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On Farm Energy Independence
AgroNomics, Vision 2014U.S. Ag Investment ConferenceNov 11-15, 2013 - Reno, Nevada
Tom MillhoffAgribusiness Practice Leader
HelioPower, Inc.
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Overview
• Energy Matters• Energy Economics: Three levers for savings
• Supply: Cheap power alternatives – tips & traps
• Demand: Unconventional ideas, sustainable savings
• Price/Policy: Paying less and creating wealth• Energy Planning Guide
• Approaching Energy Projects• Valuing Energy Projects• Financing Energy Projects
• Conclusions, Questions & Answers
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Energy Matters
• Utilities face rising & deferred costs• Farmers face rising & volatile retail prices• New Era of Choice & Independence
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Energy Matters - Traps
Utilities face rising & deferred costs
Coal – regulatory costs, emissions abatement
Natural Gas – unsustainably low prices Nuclear – Mothballed reactors Hydro – aging dams, permitting, climate
change Failing Infrastructure - future costs
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Energy Matters - Traps
Farmers face rising, volatile retail prices
2006 2007 2008 2009 2010 2011 2012 2013 CAGR
-5%
0%
5%
10%
15%
20%
PG&E Large Ag Pric-ing
% change vs YAGO
20052008
20112014
20172020
20232026
20292032
2035$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
Forecast PG&E Large Ag Pricing
PG&E $/kWh - optimisticPG&E $/kWh - pes-simisticDG $/kWh*
$/k
Wh
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Energy Matters - Tips
New Era of Choice & Independence
Future: Distributed Generation Modest Capital Costs+ Economies of proximity+ Competing approaches+ Low/zero cost fuel+ Falling legal barriers= Growing competition+ Emissions reductions= Competitive Marketplace
Past: Centralized Power Generation Massive Capital Costs+ Economies of scale+ Lack of substitutes+ Fuel control+ Legal barriers to entry= No Competition+ Price inelasticity= Monopoly Power
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Energy Economics
• Supply• Demand• Price/Policy
Helio
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Energy Economics
Manage Supply, Demand & Price
PRICEEnergy Analytics
DEMAND:Conservation, Efficiency & Demand Mgt
SUPPLY:Distributed Generation
(Renewable?)
INTEGRATED SOLUTIONS
% R
etu
rn
$ Return
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Energy Economics
Manage Supply, Demand & Price
$- $1,000,000 $2,000,000 $3,000,000 0%5%
10%15%20%25%30%35%40%45%50%
Returns by Investment
$ Return (ROI)
% R
etur
n (IR
R) Efficiency
Conservation
Rate / Demand Management
Integrated Energy Solution
Distributed Generation
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Energy Economics - Supply
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Energy Economics - Supply
On-Farm Power Alternatives
Carbon Fuel Sources• Electric Grid• Natural Gas• Diesel• Combined Heat
& Power (CHP) / Co-Generation
• Nat Gas Fuel Cells
Renewables• Solar Photovoltaic
(PV)• Solar Thermal• Biomass & Biofuel• Wind & Geothermal• Hydroelectric• Hydrogen Fuel Cells• Storage
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Energy Economics – Carbon Fuels
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Energy Economics - Supply
Electric Grid: The “Avoided Cost” Hurdle
CharacteristicsEstablished, reliable,
cheap Monopolistic marketplace Rising, volatile prices Rural power quality issues Rural accessibility issues Expensive in some states Expensive summer rates
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Energy Economics - Supply
Natural Gas: The “Avoided Cost” Hurdle
CharacteristicsEstablished, reliable,
cheapDomestic supplyClimate friendly vs coal Monopolistic distribution Rising, volatile prices Rural accessibility
issues Environmental risks
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Energy Economics - Supply
Diesel: An unnecessary evil?
CharacteristicsReliable, on-
demand High fuel costs High NOx
Emissions
Tips & Traps Ongoing fuel costsLimit usage to on-
peakPlan on changing!
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Energy Economics - Supply
Natural Gas Engines
CharacteristicsReliable, on-
demandCheap fuel cost Accessibility
Tips & TrapsCo-Gen/CHP heat
need? Emissions regs Rising fuel costs
Electricity
Natural Gas
Diesel
Propane
Relative Irrigation Fuel Costs
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Energy Economics – Renewables
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Energy Economics - Supply
Biomass (Crop Residue)
CharacteristicsCarbon negative!On-site fuelHeat + power (CHP) Large investment Hard to finance Complex
interconnection 12mo fuel inventory High O&M costs
Tips & TrapsGot heat baseload? Fuel oppty costs?
