Review of EDC Solar Long-term Financing Program

Analysis

January 12, 2012

Center for Energy, Economic, and Environmental Policy

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Review Assumptions and Caveats• Center for Energy, Economic and Environmental Policy (CEEEP) asked to

review the EDC Solar Long term Financing Programs. • Current analysis includes ACE, JCP&L, RE, and part of PSE&G’s Solar

Loan programs.• This analysis:

– Is NOT answering the question of whether the programs should be continued in the future.

– Is NOT a review of New Jersey solar programs, the New Jersey SREC program, or the SREC short term market.

– Does not include the environmental benefits of solar, the impacts on the transmission and distribution system, or any other costs or benefits of solar other than those directly related to the EDC Solar Long term Financing Program.

• Assumed Capacity Factor from 2010 to 2012 is 14% - the program caps SRECs at 1300 per MW per year

• Assumes that the capacity contracted in any given year is installed in that same year and 100% of the SRECs are created.

2DRAFT

Goals of EDC Solar Financing Program

• On December 6, 2007 (I/M/O the Renewable Energy Portfolio Standards, Alternative Compliance Payments and Solar Alternative Compliance Payments, Docket No. E006100744), the Board also directed the OCE to “initiate a proceeding to explore whether additional mechanisms could be established to support the financing of solar generation projects by providing greater assurances about the cash flow to be expected from such projects, noting that such financing depends not only upon certainty about long-term maximum prices for SRECs, as provided by the established rolling eight-year SACP schedule, but also requires greater certainty about the minimum cash flow from such projects”

3DRAFT

Data Collection Issues• CEEEP staff reviewed a “Solar Review Matrix” (matrix) developed

by the BPU and completed by the EDC’s.• Matrix included program goals, number of megawatts solicited,

awarded, contracted and installed, the number of SRECs produced and auctioned and the revenues generated by that auction, as well as the various costs of each utility’s program – only through June 2011.

• CEEEP met individually with staff from each utility and received more detailed information about each solicitation and auction from NERA Economic Consulting (NERA), the solicitation and auction manager.

• Due to significant differences in how each utility completed the matrix and additional data needs, CEEEP drafted an updated matrix for the utilities to complete.

• Updated matrices were completed by utilities in late November/early December, with data through October 2011.

4

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Solicitation Program Timeline (ACE, JCP&L, RE)

Last Loan Application Timeline (PSE&G Solar Loan I and II)

5DRAFT

Loan Applic

ation

Project

Installe

d

Loan Appro

ved

Approximately 8 months30-45 days

Oct 2012Feb 2012Dec 2011

Capacity A

warded

Signed Contra

ct

Project

Installe

d45 days Approximately 1 year

Sept 2011 Nov 2012Nov 2011

Solic

itation

Released

Aug 2011

ACE JCP&L RE

Solicitation Date Awarded Contracted Installed Awarded Contracted Installed Awarded Contracted Installed

#1 August 2009 0.00 0.00 0.00 1.59 1.59 1.14 0.00 0.00 0.00

#2 December 2009 2.20 2.00 1.74 4.18 2.87 2.86 0.15 0.09 0.09

#3 March 2010 0.11 0.11 0.11 9.22 6.49 5.33 0.00 0.00 0.00

#4 June 2010 0.39 0.39 0.39 3.54 3.44 2.34 0.00 0.00 0.00

#5 October 2010 0.36 0.35 0.35 8.61 8.13 2.06 0.54 0.54 0.17

#6 February 2011 10.50 7.64 0.00 6.76 4.63 1.20 0.80 0.80 0.30

#7 June 2011 3.92 3.03 0.00 6.02 6.02 0.05 2.34 2.18 0.00

#8 September 2011 5.98 6.00 0.00 10.96 0.00 0.00 0.28 0.00 0.00

Total 23.47 19.52 2.60 50.86 33.17 14.98 4.11 3.61 0.56

ACE, JCP&L, and RECO Awarded, Contracted, and Installed Capacity (MW)

Awarded is capacity selected at solicitations, contracted is capacity that signs contract and pays deposit, installed is capacity that is installed

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PSE&G Awarded, Contracted, and Installed Capacity (MW)

