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Power Pruchase Agreement presentation at CCSE on April 13, 2009
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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%
10
Illustrative Rate Increases – SDG&E
SDG& Rate Increases2008 - 2009
% Increase Year Over Year
Demand Energy
AL TOU 21% 10%
A 6 20% 5%
11
-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
12
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
19
HOW THE PPA WORKS
20
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.
22
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
22
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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
23
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
25
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
26
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
27
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
28
PPA IMPLEMENTATION
29
Design Requirements
Safety
Detailed shading analysis
Permitting/utility approved interconnection practices
Minimize panel mismatch/multiple orientations
PPA provider-approved products
Data Acquisition System (DAS)
30
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‖
31
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
32
Project Assets — Collateral for Project Obligations
Construction Period:
– PPA
– EPC
Operations Period
– PPA
– Equipment / Completed Plant
33
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
34
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
35
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
36
Power Grid - System Diagram
37
Performance Monitoring & Alerts
Lobby
Display –
Kiosk
Viewer
Power
Profile
Solar &
Load
Daily
Power
Monitoring
Performance
Monitoring &
Optimization
Alerts & Alarms
38
CASE STUDIES
39
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
40
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
41
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
42
Electric Rate CAGR Probability Distribution
43
Probability of Savings
44
Potential Cumulative Savings
45
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
46
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
47
48
49
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
50
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
52
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
53
Q&A
Any questions?
