1. DOE OFFICE OF INDIAN ENERGY Step 2: Project Options 1

2. 2 1 Potential 3 Refinement 5 Operations & Maintenance 2 Design 4 Implementation 2 Options

3. Agenda – Step 2 3 Tribal Role Options – Tribal Role Options – Business Structure Options – Team Members/Partners Tax Incentives Procurement Interconnection and Net Metering

4. TRIBAL ROLE OPTIONS 4

5. Potential Team Members 5 Tribal Members  Leadership, staff, community members  Attorneys, engineers, professionals Developer  Business managers, engineers, permitting specialists, investors, banks, attorneys, accountants, power marketers, procurement specialists, communications, public relations, government relations, corporate finance, project finance, construction managers, O&M specialists, asset managers, etc. Utility  Engineers, attorneys, planning specialists, operations specialists, regulatory specialists, finance, accounting, public relations, communications, systems operators, construction and field personnel, maintenance and emergency operations, etc. Government  Tribal government, federal, state, local entities, regulating bodies (public utilities commission), Bureau of Indian Affairs, DOE, Federal Energy Regulatory Commission, etc.

6. Key Success Component Identify and select an energy “champion” to shepherd the process Photo by Dennis Schroder, NREL 21010 6

7. The Role of the Project Champion 7 Project Champion Employ relevant expertise: legal and finance; technical and construction; power marketing Ensure all relevant players are engaged in the project at the right time, levels, and roles Engage Tribal leadership and project and business management (professionals and staff)

8. Tribe 8 Tribal Role Options Renewable Resource/Land Owner/Land Lessor* Off-taker or Energy User Lender/ Debt Provider Equity Investor/ Generation Equipment Owner Project Developer Project Operator/ O&M * Also called Tribal Host

9. Tribal Role Options 9 RoleOpportunityConstraintsComments Resource/ Land Owner Land rent/royalty, taxes. Low risk, known reward, consistent income. Limited project control. Must provide site access. Limited upside potential, limited risk Off- Taker/Energy User Tribe purchases or uses all power on-site. Could include an “on-site” provider; security. Limited investment, economic development for on-site projects Must have demand to use power; still requires utility interconnection agreement (if on the grid). Med risk. Project Operator/ O&M Control and self-determination of project; potential for profits (and losses) is minimal Investors require experience Only consider as a new business (multiple projects in a portfolio) Tribes investing $ may not want this high risk/return investment High risk, complex Tribes may be best served by outsourcing A project pipeline/portfolio mitigates some risks Lender/ Debt Provider Participate financially in project (e.g., cash or NMTC with lower risk Requires ready capital May be cost-prohibitive to document and manage a single debt transaction (multiple more cost-effective) Med-risk, more complex Requires lending knowledge Option for Tribes with limited lands, lots of $ Equity Investor/ Gen. Owner Provide cash or NMTC for project development. Less capital than commercial-scale. Higher risk than debt lending. Requires ready capital, or unique source of capital that provides market advantage (like NMTC). High risk, more complex Competes with other investments Option for Tribes with limited lands, lots of $ Project Developer Self-determination of project; potential for profits (and losses) is highest. Tribes with $ don’t need investors. Investors require experience Only consider as a new business (do multiple projects for diverse portfolio) Tribes investing money may not want this high risk/return investment High risk, complex Tribes may be best served by outsourcing A project pipeline/portfolio mitigates some risks

10. CONCEPT 2: BUSINESS STRUCTURE OPTIONS 10

11. Importance of Choosing the Right Business Structure  Protect Tribal assets  Preserve Tribal sovereignty  Minimize potential liability 11 Photo by Brian Hirsch, NREL 20893

12. Business Structure Options for Tribes 1.Tribal government entities  Unincorporated instrumentalities  Political subdivisions  Utility authority 2.Section 17 corporations 3.Tribally chartered corporations 4.State law entities  State law corporations  Limited liability companies (LLCs) 5.Joint venture 12

13. Evaluating the Options Business Structure Option Simplicity and Quick Formation Shield Tribal Assets from Business Liabilities Avoid Federal Income Taxes Separate Business from Tribal Control Ability to Secure Financing Tribal Instrumentality* Political Subdivision* Section 17 Corporation* Tribal Law Corporation* State Law Corporation LLCs/Joint Venture LLC (only if Tribe is sole member) 13 (*Can be protected by Tribal sovereign immunity)