Solar Loan I (SL I) Solar Loan II (SL II) Solar for All

Energy Year Awarded Contracted Installed Awarded Contracted Installed Awarded Contracted Installed

2008 3.87

2009 13.38 2.77 2.77

2010 4.90 11.24 11.24 1.42 0.01 0.01 29.90 5.60 5.60

2011 6.05 6.05 27.98 4.63 4.63 16.90 35.30 35.30

2012 1.32 1.32 2.58 3.64 3.64 4.00 5.10 5.10

Total 22.15 21.38 21.38 31.98 8.28 8.28 50.80 46.00 46.00

Awarded is capacity approved for loan, contracted is capacity that signs contract, installed is capacity that is installed

7DRAFT

Energy Year SLI SLII S4A Total SLI SLII S4A Total SLI SLII S4A Total2008 0% 0% 0% 0%2009 21% 21% 100% 100% 21% 21%2010 229% 1% 19% 47% 100% 100% 100% 100% 229% 1% 19% 47%2011 17% 209% 102% 100% 100% 100% 17% 209% 102%2012 141% 128% 153% 100% 100% 100% 141% 128% 153%Total 97% 26% 91% 72% 100% 100% 100% 100% 97% 26% 91% 72%

Contracted/Awarded Installed/AwardedInstalled/Contracted

Pipeline Success Rates

Solicitation Date ACE JCP&L RE Total ACE JCP&L RE Total ACE JCP&L RE Total#1 Aug 2009 100% 100% 72% 72% 72% 72%#2 Dec 2009 91% 69% 60% 76% 87% 100% 100% 95% 79% 68% 60% 72%#3 March 2010 100% 70% 71% 99% 82% 82% 99% 58% 58%#4 June 2010 100% 97% 98% 100% 68% 71% 100% 66% 69%#5 Oct 2010 97% 94% 100% 95% 100% 25% 32% 29% 97% 24% 32% 27%#6 Feb 2011 73% 69% 100% 72% 0% 26% 37% 11% 0% 18% 37% 8%#7 June 2011 77% 100% 93% 92% 0% 1% 0% 0% 0% 1% 0% 0%#8 Sep 2011 100% 0% 0% 35% 0% 0% 0% 0% 0% 0%

83% 65% 88% 72% 13% 45% 16% 32% 11% 29% 14% 23%93% 78% 60% 79% 90% 81% 100% 82% 83% 63% 60% 66%

TotalTotal (#1-#4)

Contracted/Awarded Installed/AwardedInstalled/Contracted

8

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• There are still projects moving through the pipeline.• Project contract to install takes about one year.• The overall pipeline success rate is difficult to ascertain until all of data for the

program is available.• Because projects are still in the pipieline, ongoing project data will be needed from

the EDCs to complete the analysis.• These numbers will be revised as additional project data is received from the EDCs.

Solicitation Results

MW Solicited Number of Bids ReceivedNumber of Projects

Awarded

Solicitation ACE JCP&L RE ACE JCP&L RE ACE JCP&L RE

#1 (August 2009) 5.0 11.0 0 0 8 0 0 7 0

#2 (December 2009) 5.0 12.0 2.3 11 31 2 10 27 2

#3 (March 2010) 7.8 17.2 2.1 1 62 0 1 58 0

#4 (June 2010) 6.8 9.3 1.5 7 16 0 5 15 0

#5 (October 2010) 5.8 8.7 1.5 2 51 4 2 49 4

#6 (February 2011) 11.9 5.9 2.4 67 119 5 60 41 5

#7 (June 2011) 3.5 5.5 2.3 60 152 15 17 35 11

#8 (September 2011) 3.4 10.0 0.2 101 185 2 19 60 1

Total 49.3 79.6 12.1 249 624 28 114 292 23

9DRAFT

MW Awarded MW ContractedWeighted Average Awarded

Bid Price ($/SREC)

