April 29, 2010 Sustainable Energy Advantage, LLC Mission: Sustainable Energy Approach: Sustainable Advantage We help build Renewable Energy Businesses, Markets, Policies & Projects… through Analysis, Strategy & Implementation Services Practice Areas • Interdisciplinary consulting & • Public policy and market analysis, tracking, advisory services (regional & development & implementation. national) • Strategy development. • New England Renewable • Financial analysis & economic feasibility Energy Market Outlooksm • Renewable Energy supply & procurement. (REMO) subscription briefings • Quantitative analysis and modeling. • New England Eyes & Earssm • Transaction facilitation, contract development Regulatory, Policy & Legislative and negotiation support. Tracking and Analysis • Business infrastructure development. Subscription Service • Green power product development & pricing Introduction & Context • Improving environment for renewable power in Massachusetts – Electricity prices high relative to other regions – Unprecedented federal support, in both word and incentives – New state incentives in place: net metering, S-RECs, long-term contracts, green communities – Wind project installations increasing – Solar sector vibrant • Diversity of project sizes and types – Community-scale projects being embraced – Diversity of ownership/financing options Understanding & prioritizing your goals • What are the RE project opportunities in your town? – Tap federal and state assistance to figure this out. • Does the town want RE projects in the community? • Does the town want to get involved in the projects? • Is the town able to commit time and/or money? • Does the town want to share in the risk/reward or collect a fixed $ or % royalty?
RE investing is not a riskless proposition
Community support is vital.
Who are the “champions” that will see the project through feasibility, permitting and completion? Align ownership options with Town interests, capabilities & risk tolerance Town has discussed its interests and abilities and is… Conclusion: Committed Interested Seeking role in Prepared Based on these to wind in development, to finance criteria, the best fit power ownership construction & the project ownership option is: operation #1 Yes No No No Lease land/buy power from Private Party #2 Yes Yes No No Public-Private Partnership (PPP) #3 Yes Yes Yes No Public-Private Partnership (PPP) #4 Yes Yes Yes Yes Government Entity Ownership Financing Options Ownership Financing Options Structure #1 Third Party Private owner selects mix of cash, grants, 3rd party equity, & debt ownership Town receives lease income from land; buys power under LT contract #2 Public- Majority of initial financing via 3rd-Party options above Private Town invests for a minority share, using either cash-on-hand or Partnership debt (PPP) Allocation of cash flows “flips” once 3rd-Party realizes required returns. Town has option to buy remaining interest in the project #3 Public- Town either obtains grants and hires consultants, or uses its own Private monies and staff resources to support its role in the development Partnership process (PPP) Permanent financing options same as above #4 Government Use free cash on hand; sell an asset (e.g. Hull) Entity Tax-free bonds (municipal, zone bonds, etc) Ownership Clean Renewable Energy Bonds (CREBs) RUS Loans Key economic drivers
Wind projects are most sensitive to variations in:
• Wind resource – Power output is the cubic function of wind speed • Total installed cost (highly site-specific) – Wind projects are capital intensive – Revenue requirement based mostly on fixed costs • Market value of production – Energy, capacity & RECs – Avoided retail, net metering, wholesale sales Sensitivity Analysis: Wind Resource Sample MW-Scale Project: (1) Installed in Massachusetts (2) Owned by a government-entity, financed with municipal debt (3) Qualifying as a net metering generator Sensitivity Table #1: Sensitivity of NPV, Loan Payoff & Min DSCR to Variations in Net Capacity Factor Net Capacity Loan Payoff w/ Min Factor NPV @ 10% Cash Sweep DSCR Base Case 24.0% $1,174,707 Year 15 1.22 18% ($426,828) Year N/A 0.85 20% $249,468 Year 19 0.97 22% $715,741 Year 17 1.10 24% $1,174,707 Year 15 1.22 26% $1,633,673 Year 13 1.34 28% $2,092,639 Year 12 1.46 Sensitivity Analysis: Installed Cost Sample MW-Scale Project: (1) Installed in Massachusetts (2) Owned by a government-entity, financed with municipal debt (3) Qualifying as a net metering generator
Sensitivity Table #2:
Sensitivity of NPV, Loan Payoff & Min DSCR to Variations in Installed Cost Installed Loan Payoff w/ Min Cost NPV @ 10% Cash Sweep DSCR Base Case $5,000,000 $1,174,707 Year 15 1.22 $4,500,000 $1,532,536 Year 13 1.35 $4,750,000 $1,353,622 Year 14 1.28 $5,000,000 $1,174,707 Year 15 1.22 $5,250,000 $995,792 Year 16 1.16 $5,500,000 $816,878 Year 17 1.11 Sensitivity Analysis: Value of Production Sample MW-Scale Project: (1) Installed in Massachusetts (2) Owned by a government-entity, financed with municipal debt (3) Qualifying as a net metering generator Sensitivity Table #3: Sensitivity of NPV, Loan Payoff & Min DSCR to Variations in Forecast of NM Credit NM Credit Loan Payoff w/ Min Adjustment NPV @ 10% Cash Sweep DSCR Base Case 0% $1,174,707 Year 15 1.22 -20% $211,657 Year 19 0.97 -15% $460,244 Year 18 1.03 -10% $698,398 Year 17 1.09 -5% $936,553 Year 16 1.16 0% $1,174,707 Year 15 1.22 5% $1,412,861 Year 14 1.28 10% $1,651,016 Year 13 1.34 15% $1,889,170 Year 13 1.41 20% $2,127,324 Year 12 1.47 Case Study: Town of Falmouth • Project to be owned by Town for entire useful life • Majority of cost financed via General Obligation Bond – Supported by the Town’s full faith and credit • Initial temporary (2 year) bond – Interest-only payment after 12 and 24 months (from issuance) • Convert to permanent bond financing after 24 months – 15-year tenor • Financing includes: – Turbine & installation costs (selected by competitive bid) – Cost of financing, interconnection, owner’s engineer, and reserve accounts (which typically include debt service, O&M and decommissioning) • Bond repaid via net metering credits and REC revenue Learning from others Ownership Examples of New England wind projects Structure Lease to Third Scituate (proposed) Party Hanover (proposed) Public-Private Fox Islands Wind LLC (Maine): RUS financing arranged through Partnership Fox Islands Electric Cooperative; tax equity provided by Portland (PPP) Maine-based Diversified Communications. Government Town of Falmouth Entity Massachusetts Military Reservation Ownership Massachusetts Maritime Academy Princeton Municipal Light Department City of Medford MWRA – Deer Island Templeton Municipal Light Plant Department Town of Ipswich For more information on wind projects throughout New England, please visit the New England Wind Forum Contact
Tyler M. Leeds Sustainable Energy Advantage, LLC 10 Speen Street, 3rd Floor Framingham, MA 01701 (508) 665-5859 tleeds@seadvantage.com www.seadvantage.com