14. Business Structure Resources Renewable Energy Development in Indian Country: A Handbook for Tribes (Douglas MacCourt and Ater Wynne LLP) http://www.nrel.gov/docs/fy10osti/48078.pdf Tribal Business Structure Handbook (The Office of the Assistant Secretary – Indian Affairs U.S. Department of Interior) http://www.irs.gov/pub/irs-tege/tribal_business_structure_handbook.pdf Structuring Tribal Business Enterprises and Joint Ventures (Kathleen M. Nilles, and Karen J. Atkinson) http://apps1.eere.energy.gov/tribalenergy/pdfs/course_biz0904_nilles.pdf http://apps1.eere.energy.gov/tribalenergy/pdfs/course_biz0904_nilles.pdf Tribal Energy Development Primer (Quapaw Tribe of Oklahoma) http://www.nrel.gov/docs/fy10osti/48078.pdf 14

15. CONCEPT 3: FINANCING & TAX INCENTIVES 15

16. Potential OptionsRefinementImplementation Operations & Maintenance Paying for the Project 16 Three Major Costs to Develop a Project: 1.Feasibility – this is the potential analysis 2.Preconstruction – permitting, environmental 3.Construction – engineering, procurement of equipment, and actual construction of plant Financing structure is highly dependent on capital used for a given project: 1.Tribal capital: Tribal investment ($$$) to purchase project equipment 2.Tribe-private sector capital sharing: Tribe contributes some resources ($) and partners with third-party capital to leverage tax equity ($$) 3.Non-Tribe capital: Developer equity, tax equity, bank debt. Tribe participates in other ways.

17. Potential OptionsRefinementImplementation Operations & Maintenance Sources of Capital examples 17  Self funding (cash)  Grants  Incentives (state, local, utility)  Debt  ESPCs and UESCs  Tax equity  Hybrid - Morris Model  Monetizing green attributes

18. 1.Tribe can benefit from tax-equity incentives without being taxable 2.Tribes can partner with third-party tax investors and/or developers to gain this incentive/advantage  Recent IRS PLR supports Tribal partnerships with third-party tax equity http://www.irs.gov/pub/irs-wd/1310001.pdf http://www.irs.gov/pub/irs-wd/1310001.pdf  Even with IRS ruling, the Tribe needs capital to build a large renewable project 3.Tribe benefits by offering a more competitive price for energy and RECs from the project to a utility Key Concept: Tax-Equity Partnerships 18

19. So Why Seek a Tax-Equity Finance Partner? Third-Party-Owned Tribe-Owned (w/o Partner) 19  Tax incentives such as Modified Accelerated Cost Recovery System (MACRS) and either Production Tax Credit (PTC) or Investment Tax Credit (ITC) can represent up to half the project value, or reduce project capital costs by ~50%  Tax incentives can help to achieve a competitive price of power  Many projects also require state-level incentives to be economic

20. PROCUREMENT 20

21. Procurement Process Facility- and Community-Scale Projects 21 Negotiate Contracts Make Selection Develop and Issue RFP Potential Project Partners to Procure  Consider the General Services Administration (GSA) as a resource for procurement: http://www.gsa.gov/portal/category/20998 http://www.gsa.gov/portal/category/20998  Project developer  Engineering, procurement, and construction (EPC) contractor  Environmental permits contractor –May apply to some community projects, but not to others

22. Outline of the RFP Process 1.Develop RFP ―Timeline: 1 month to 1 year (depends on project scale and site complexity) ―Who creates the RFP: project leader, contract officer/lawyer, site manager(s), energy manager and technology expert. RFP writers will receive input from utility, tribal leaders, and stakeholders ―RFP content 2.Issue RFP Tribal, federal, and industry networks 3. Administer the RFP ―Proposal meeting(s) ―Site tour(s) – can be concurrent with proposal meeting ―Q&A process – ensure all developers get same information 4. Evaluate Criteria ―Should be a clear process with well defined criteria ―Evaluation panel recommended to consist of an odd number of members (typically 3 to 7) 5. Award Contract Four approaches 22

23. Develop RFP Key Elements of the RFP □ Type of procurement: o Purchase o PPA o Other finance structure □ Technical specification (scope of work) □ Criteria for evaluating proposals: 3–5 of most important project aspects o Proposed project solution that meets specified criteria o System performance guarantee o Developer experience, track record, and customer satisfaction o Developer financial health/longevity o Maintenance plan o Reasonable timelines o Other 23