Solicitation ACE JCP&L RE ACE JCP&L RE ACE JCP&L RE

#1 (August 2009) 0.0 1.6 0.0 0.0 1.6 0.0 N/A $384 N/A

#2 (December 2009) 2.2 4.2 0.1 2.0 2.9 0.1 $372 $382 $460

#3 (March 2010) 0.1 9.2 0.0 0.1 6.5 0.0 $422 N/A

#4 (June 2010) 0.4 3.5 0.0 0.4 3.4 0.0 $431 $449 N/A

#5 (October 2010) 0.4 8.6 0.5 0.4 8.1 0.5 $463 $452 $456

#6 (February 2011) 10.5 6.8 0.8 7.6 4.6 0.8 $424 $379 $454

#7 (June 2011) 3.5 6.0 2.3 3.0 6.0 2.2 $322 $264 $335

#8 (September 2011) 6.0 11.0 0.3 6.0 0.0 0.3 $213 $215

Total 23.1 50.9 4.1 19.5 33.1 3.6 $372 $368 $382

Solicitation Results

The ACE reported awarded capacity was 3.916 MW for solicitation #7 (June 2011), but NERA records show the capacity as 3.516 MW. The NERA value is used.As of the date the data was requested, the 45-day waiting period for the September 2011 solicitation had not expired yet. CEEEP has requested updated data from the utilities.The total weighted average awarded bid price is the weighted average of all awarded projectsThe weighted average awarded bid price has been redacted when there is only one project due to confidentiality concerns.

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Weighted Average Awarded Bid Price

Vertical axis of graph does not start at zero.Some data has been redacted due to confidentiality concerns.

11DRAFT

EDC Weighted Average Awarded Bid Price vs PSE&G Floor Price

Small Non-Res <=150 kW, Large Non-Res = 150 -500 kW

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Auction ResultsNumber of SRECs Auctioned

Auction ACE JCP&L RE PSEG* (Solar Loan Programs)

Weighted Average SREC Auction Price

#1 (February 2010) N/A N/A N/A 2,800 $685.06

#2 (July 2010) N/A N/A N/A 5,750 $688.03

#3 (October 2010) N/A N/A N/A 5,841 $665.12

#4 (April 2011) 189 580 15 5,427 $669.69

#5 (July 2011) 404 1,528 23 5,710 $475.00

#6 (August 2011) 331 791 8 2,110 $479.75

#7 (October 2011) 915 3,140 102 10,747 $227.03

Total 1,839 6,039 148 38,385

ACE JCP&L RE PSE&G

Overall Weighted Average

Auction Price

$372.48 $366.17 $324.09 $515.65 *Solar Loan I and Solar Loan IIPSE&G auctioned 1,352 SRECs in August 2009 13

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Auction Prices and Auction Proceeds

Auctioned SRECs Auction Proceeds

Energy Year

ACE JCP&L RE PSEG ACE JCP&L RE PSEG

2010 0 0 0 4,152 $0 $0 $0 $2,849,048

2011 189 580 15 17,018 $126,571 $388,420 $10,045 $11,475,547

2012 1,650 5,459 133 18,657 $558,430 $1,822,889 $37,920 $6,186,234

Total 1,839 6,039 148 39,827 $685,001 $2,211,309 $47,965 $20,510,829

Auction SREC Auction Price Flett Exchange Monthly Average

Price

#1 (February 2010) $685 $663

#2 (July 2010) $688 $677

#3 (October 2010) $665 $647

#4 (April 2011) $670 $655

#5 (July 2011) $475 (EY11) $480 (EY10)

$561 (EY11)$546 (EY10)

#6 (August 2011) $480 (EY11) $501

#7 (October 2011) $227 (EY12)$669 (EY11)

$216 (EY12)$623 (EY11)

Auction Proceeds are determined using the auction bid clearing prices from each round

Auction results from: http://www.solarrec-auction.com/index.cfm?s=background&p=previousResults

Flett Exchange Monthly Average prices were calculated based on data from http://markets.flettexchange.com/new-jersey-srec/

14DRAFT

Auction Prices vs Flett Exchange SREC Market Prices

Flett Exchange does not report the volume of transactions and, when no transactions occur, the offered price is reported. 15DRAFT