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Energy Economics - Supply
Solar - Photovoltaic
CharacteristicsSustainable, no fuelLow ownership
costsIncentives,
financing Large capital
investment Not “power-dense”
Tips & Traps Got Sun? Got Taxes?Policy and finance
are as important as engineering
Buy low, sell high
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Energy Economics - Supply
Solar - Thermal
Characteristics• Shares Solar PV
attributesFor water
heatingEfficient &
economic Not power dense Heavy on roofs
Tips & Traps• Shares Solar PV
Traps/TipsQualify your roofImproved closed-
loop technology vs 1980’s
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Economics - Supply
Other Renewable Sources
GeothermalFacility heat &
steamReliable
baseload High up front
costs
WindInexpensive
energy Intermittent
power High up front
costs Expensive
feasibility
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Economics - Supply
Energy Storage
CharacteristicsEnable Micro GridGrid balance
servicesFix rural power
qualityIsland mode optionEmergency powerOff-grid power Still expensive
Tips & TrapsPeak demand
avoidancePrices falling: like
Solar 10 years agoVoltage frequency
business models No rate arbitrage
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Energy Economics – Demand
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Energy Economics - Demand Management
Manage When you Consume
• Charges vary by time of day and season• Main charges are for Energy (kWh) and Demand
(kW)
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Energy Economics - Demand Management
Manage When you Consume Trap: Summer
LoadTip: Peak Shave
Trap: On-Peak Load
Tip: Work Rules
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Energy Economics - Demand Management
Manage When you ConsumeOn-Peak Load Trap: Buy High
Solar + Net MeteringTip: Buy Low, Sell High
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Energy Economics – Price/Policy
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Energy Economics - Price/Policy
Manage What you Pay
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Energy Economics - Price/Policy
Manage Where you Consume
Net Metering Net Meter AggregationTip: Offset loads
without sacrificing cropland
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Energy Economics – Price/Policy
Avoided Costs Drive Energy Investment
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Energy Economics - Price/Policy
Renewable Portfolio Standards
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Corporate tax credit(s) only
Personal + corporate tax credit(s) Notes: This map does not include corporate or personal tax deductions or exemptions; or tax incentives for geothermal heat pumps.
Personal tax credit(s) onlyPuerto Rico
Energy Economics - Price/Policy
Renewables Tax Credits
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Energy Planning Guide
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Energy Planning Guide
How to Approach an Energy Project
Needs?• Cheaper power• Reliable power• NOx Avoidance• Buyer
compliance
Goals?• Return hurdle• Time horizon• Stability• Sustainability• Leadership• Competition
Resources?• Feedstocks/
Fuels• Site resources• Time• Team• Financial
• Capital• Tax appetite• Credit
Trap: Dive right in to a specific solutionTip: Define your Needs, Goals & Resources
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Energy Planning Guide
How to Select Energy Partners Do it yourself RFP or competitive bid on vague scopeEngage Energy Services partner for feasibility, scope,
financing, then take to bid (costs money up front)Select partner for turnkey solution (no up-front cost)
Selecting an Integrated Energy Services PartnerSeek referralsNABCEP, General & Electrical contractor certificationsGood standing with permitting authorities and utilitiesIn-house financing, install, operations & maintenanceLong-standing, healthy businessDo they ask insightful questions?
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Energy Planning Guide
How to Value an Energy Project
Traps: Comparables – not viable for design/build custom
projects Capitalization of income/rents - varied income
stream
Tips:NPV – Intrinsic present value of income producing
assetAdditive to property valuation Requires assumed discount rate
IRR – Simple means of comparing differing projects Does not reflect changing discount rates over time
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Energy Planning Guide
How Energy Projects impact Farm Values
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Energy Planning Guide
Financing Energy Projects
Cash Purchase / LoanBest total returns,
simple Requires capital, tax
appetite
PACE (Property Assessed Clean Energy Finance)Secured by Property
TaxVery low capital costs Mortgagers hate it Requires tax appetite
True Lease / Tax Lease3rd party monetizes tax
benefits & incentives Moderate financing &
transactions costs Delayed ownership
Power Purchase Agreement3rd party monetizes tax
benefits & incentivesLowest operational risk /
exp High financing &
transactions costs
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Energy Planning Guide
Making a Decision
Traps Technology Risk – Expect incrementalism Price Risk - Commodity characteristics Policy Risk - Consider pending policy &
sunset dates (ITC 2016)TipsTime risk - Lost savingsCompetitive risk – Will they have lower
costs?
Conclusion - If it makes sense today, DO IT.
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Conclusions
• We all buy, sell, value and finance energy• We are entering a new era of energy choice
ECONOMICS• SUPPLY: Avoided cost, resources & policies drive choice• DEMAND: Manage your energy demand• PRICE/POLICY: Leverage local policies
ENERGY PLANNING• Start by defining your needs, goals and resources• Invest your time in selecting good energy partners• Value and compare projects on long term savings (NPV,
IRR)• There is always uncertainty. If it makes sense today, do it.
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Thanks to…
• Carol Fornhoff – Westchester Group• Mark Peterson - Kefa Capital,• Howard Haldermann - Halderman Farm
Management• Corey Prins - Northwestern Farm Management Co.• George Baird - LandManagement Group, LLC• Ricardo Amon – the California Institute of Food &
Agriculture Research at UC Davis• Jim, Mary & James Rickert – Prather Ranch• Cheryl Cooley, Meg Butcher, and the ASFMRA
team
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Questions & Answers
Tom Millhoff - HelioPower, Inc.Agribusiness Practice Leader
C:775.830.0448 O:760.563.5528E: TMillhoff@HelioPower.com