstate Home Depot Sherwin Williams

Bank of America JP Morgan Southern Company

Berkshire Kimberly Clark State Street

Chevron Liberty Media Union Bank

Citigroup MetLife United Healthcare

Credit Suisse Microsoft Corporation US Bank

Disney MidAmerican Energy Verizon

Duke Energy Morgan Stanley Wal-Mart

Exelon Corporation Nationwide Insurance Washington Gas

General Electric Company Zions Bank Wells Fargo

Goldman Sachs PG&E

Financing Challenges

• The costs of development for utility scale solar in Puerto Rico provide rate of returns between 8% to 12%.

• Price reductions can be attained through optimized designs, superb

project costs management, and mitigating risks • Results of the previous local bond market de-rating:

– Long term financing (18yr) no longer available – 7 year Mini-perm loan financing, renewed every 7 years at that

moment’s interest rate is the available option – Interest rate increased 200 basis points – New requirement of an up-front financing fee of 2.25% of the total

value to be financed – Each 7 year refinancing will require an additional financing fee of 1.5%

of the balance being financed • Unknown result of recent bond degrading.

Conclusion

Does Puerto Rico desire the benefits of…

Puerto Rico needs to act now!

competitive and stable energy costs?

a cleaner environment, improved health

and their economic benefits?

an instantaneous stimulus to the economy

(capital investment, fiscal income, job creation)?

Is Puerto Rico really open for business?