24. Develop RFP (continued) Key Elements of the RFP □ Description of RFP administration process o Typically 2–5 months o Key dates: proposal meeting(s), sites visit(s), proposal due date o Description of how questions will be handled and answered □ Defining responsible parties o Who is responsible for permits o Who is responsible for interconnection agreements o Who is responsible for applying for incentives □ Any preferences on parties allowed to submit proposals o Small business o Minority-owned o Other □ Land use agreements o Address site access and land use issues as relevant to ownership model 24

25. RFP Technical Specifications Define Scope of Work  What is the project scale  Type of renewable energy technology  Site information: –Location –Interconnection requirements as known –Applicable codes and standards –Roof structure, soils, other (as applicable and available) –Site prep: fencing, roads, grading limitations, etc. –Installation requirements: min/max heights of equipment, vegetation mitigation, design standards for structural/electrical  Equipment minimum standards and warranties  Expected minimum performance (recommended) or capacity  Strategy for training maintenance and operations staff  Commissioning plan 25

26. RFP Evaluation Criteria Two Typical Approaches  Best value: –Typically 3–5 criteria with weighting based on importance –Score proposal on each criteria –Somewhat subjective and can lead to contentious, time-consuming evaluations but good method to capture best value  Low price, technically acceptable –Proposals initially stripped of pricing/cost information –First evaluation determines proposals that meet technical hurdle –Technically acceptable proposal with lowest cost gets award –More transparent process but may not capture best value 26

27. RFP Award Contract Choose One of These Four Typical Approaches 1.Award based on proposal: awarded solely on merits of proposal 2.Award with discussion: awarded on proposal but contingent on clarifying discussions 3.Award with discussion and negotiation: awarded on proposal but contingent on further negotiation 4.Award with best proposal: ―Best proposals are short-listed ―Short-listed proposals asked for best final proposal revision ―Award based on final proposal revision 27

28. Post-Procurement 28 Project Built Project Commissioned Ongoing Monitoring/ Maintenance

29. Summary: Project Procurement and Implementation  Procurement strategy will vary depending on the project scale and financing solution selected  Increasingly more complex for larger projects  Post procurement issues are critical as these are very long term assets and relationships 29

30. Small Group Exercise  Evaluate the RFP responses provided by identifying overall goals and developing values to help rank responses 30

31. INTERCONNECTION & NET METERING 31

32. Interconnection & Net Metering Required Agreements General Process for Interconnection How to Find Utility Rules on Interconnection Common Missteps and Caveats 32

33. What is Net Metering? “Net metering allows residential and commercial customers who generate their own electricity from [eligible technologies] to feed electricity they do not use back into the grid” for utility credit. Source: Solar Energy Industry Association. Issues and Policies: Net Metering, accessed Aug 11, 2013. http://www.seia.org/policy/distributed-solar/net-meteringhttp://www.seia.org/policy/distributed-solar/net-metering 33

34. 34 Note: Numbers indicate individual system capacity limit in kilowatts. Some limits vary by customer type, technology and/or application. Other limits might also apply. Additionally, this map generally does not address statutory changes until administrative rules have been adopted to implement such changes.

35. Net Metering Variations Net metering works best for – Home owners (not renters) – Single dwellings (not multi-unit homes/businesses) – Customers located in same utility territory – Distributed generation (DG) located in the same utility territory Variations on net metering allow for broader participation – Group billing – Virtual net metering – Joint ownership 35

36. Group Billing Allows multiple participants to receive net metering credits from a single renewable energy facility – Great for multi-family homes or multi-tenant business buildings – Utility’s rules must allow for group billing Utility plays an active role – Produces group bill for all energy consumption and charges – Output from net metered system is credited against group bill – Remaining costs are allocated according to participant agreement Requires – Customer representative as utility contact to do administrative work – Creditworthy customer representative Example: Vermont 36

37. Virtual Net Metering Similar to group billing – Multiple participants receive net metering credits from a single renewable system – Offsets load at multiple retail electric accounts – Must be within a utility’s service territory As with traditional net metering, credits appear on each individual customer’s bill, instead of on a group bill Sometimes, the DG system is not required to be behind the customer’s meter Examples: Colorado, Delaware, Massachusetts, and California 37

