Presentation is loading. Please wait.

Presentation is loading. Please wait.

Www.premierpower.com | 1.877.939.0400 | 4961 Windplay dr. Suite 100, El Dorado Hills, CA 95762 Solar PV Project Development A Developer's Perspective of.

Similar presentations


Presentation on theme: "Www.premierpower.com | 1.877.939.0400 | 4961 Windplay dr. Suite 100, El Dorado Hills, CA 95762 Solar PV Project Development A Developer's Perspective of."— Presentation transcript:

1 | | 4961 Windplay dr. Suite 100, El Dorado Hills, CA Solar PV Project Development A Developer's Perspective of the Building Blocks Necessary for a Successful Project Same as it ever was … David Byrne & Brian Eno

2 | | 4961 Windplay dr. Suite 100, El Dorado Hills, CA Project Finance is Easy … What Lenders Like Sponsor track record and readiness to put (a lot of) capital at risk Proven technology Long-term contracts with fixed (fat) profit margin Creditworthy counterparties Control –Absent any lender liability risk What Lenders Dont Like Commodity price risk –Spot market volatility Regulatory risk –Regulatory out clauses –Tax credit/rebate extensions Undefined upside –REC values –Renewable portfolio standards

3 | | 4961 Windplay dr. Suite 100, El Dorado Hills, CA Risk Elements & Considerations Developer: –Track record –Credibility –Risk profile Sponsorship: –Commitments –Track record –Risk profile Construction: –EPC / turnkey (i.e., structure) –Contractor / track record Solar PV resources: –Data –Uncertainty –Verification Technology: –Suppliers / track record –Warranty Revenue: –PPA structure (i.e., security of revenue stream) –Merchant component –Tradable credits O&M / Asset Management: –Contractor / track record –Spare parts –Transmission –Term Regulatory: –Change in law

4 | | 4961 Windplay dr. Suite 100, El Dorado Hills, CA Financing Structure Comparison ProsCons Lease (Leveraged / Single Investor) Fully tax efficient Timing flexibility Geared towards smaller middle market projects Typically does not take construction risk Highly fragmented market Complex accounting issues High residual value Not applicable for not-for- profits unless backing a PPA Partnership FlipProven framework established in wind power sector (PTC) Geared towards larger projects Construction financing can be built-in Structural flexibility Not fully tax efficient (read: expensive) Complex tax structuring / allocation issues

5 | | 4961 Windplay dr. Suite 100, El Dorado Hills, CA Market Trends Two Distinct US Solar PV Markets CharacteristicsContract StructurePlayers RetailUp to ~1MW Predominantly roof (some land) Purchaser / lessee / offtaker is an end- user Custom solutions May include non- solar components Buy, lease and PPA structures, depending on customer Smaller integrators transitioning from residential to commercial HVAC, roofing, MEP contractors ESCOs Wholesale>> 1MW All land Utility offtaker Thin film PPA structure Regulatory approvals All-energy pricing Read: risk shift to developer Complex interconnect, site control (land rights, environmental) and permitting issues PPA developers Panel manufacturers (e.g., FSLR) European integrators Non-reg utility affiliates

6 | | 4961 Windplay dr. Suite 100, El Dorado Hills, CA Market Trends Projects Are Changing Larger commercial and utility scale programs –Mainstream acceptance of solar PV Financing (PPA/lease) structures –Risk shift from customer / offtaker to owner / investor –More efficient use of tax benefits –Avoidance of referendum / capex oversight –Focus on core business –Need: lenders / investors require greater discipline Markets are shifting –Geographically & vertically (e.g., CA re utility scale; NJ re RECs, emerging ) –Retail customers becoming more market savvy Larger commercial & industrial require higher level of sophistication Added contractual requirements –Added complexity: Installation (utility grade vs. commercial grade) Schedule, scope Liquidated damages, oversight, project management –Result: greater risk being imposed on solar PV integrators & developers

