Solar Market Pathways Leadership Academy Solar Financing Overview

Sustainable Capital Advisors Sustainable Capital Advisors (SCA) is a global strategic consulting and financial advisory firm We assist clients in developing sustainable programs, analyzing and structuring financial options, and implementing capital strategies Work with commercial entities, educational institutions, non-profits, utilities, and municipalities Reach across a range of sustainable infrastructure technologies

Primary Financing Options The primary options for on site solar financing are Direct Ownership Direct Ownership + Debt Power Purchase Agreement Prepaid PPA Operating Lease

Power Purchase Agreements Useful for entities that want to purchase electricity with no capital commitment Allows entities to implicitly enjoy tax credit benefits No operational or system risk to customer High credit hurdle PPAs are typically priced at an after tax IRR of ~8% for investment grade credits and 10%+ for non-profits and non investment grade entities

Prepaid PPAs Allows third party to monetize tax benefits while providing additional discount to customers due to upfront cash payment Typical discount to installation cost is 10-15% Especially useful for tax-exempt or low credit entities Prepay capital can be raised via Cash on hand Bank Loans PACE Crowdfunding Bond issuances

Prepaid PPAs Sunrun offering prepaid PPAs for Grid Alternatives projects in CT focusing on low income communities Sunrun’s prepaid also used for CA Single Family Affordable Solar Homes (SASH) program CollectiveSun providing prepaid PPAs for non-profits in CA and other states Figtree (merged with Dividend Solar) provided non- profit PACE funded prepaids in CA in 2016

Non-profit/Tax-exempt Financing Non-profits and tax exempt entities cannot utilize solar tax benefits Entities with strong credit can get PPAs from established solar investors Prepaid PPAs alleviate need for credit review, many ways to raise prepay capital In certain situations might make financial sense to own the system outright including via debt financing even though tax credits cannot be monetized Mission based non-profits may be able to receive grant funding or discounted equipment/services

PACE Property Assessed Clean Energy Allows commercial and residential customers to borrow for energy upgrades and pay off loan via tax lien Removes credit risk from transaction Useful for low credit individuals and entities Can be used for other energy technologies Huge amount of potential to break down barriers Must be approved by local counties Some challenges with lender consent Current legislative shadow

Overcoming Challenges to Financing Projects in the 25kW – 500kW range are often difficult to finance Key factors for successful financing: Standardized project development and installation processes Aggregation of small projects into larger (2MW+) portfolios Standardized documentation for all agreements (eg SAPC) Credit enhancements and support

Community Solar Community solar allows large solar installations to sell electricity to local subscribers via utility crediting Allows efficiencies and economies of scale on technical side while offsetting residential electricity rates and generating larger revenue for project Allows for lease payments to site-host even if they cannot use electricity directly due to tariff structure or credit Can be a tool to help serve LMI communities

Community Solar Structure

Community Solar Financing Community solar has unique features for financing Need to acquire and maintain large customer base with appropriate infrastructure Subscriber agreement structure is key, may be short dated and fixed discount in which case utility rate risk is shifted to investor Can remove credit risk from project if subscribers can be switched in efficiently, allows all types of subscribers to participate Ability to scale large portfolios within utility service areas

Solar Capital Stack For those who want to structure their own financing strategy Three major parts to the capital stack Equity Tax Equity Debt Typical projects will have 25-35% equity, 30-35% tax equity and 25-45% debt. Complex tax structures and expensive legal fees Want to have at least 5-10MW to attempt bespoke structuring

Tax Equity Three major structures Sale-leaseback Partnership Flip Inverted Lease Market moving to partnership flips due to shorter tenor and accounting treatment 30-40 total institutional investors, $6bln in 2016 Minimum size for institutional: $10mm-$50mm Small amount of high net worth individual tax equity investors and funds; expensive and difficult to find

Solar Finance Outlook Strong regional markets Community solar model offers significant benefits Still need innovative small scale financing solutions for underserved communities Financial feasibility still heavily dependant on local regulations (TPO, net metering, RPS, tariff structure) and incentives PACE consumer protection legislation Tax overhaul uncertainty, corporate tax rate change from 35% to 15% will have large impact to tax equity and project economics