NERA Solicitation Manager Costs

Energy Year ACE JCP&L RE

2010 $237,220 $584,014 $47,642

2011 $164,680 $542,345 $46,134

2012 $222,226 $390,863 $35,078

Total $624,126 $1,517,222 $128,854

NERA Auction Manager Costs

Energy Year ACE JCP&L RE

2010 $0 $0 $0

2011 $4,038 $3,302 $2,075

2012 $2,138 $16,037 $4,854

Total $6,176 $19,339 $6,929

Internal Utility Admin Costs

Energy Year ACE JCP&L RE

2010 $31,356 $65,954 $393

2011 $55,120 $82,995 $12,886

2012 $24,881 $58,063 $9,631

Total $111,357 $207,012 $22,910

EDC Program Administration Costs (ACE, JC, RE)

Please note that the internal utility admin costs that are presented here were provided by the EDCs. Other costs associated with the Solar Long-term contracting program may be provided in rate base.

Program Administration Costs include NERA solicitation management costs, NERA auction management costs, and internal utility administrative costs.

16DRAFT

Total Admin Costs Total Contracted SRECs (10 years)

Total Admin Costs/Contracted

SRECs

ACE $741,659 239,393 $3.10

JCP&L $1,743,573 540,842 $3.22

RE $158,693 47,752 $3.32

PSE&G SLP I $2,902,018 387,788 $7.48

PSE&G SLP II $2,220,218 165,748 $13.40

PSE&G Average $9.25

EDC Program Administration Costs per Contracted SREC

17DRAFT

Solicitation-Related Costs• The Solicitation-related Costs are the cost associated with running the solicitation or

loan program.• Solicitation-related costs include NERA’s costs to run the solicitations, the internal

utility administrative costs related to the solicitations, and “other” costs (PJM-GATS registration costs for Rockland Electric).

• Internal utility administrative cost was distributed between solicitation and auction at the same percentage as the reported NERA costs. For PSE&G, it was assumed to be 95%.

• The total solicitation costs were divided by the total SRECs contracted over the term of the contracts. All projects in the solicitation program were assumed to have 10 year terms. The PSE&G Residential program has a loan period of 10 years, but the Commercial loans have 15 year terms.

Energy Year ACE JCP&L RE SLI SLII2009 $20.302010 $10.38 $4.86 $43.52 $3.95 $2,949.002011 $2.13 $3.14 $3.58 $2.55 $13.412012 $2.23 $2.14 $1.44 $4.62 $7.89

Average $3.07 $3.18 $3.15 $5.75 $12.72

Total Solicitation Cost ($/SREC)

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High PSE&G SL II cost is due to very small number of SRECs for 2010

Auction-Related Costs• The Auction-related Costs are the cost associated with

running the auction.• Auction-related costs include NERA’s costs to run the

auctions and the utility administrative costs related to the auction.

• Internal utility administrative cost was distributed between solicitation and auction at the same percentage as the reported NERA costs. For PSE&G, it was assumed that 5% of internal admin costs were devoted to auction.

• Instead of using the total SRECs over the 10 year term of the solicitations, only the SRECs contracted in the actual energy year of the auction were considered.

• The NERA auction costs reported by the EDCs are being reexamined, so we are not reporting the auction-related costs at this time.

19

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“SREC Transaction Fee”

Energy Year ACE JCP&L RE2010 $22.59 $31.21 $39.112011 $22.59 $31.21 $39.112012 $22.59 $31.21 $39.11

Average $22.59 $31.21 $39.11

SREC Transaction Fee ($/SREC)

• As defined in the Program Stipulations, the EDC’s “will collect a fee, referred to as an "SREC Transaction Fee", for each SREC that is procured and subsequently sold pursuant to the Program.”

• PSE&G Solar Loan Programs do not have “SREC Transaction Fee”.

20DRAFT

• Total Combined Costs is the summation of the total solicitation-related costs, total auction-related costs, and the “SREC Transaction Fees”.

• It is important to remember that not all of the data is available on the programs since there are still projects in the pipeline.

• Since the NERA auction costs reported by the EDCs are being reexamined, we are not reporting the total costs at this time.

Total Costs per Contracted SREC Compared

High PSE&G SL II cost is due to very small number of SRECs for 201021DRAFT

SREC Auction Proceeds are uncertain due to unknown future SREC prices.

