the financial climate for solar investment & lessons...
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The Financial Climate for Solar
Investment & Lessons Learned
Chad Laurent
Meister Consultants Group
chad.laurent@mc-group.com
3
SunShot Goals
4
Balance of
Systems
CSP & PV R&D
Systems Integration
Tech to market
SunShot Goals:
6 cents/kWh by 2020 ($1/Watt)
60% of the way there!
Solar Ready II: Regional Partners
5
Who Are We?
6
100 Consultants
7 offices worldwide
U.S. HQ in Boston
15 years experience
Using global best practices
to inform local decisions
Solar Ready: Technical Assistance
7
Training
Materials
One to One
Assistance
Resource
Toolkit
Regional
Workshops
Solar Technologies
8
Solar Hot Water Concentrated Solar PowerSolar Photovoltaic (PV)
Solar Technologies
9
Solar Hot Water Concentrated Solar PowerSolar Photovoltaic (PV)
Solar Technologies: PV
Image Source: ecorehabreviews.com
Crystalline Silicon Thin Film
Some Basic Terminology
Panel / Module
Cell
Some Basic Terminology
Array
e-e-
Some Basic Terminology
Capacity / Power
kilowatt (kW)
Production
Kilowatt-hour (kWh)
e-
Some Basic Terminology
Residence
5 kW
Office
50 – 500 kW
Factory
1 MW+
Utility
2 MW+
Image Source: Home Power Magazine
PV System Components
Utility Grade
Meter
InverterDisconnect
Switch
World Solar Market
Source: REN 21
Top 5 Countries Solar Operating Capacity (2013)
Germany
China
Italy
USA
Spain
Rest of World
Germany
26 %
USA
8.6%
Global Market & Module Prices
0
5
10
15
20
25
30
35
0
20
40
60
80
100
120
140
160
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20
11
20
12
20
13
GW Installed Module cost ($/W)
GW$/W
World Solar Growth
Source: REN21, IEA 18
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Glo
bal C
um
ula
tive I
nst
alled
PV
Cap
acit
y (
MW
)
Cumulative Capacity
Est. 25-35%
residential
IEA WEO 2006 projection
US Solar Market
0
2000
4000
6000
8000
10000
12000
14000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
US Installed PV Capacity (MW)
Falling PV Prices
Tracking the Sun VII: The Installed Cost of Photovoltaics in the US from 1998-2013 (LBNL); Solar
Energy Industries Association Solar Market Insight Q2 2014
$-
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
Co
st p
er
Wat
t D
C
US Average Installed Cost for Behind-the-Meter PV
Price in 2013 is
almost half of what
it was in 2009
The Cost of Solar in the US
Source: NREL (http://www.nrel.gov/docs/fy14osti/60412.pdf)
LBNL (http://emp.lbl.gov/sites/all/files/lbnl-6350e.pdf)(http://www1.eere.energy.gov/solar/pdfs/sunshot_webinar_20130226.pdf )
$-
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
US Solar Cost German Solar Cost
$ p
er
Watt
Comparison of US and German Solar Costs
Non-Hardware Cost
Hardware Cost
$-
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
US Solar Cost German Solar Cost
$ p
er
Watt
Comparison of US and German Solar Costs
Column1
Non-Hardware Cost
Hardware Cost
The Cost of Solar in the US
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$ p
er
Wat
t
Other Paperwork
Permitting & Inspection
Financing Costs
Customer Acquisition
Installation Labor
Solar Soft Costs
Source: NREL (http://www.nrel.gov/docs/fy14osti/60412.pdf)
LBNL (http://emp.lbl.gov/sites/all/files/lbnl-6350e.pdf)(http://www1.eere.energy.gov/solar/pdfs/sunshot_webinar_20130226.pdf )
18,000+ local jurisdictions
with unique zoning and permitting requirements
Challenge: Inconsistency
Source: Benchmarking Soft Costs for PV Systems, National Renewable Energy Laboratory
5,000+ utilities
with unique interconnection requirements
Challenge: Inconsistency
Source: Benchmarking Soft Costs for PV Systems, National Renewable Energy Laboratory
50 stateswith unique solar policies
Challenge: Inconsistency
Source: Benchmarking Soft Costs for PV Systems, National Renewable Energy Laboratory
Consumer Challenges
Source: Forbes
DOE study of differences in
residential costs in areas with
strong and weak solar policies
Calculated using SM3 data and
Project Permit scores
New Research in Permitting & Zoning Costs
http://emp.lbl.gov/sites/all/files/Local_Regulations_and_PV%20Report.pdf
New Research in Permitting & Zoning Costs
http://emp.lbl.gov/sites/all/files/Local_Regulations_and_PV%20Report.pdf
Data Source SM3 Project Permit
What’s
Measured?