7 | | 4961 Windplay dr. Suite 100, El Dorado Hills, CA Construction Risks Completion Risk (On Budget, On Schedule) Proven technology and design –Availability and cost of equipment components –Delivery flexibility –OEM warranty terms EPC contractor –Experience –Track record Site control –Land lease / license arrangements Property tax treatment Easements Transmission ROW / interconnect Permits –Environmental –Municipal / local issues Zoning NIMBY –Fire Code Contingency amounts

8 | | 4961 Windplay dr. Suite 100, El Dorado Hills, CA Long-term Performance Risk Solar PV resources –Data –Uncertainty –Verification Revenue –PPA structure (i.e., security of revenue stream) Weather risk protection Force majeure risk protection Proven technology and design –OEM long-term warranty terms Site control –Long-term property tax abatement / PILOT program –Interconnect (delivery, wheeling, net metering) O&M / asset management –Experienced, creditworthy operator –Fixed or cost plus contract structure –Safety, security and environmental safeguards –Incentives for good performance –Equipment and service warranties Insurance / bonding –Limited solutions available

9 | | 4961 Windplay dr. Suite 100, El Dorado Hills, CA EPC Contractor The Solar PV Risk Mitigation Tool … Sort of Construction Risk Fixed cost, date certain delivery, defined scope Bifurcated EpC vs. EPC –Owner purchased equipment –Requires careful allocation of responsibilities Liquidated damages –Schedule & performance –Large caps on liability –ITC / depreciation recapture –REC recapture Surety bonds, LCs, guarantees Long-term Performance Risk Long term warranty –Force majeure risk shift –Weather risk shift Performance guarantees –Consequential damages

10 | | 4961 Windplay dr. Suite 100, El Dorado Hills, CA Impact of Construction Outside of major equipment, construction is largest component of any solar PV project –Largest risk element: EPC contractors long term warranty is first call Market trend is to try to commoditize the integrator & developer –Higher risk; lower margins –Developer and integrator: overlapping skill sets Market shift is approaching –Whats the value of a long-term warranty? –Insurance / bonding options as a backstop? –Result: flight to quality

11 | | 4961 Windplay dr. Suite 100, El Dorado Hills, CA Market Shift Integrators / EPC Contractors To-date, most solar PV integrators self perform majority of construction –Residential & small commercial focus –Results re: larger, more complex projects: Less efficient project construction Higher costs Schedule delays Less than desired quality Adversarial relationship between developer and integrator If current construction model holds, solar PV integrator industry will face several challenges: –Limited growth –Added overhead costs and labor challenges –Slower acceptance of new construction techniques and insular focus will result in substitution and loss of market share Solar PV industry needs to grow its construction expertise and capabilities –Needs to find effective ways to engage the large contractor community Technical construction expertise Geographic diversity Large, well trained labor pool Capable of delivering complex projects with large budgets

12 | | 4961 Windplay dr. Suite 100, El Dorado Hills, CA Streamlined EPC Developer / EPC market will shift to managing process, not fundamentals –Focus on financial analytics re: selling deals Third party project finance as an integrated function –Greater understanding of lender prerequisites & constraints –Greater understanding of the construction process –In-house program management Project management, engineering management, purchasing and asset management Outsourced field labor & detailed engineering –Technology agnostic –Examples: real estate, IPP, ESCO

13 | | 4961 Windplay dr. Suite 100, El Dorado Hills, CA The Bottom Line The solar PV market continues to evolve –Speed of evolution increasing as project finance comes to the fore –Not yet a mature business Margins below sustainable levels on a macro basis Risk allocation not fully thought out Insurance products still limited –Drive to grid parity There will be blood –Consolidation, institutionalization –Know your borrower –All solar PV is not created equal –This is construction: the devil is always in the details

14 | | 4961 Windplay dr. Suite 100, El Dorado Hills, CA A successful project cannot happen without proper planning and preparation. The time to save money and time is on the front end, for once construction begins, money can only be spent


Download ppt "Www.premierpower.com | 1.877.939.0400 | 4961 Windplay dr. Suite 100, El Dorado Hills, CA 95762 Solar PV Project Development A Developer's Perspective of."

Similar presentations


Ads by Google