“Shaking the Money Tree” Session B: Finance and Affordability

Restricted © Siemens AG 2013 All rights reserved. Answers for infrastructure and cities.

“Shaking the Money Tree”Session B: Finance and Affordability Maryland Clean Energy Summit October 16, 2013

Restricted © Siemens AG 2013 All rights reserved. SEM / Pace Global

What Do You Need to Know to Successfully Finance a Distributed Generation Project?

• Developer’s Perspective

• Elements of a Financeable Project, Portfolio

• Financing Sources and Solutions

• Steps to Financing

• Scalability Challenges


Developer’s Perspective on Executing Distributed Generation Projects

• Site and host opportunity assessment

• Technology options assessment

• Revenue stream and path assessment

• Financial structuring options assessment

• RE resource or fuel supply assessments

• Value proposition case development

• EPC and O&M strategy, options

• Operations or contract sell-down strategy

Development Strategy

Project Financing

• Pro-forma management

• Contract management

• Address due diligence issues

• Finalize regulatory commitments

• Legal / contractual review

• Conditions precedent met

• Financial close

• Start construction draw and management

Project / Asset Management

• O&M management

• Fiduciary / contract management

• Risk management

• Credit and collateral management

• Environmental asset management

• Financial reporting and management

Project ID and Planning

• Site selection and permitting

• Technology selection and commitments

• PPA and REC path confirmation

• Financing assumptions

• Detailed resource assessment

• Host provisions and commitment terms

• Develop EPC and O&M contracts

• Develop extension and termination rights

Project Development

• Finalize site development

• Equipment warranties, performance guarantees

• Vendor

• Off-take commitments

• Regulatory process and approvals

• Financing pro-forma

• Finalize EPC

• Finalize O&M contract

• Finalize equity and debt commitments


Elements of a Financeable Project, Portfolio

Financing

Reliable, monetized revenue streams

Strong O&M and availability guarantees

Strong un-levered returns on equity

Credible sponsorand technology


Financing Sources & Solutions

Financing Sources

Strategic Tax Term Constr Bridge Credit State

Equity Equity Debt Debt Debt Support Grants Incentives PACE Other

Project

Class

Solar

Wind

Bio Fuels

CHP

DR

Key Excellent capital availability for well-structured projects Average capital availability with emerging challenges

Good capital availability for well-structured projects Significant challenges to capital availability

Not available, or only in special cases


Steps to Financing

Development & Partnering

Develop Bankable Project Portfolio with Strong Site, Host and

Revenue Features

Financing

Optimize Capital Components to

Generate Requisite Returns

Structuring and Securitization

Provide Performance Guarantees and

Supplemental Security

Create stakeholder interests among equity, off-take, lenders and vendors


Scalability Challenges

Macro Environment Project – Specific Financing Macro Environment

Incentives’ Horizons Replication across Sites & Hosts

Sponsor Quality and Experience

Incentives’ Horizons

Avoided Cost Curve Resource Variation Term of Revenue Streams

Avoided Cost Curve

Declining Technology Costs (Wait)

SG&A Costs Credit Support, Reserve Requirements

Declining Technology Costs (Wait)


What is a Partnership and Lease?

These structures unlock the value of tax incentives (ITC/PTC, MACRS)…

A (leveraged) tax partnership creates a pass thru LLC• Allocates income and loss to separate LLC members• Allocable items are tax credits, cash, depreciation, and interest deductions• Tax equity investors (TEI) are preferred, ownership flips once yield is achieved (JP

Morgan)

A (leveraged / single investor) lease is essentially debt• Project is sold by lessee (the developer) to lessor (the bank)• Bank monetizes the tax equity capacity of the asset • Lessee operates the project and pays rent to lessor• An agreement is a lease if it meets both GAAP and Tax (IRS) requirements

•Ownership - TEI @ 95%; Dev. @ 5%

• Depreciation Allocations - TEI @ 95%; Dev. @ 5%COD

•Ownership - TEI @ 5%; Dev. @ 95%

•Depreciation Allocations - TEI @ 5%; Dev. @ 95%

Yr 6


Structural (Risks / Rewards - Developer) Partnership Lease

Larger up front developer fee

Up front equity investment required

Long-term ownership option

Higher cost of buyout option

Preferred structure for lower performing project/s

Greater complexity

Higher transaction & ongoing SG&A costs

Market interest and familiarity with structure

There are pros and cons to each financing structure, for developers and their financial partners.

What are the Differences?


Thank You

For more information, please contact:

Bo [email protected]

“Shaking the Money Tree” Session B: Finance and Affordability

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