Permitting, Interconnection,
Planning & Zoning,
Financing, Net Metering
Permitting Only
$/W Difference $0.64 to $0.93 $0.18
5 kW System
Price Difference$3,200 to $4,700 $700
US Solar Resource
Source: National Renewable Energy Laboratory 29
Ohio Solar Market
0
20
40
60
80
100
120
2007 2008 2009 2010 2011 2012 2013
Megaw
att
s
Cumulative Installed Capacity
Kentucky Solar Market
0
20
40
60
80
100
120
2007 2008 2009 2010 2011 2012 2013
Megaw
att
s
Cumulative Installed Capacity
Indiana Solar Market
0
20
40
60
80
100
120
2007 2008 2009 2010 2011 2012 2013
Megaw
att
s
Cumulative Installed Capacity
~1.2 MW is
“distributed”
OKI Solar Markets
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
4,500.00
5,000.00
5,500.00
Cal
ifo
rnia
Ari
zon
aN
ew J
erse
yN
ort
h C
aro
lina
Mas
sach
use
tts
Nev
ada
Co
lora
do
Haw
aii
New
Mex
ico
New
Yo
rkTe
xas
Pen
nsy
lvan
iaM
aryl
and
Flo
rid
aG
eorg
iaO
hio
Co
nn
ecti
cut
Ten
nes
see
Del
awar
eO
rego
nIn
dia
na
Mis
sou
riLo
uis
ian
aIll
ino
isV
erm
on
tW
ash
ingt
on
Wis
con
sin
Mic
hig
anD
istr
ict
of
Co
lum
bia
Uta
hM
inn
eso
taV
irgi
nia
New
Ham
psh
ire
Sou
th C
aro
lina
Ken
tuck
yR
ho
de
Isla
nd
Mai
ne
Iow
aM
on
tan
aW
est
Vir
gin
iaA
lab
ama
Ark
ansa
sId
aho
Kan
sas
Mis
siss
ipp
iW
yom
ing
Okl
aho
ma
Neb
rask
aA
lask
aN
ort
h D
ako
taSo
uth
Dak
ota
Megaw
att
s
Installed Capacity (MW) 2013
Source: U.S. Solar Market Trends 2013
Ohio KentuckyIndiana
Solar Development in the US
In 2013, the US solar industry installed over
145,000 new solar installations
94% were residential projects
of which
Solar Job Growth
Source: SEIA Estimates (2006-2009), The Solar Foundation’s National Solar Jobs Census 2014
(2014), The Solar Foundation’s National Solar Jobs Census 2014 (2011-2014). 35
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
2006 2007 2008 2009 2010 2011 2012 2013 2014
Solar Job Growth in the US
SEIA
Estimates
The Solar
Foundation
Solar Economic Growth
Source: SEIA/GTM Research – 2009/2010/2011/2012 Year in Review Report
http://www.seia.org/research-resources/us-solar-market-insight 36
$0
$2,000,000,000
$4,000,000,000
$6,000,000,000
$8,000,000,000
$10,000,000,000
$12,000,000,000
$14,000,000,000
$16,000,000,000
2006 2007 2008 2009 2010 2011 2012 2013
~40% CAGR
Avoided Energy Purchases
Avoided T&D Line Losses
Avoided Capacity Purchases
Avoided T&D Investments
Fossil Fuel Price Impacts
Backup Power
Benefits: Valuable to Electric Grid
37
Value of Solar
Source: Rocky Mountain Institute 38
In many cases the value is greater than the retail rate
FederalInvestment Tax
CreditAccelerated Depreciation
Qualified Energy Conservation
Bond
State & UtilityRenewable Portfolio Standard
Net Metering Interconnection
Solar Access
A Policy Driven Market
State
&
Utility
Type: Tax Credit
Eligibility: For-Profit Organization
Value: 30% of the installation cost
Availability: Through 2016
Investment Tax Credit
Accelerated Depreciation
0%
20%
40%
60%
80%
100%
0 2 4 6 8 10 12 14 16 18 20 22 24
Pro
ject
Val
ue
Year
Modified Accelerated Cost-Recovery System (MACRS)
Straight Line
MACRS (2014+)
Installed Capacity by State
Source: LBNL Tracking the Sun VI 42
0
500
1,000
1,500
2,000
2,500
3,000
Cal
iforn
ia
Ari
zona
New
Jers
ey
Neva
da
Colo
rado
Nort
h C
arolin
a
Mas
sach
use
tts
New
Mexic
o
Haw
aii
New
York
Pennsy
lvan
ia
Texas
Flo
rida
Mar
ylan
d
Ohio
Ore
gon
Dela
war
e
Tenness
ee
Illin
ois
Connect
icut
Verm
ont
Georg
ia
Wis
consi
n
Mic
hig
an
Was
hin
gton
Mis
souri
Louis
iana
Dis
tric
t of C
olu
mbia
Min
neso
ta
Vir
ginia
Uta
h
New
Ham
psh
ire
Kentu
cky
South
Car
olin
a
India
na
Mai
ne
Monta
na
Rhode Isl
and
West
Vir
ginia
Ark
ansa
s
Iow
a
Ala
ska
Idah
o
Mis
siss
ippi
Wyo
min
g
Kan
sas
Nebra
ska
Okla
hom
a
Nort
h D
akota
Ala
bam
a
South
Dak
ota
Megaw
att
s
Installed Capacity (MW) 2012
10 states account
for 85% total US
capacity
Net metering allows customers to export
power to the grid during times of excess
generation, and receive credits that can be
applied to later electricity usage.