38. Database of State Incentives for Renewable Energy Check DSIRE: http://dsireusa.orghttp://dsireusa.org 38

39. Sample Net Metering Agreement http://www.xcelenergy.com/staticfiles/xe/Marketing/Files/MN-SR-Contract.pdf 39

40. What is Interconnection? “The technical rules and procedures allowing customers to ‘plug in’ to the grid.” Source: Solar Energy Industry Association. Issues and Policies: Net Metering, accessed Aug 11, 2013. http://www.seia.org/policy/distributed-solar/net-meteringhttp://www.seia.org/policy/distributed-solar/net-metering 40

41. What is Interconnection? (cont.) Agreement required to connect your facility- or community-scale system to the grid Distribution-level interconnection is largely the domain of state policy – Rules and regulations are highly variable between states Involve your utility early and often in the project development process – Many utilities have their interconnection procedures and the necessary contacts posted on their website 41

42. Common Interconnection Elements Application Designated interconnection utility representative Generator size thresholds – Different tracks for generators of certain sizes – Fast-track procedure for systems smaller than a certain size (generally ~2 MW) – Technical screens, feasibility studies, etc., for larger, more complex systems Timelines for each step Standard agreement between utility and customer 42

43. Database of State Incentives for Renewable Energy Check DSIRE: http://dsireusa.orghttp://dsireusa.org 43

44. Interconnection Policies.. www.dsireusa.orgwww.dsireusa.org / February 2013.. 43 States, + Washington DC and Puerto Rico, have adopted an interconnection policy. 43 States, + Washington DC and Puerto Rico, have adopted an interconnection policy. Notes: Numbers indicate system capacity limit in kW. Some state limits vary by customer type (e.g., residential versus non-residential).“No limit” means that there is no stated maximum size for individual systems. Other limits may apply. Generally, state interconnection standards apply only to investor-owned utilities. 44

45. Sample Interconnection Agreement (< 10 kW) 45 http://xcelenergy.com/staticfiles/xe/Marketing/Files/NM-Small-Program-%20Interconnection-Agreement.pdf

46. Project Risk – Facility-Scale Post Step 2 46 Sources: Adapted from Holland & Hart, RE Project Development & Finance & Infocast, Advanced RE Project Finance & Analysis RisksRisk Assessment Post Step 2 Development Loss/waste of development resources Still low but rising; “calculated;” more assurance of success Site Improper orientation or project affected by shade Reduced Inadequate foundation or structural integrity Assumed low; developer to assess Site control challenges for safety/security purposes Assumed low Permitting Tribe-adopted codes and permitting challenges Further reduced; now well informed (team-critical) Utility interconnection challenges Reduced Finance Capital constraintsAssumed low; PPA elected Incentives unavailability or insufficiencyLow; allocate to developer to facilitate Construction/ Completion Engineering, procurement, and construction difficultiesLow; allocate to EPC/developer Cost overrunsLow; allocate to EPC/developer Schedule overrunsLow; allocate to EPC/developer Operating Output shortfall from expectedLow; allocate to owner Technology O&M failureLow; allocate to owner or O&M contractor NOTE: Underlining signifies that the risk assessment outcome changes during the step at hand.

47. Project Risk – Community-Scale Post Step 2 47 Risks Risk Assessment Post Step 2 Development Poor or no renewable energy resource assessment Not identifying all possible costs Unrealistic estimation of all costs Incorrect estimation of long-term “community” energy use (energy efficiency first) Utility rules and ability to offset use with centralized production Finalized resource Reduced Finalized projection Reduced Site Structural (e.g. rooftop solar, wind loading, soil conditions) Installation safety (e.g., wind tower, hazard for adjacent sites) Site control for safety/security purposes Unchanged Reduced Permitting Tribe-adopted codes and permitting requirements Utility interconnection requirements Reduced Finance Capital availability Incentive availability risk High risk, reduced Reduced Construction/ Completion EPC difficulties Cost overruns Schedule Low; allocate to EPC or developer Operating Output shortfall from expected Technology O&M Assumed low, mitigable or allocatable Sources: Adapted from Holland & Hart, RE Project Development & Finance & Infocast, Advanced RE Project Finance & Analysis *NOTE: Underlining signifies that the risk assessment outcome changes during the step at hand.