Does not include any environmental benefits of solar, the impacts on the transmission and distribution system, or any other costs or benefits of solar other than those directly related to the EDC Solar Long term Contract Program.

Ratepayer Exposure for Long-term Financing Programs Only

Ratepayer Exposure is not for the overall SREC Program, but only for the Long-term financing Program.

22DRAFT

Ratepayer Exposure for Long-term Financing Programs Only

• A: Solicitation Obligations are the summation of total SRECs contracted over the contract term multiplied by the SREC price awarded.

• B: Various Program Costs including NERA’s solicitation and auction management costs, internal utility administrative costs, “other costs” (PJM-GATS registration fees), and “SREC Transaction Fees.”

• C: SREC auction proceeds are difficult to estimate into the future because of the uncertainty of SREC costs in the future.

• If the solicitation obligations and program costs exceed the auction proceeds then the ratepayer will make a payment.

• If the solicitation obligations and program costs are less than the auction proceeds then the ratepayer will receive a refund.

23DRAFT

Solicitation Obligations for ACE, JCP&L, and RE

Total Contracted SRECs Solicitation Obligations

Energy Year ACE JCP&L RE ACE JCP&L RE

2010 2,588 13,368 110 $964,176 $5,435,400 $50,7732011 12,865 33,235 1,758 $5,336,812 $13,832,566 $683,4962012 23,939 54,084 4,775 $8,138,521 $18,663,067 $1,829,9352013 23,939 54,084 4,775 $8,138,521 $18,663,067 $1,829,9352014 23,939 54,084 4,775 $8,138,521 $18,663,067 $1,829,9352015 23,939 54,084 4,775 $8,138,521 $18,663,067 $1,829,9352016 23,939 54,084 4,775 $8,138,521 $18,663,067 $1,829,9352017 23,939 54,084 4,775 $8,138,521 $18,663,067 $1,829,9352018 23,939 54,084 4,775 $8,138,521 $18,663,067 $1,829,9352019 23,939 54,084 4,775 $8,138,521 $18,663,067 $1,829,9352020 21,352 40,716 4,665 $7,174,345 $13,227,666 $1,779,1622021 11,074 20,849 3,017 $2,801,709 $4,830,501 $1,146,439Total 239,393 540,842 47,752 $81,385,210 $186,630,666 $18,299,345

Total values are not net present values. 24DRAFT

Solicitation Obligations• The total solicitation obligations are estimated by

multiplying the incremental SRECs for each year by the weighted average awarded solicitation price for that year and summing them up.

• The incremental SRECs are Total SRECs – Auctioned SRECs

• The weighted average bid prices are:Weighted Awarded Average Bid

Price ($/SREC)

Energy Year

ACE JCP&L RE

2010 $373 $407 $460

2011 $425 $423 $384

2012 $253 $232 $380

25DRAFT

Auction Prices and Auction Proceeds

Auctioned SRECs Auction Proceeds

Energy Year

ACE JCP&L RE PSEG ACE JCP&L RE PSEG

2010 0 0 0 4,152 $0 $0 $0 $2,849,048

2011 189 580 15 17,018 $126,571 $388,420 $10,045 $11,475,547

2012 1,650 5,459 133 18,657 $558,430 $1,822,889 $37,920 $6,186,234

Total 1,839 6,039 148 39,827 $685,001 $2,211,309 $47,965 $20,510,829

Auction SREC Auction Price Flett Exchange Monthly Average

Price

#1 (February 2010) $685 $663 (EY10)

#2 (July 2010) $688 $677

#3 (October 2010) $665 $647

#4 (April 2011) $670 $655

#5 (July 2011) $475 (EY11) $480 (EY10)

$561 (EY11)$546 (EY10)

#6 (August 2011) $480 (EY11) $501

#7 (October 2011) $227 (EY12)$669 (EY11)

$216 (EY12)$623 (EY11)

Auction Proceeds are determined using the auction bid clearing prices from each round

Auction results from: http://www.solarrec-auction.com/index.cfm?s=background&p=previousResults

Flett Exchange Monthly Average prices were calculated based on data from http://markets.flettexchange.com/new-jersey-srec/

26DRAFT

Net Ratepayer Refund or Payment for Long-term Financing Programs Only• Net Ratepayer Exposure is not for the overall SREC

Program , but only for the Long-term financing Programs. • Net Ratepayer Refund or Payment = (Proceeds of Remaining

SRECs)-(Auction Proceeds)-(Solicitation Obligations)• Proceeds of Remaining SRECs = (Total SRECs) - (Auctioned

SRECs) X (Value of Remaining SRECs) • The value of remaining SRECs were determined under three

price scenarios: $200, $400, and SACP.• For Solicitation #8, it was assumed that 100% of the

awarded capacity would be contracted. This assumption will need to revised at a later date as more project information is available.

27DRAFT

Results/Conclusions for ACE, JCP&L, and RE• Net Ratepayer Exposure has not been calculated for PSE&G, but will

be in future.• Due to projects still being in the pipeline, ongoing data will be needed

from EDCs to update results in future.• If all remaining SRECs are valued at $200, ratepayers have a total

payment of over $125 million.• If all remaining SRECs are valued at $400, ratepayers will receive a

total refund of over $38 million.• If all remaining SRECs are valued at the SACP, ratepayers will receive

a total refund of over $167 million.• The breakeven SREC price, or the price where the solicitation

obligations will be equal to the SREC and auction proceeds, ranges from $345 to $384, depending on the utility.

• Conclusion: Ratepayer refunds or payments as a result of the program depend almost exclusively on the SREC price that is assumed over the term of the program.

Total values are not net present values.28DRAFT

Scenario 1: SREC Price = $200

Energy Year ACE JCP&L RE

2010 ($446,635) ($2,761,848) ($28,698)2011 ($2,928,197) ($7,689,898) ($344,883)2012 ($4,239,085) ($10,760,908) ($939,408)2013 ($3,350,655) ($7,846,219) ($874,888)2014 ($3,350,655) ($7,846,219) ($874,888)2015 ($3,350,655) ($7,846,219) ($874,888)2016 ($3,350,655) ($7,846,219) ($874,888)2017 ($3,350,655) ($7,846,219) ($874,888)2018 ($3,350,655) ($7,846,219) ($874,888)2019 ($3,350,655) ($7,846,219) ($874,888)2020 ($2,904,020) ($5,084,370) ($846,190)2021 ($586,830) ($660,741) ($543,050)Total ($34,559,355) ($81,881,296) ($8,826,443)

Net Ratepayer Refund or Payment under Four SREC Price Scenarios

Total values are not net present values. 29DRAFT

Scenario 2: SREC Price = $400 Scenario 3: SREC Price = SACP

Energy Year ACE JCP&L RE ACE JCP&L RE

2010 $70,906 ($88,296) ($6,623) $829,103 $3,828,457 $25,7182011 ($393,009) ($1,158,810) $3,775 $3,092,873 $7,821,436 $483,1792012 $218,780 ($1,035,860) ($10,961) $5,969,427 $11,509,452 $1,186,7352013 $1,437,210 $2,970,629 $80,159 $7,206,588 $16,004,931 $1,230,9902014 $1,437,210 $2,970,629 $80,159 $6,823,559 $15,139,583 $1,154,5872015 $1,437,210 $2,970,629 $80,159 $6,440,530 $14,274,236 $1,078,1832016 $1,437,210 $2,970,629 $80,159 $6,081,440 $13,462,972 $1,006,5542017 $1,437,210 $2,970,629 $80,159 $3,232,660 $7,026,947 $438,3012018 $1,437,210 $2,970,629 $80,159 $2,945,388 $6,377,937 $380,9992019 $1,437,210 $2,970,629 $80,159 $2,658,116 $5,728,926 $323,6962020 $1,366,305 $3,058,926 $86,782 $2,220,370 $4,687,585 $273,3762021 $1,628,048 $3,509,019 $60,339 $1,949,206 $4,113,634 $147,830Total $12,951,501 $25,079,384 $694,424 $49,449,258 $109,976,096 $7,730,148

Net Ratepayer Refund or Payment under Four SREC Price Scenarios

Total values are not net present values. 30DRAFT