Net Metering
Net Metering: Excess Credits
44
Excess Generation = Retail? Avoided Cost?
Other?
Do credits rollover? For how long?
Net Metering: Limits & Caps
DSIRE 45
Individual System Capacity Limit
Limit on the the size of individual systems
20 states allow systems 1 MW or greater to net meter
MA 1 MW
NM 30 kW
OHNo limit but cannot
exceed 100% of annual
customer load
IN
KY
Net Metering: Limits & Caps
DSIRE 46
Overall Program Capacity Limit
Limit on the total capacity allowed under
the program
1% of utility's single-hour peak load during previous yearUT
Limits typically range from 0.2% - 5% peak utility demand
PA No aggregate limit WV 1% of utility’s summer loadOH IN
KY
Net Metering: Aggregate or Virtual
47
Each meter number and
the percentage of
allocated credits are
written in on a single form
DC
Aggregation of some from authorized by state
Net Metering: Aggregate or Virtual
Unclear/not
addressed in
OKI states
Renewable Portfolio Standard
Retail Electricity Sales
Any electricity source
Renewable
Energy
Renewable Portfolio Standard
Retail Electricity Sales
Any electricity source
Solar carve-out
Renewable
Energy
How does a utility comply with an RPS?
Option 1: Develop RE projects
Option 2: Directly procure from RE projects
Option 3: Purchase Renewable Energy Certificates
Renewable Portfolio Standard
51
RPS: SREC Market Prices
Source: PV News / GTM Research 52
$-
$100
$200
$300
$400
$500
$6001-J
an-1
1
1-M
ar-1
1
1-M
ay-1
1
1-J
ul-11
1-S
ep-1
1
1-N
ov-
11
1-J
an-1
2
1-M
ar-1
2
1-M
ay-1
2
1-J
ul-12
1-S
ep-1
2
1-N
ov-
12
1-J
an-1
3
1-M
ar-1
3
1-M
ay-1
3
1-J
ul-13
1-S
ep-1
3
1-N
ov-
13
1-J
an-1
4
1-M
ar-1
4
1-M
ay-1
4
Pri
ce p
er
MW
h
SREC Prices in Massachusetts (Jan 2011 – May 2014)
Spot Market Contract ACP
Market
Oversupply
RPS: SREC Market Prices
Source: PV News / GTM Research 53
$-
$100
$200
$300
$400
$500
$600
Pri
ce p
er
MW
h
SREC Prices in 5 States (June 2013 – June 2014)
DC
DE
MD
MA
NJ
PA
RPS: REC Price Volatility
Source: SREC Trade 54
Feed-in Tariff
Feed-in Tariff (CLEAN Contract)
Customer Utility
Fixed price payment
Long term contract
Guaranteed purchase
Price of generation cost
Feed-in Tariff (CLEAN Contract)
Source: Meister Consultants Group
States with
CLEAN
programs
Municipalities
with CLEAN
programs
Utility CLEAN
programsGainesville,
FL
Sacramento, CA
San Antonio,
TX
Austin,
TX
Los Angeles, CA
Long Island
Power
Authority,
NY
River Falls,
WI
FiT: Contribution
Source: Meister Consultants Group / Bloomberg New Energy Finance / REN 21 (2012) 57
FiT
75%
Other
25%
Global Solar Installed Capacity by Incentive Type (2011)
The Current Financing Landscape
Direct Ownership
Third-Party Ownership
$$
Direct Ownership
Customer Utility
Direct Ownership: Benefits
Direct Ownership Third Party Ownership
Upfront Cost High
O&M Costs Yes
Electricity Costs None
Development Risk Yes
Performance Risk Yes
Difficulty Complex
Value to Customer Higher ROI for Customer
Availability Everywhere
$e- $
Third Party Ownership
Customer Developer
e-
Power Purchase Agreement
Incentives
Third Party Ownership: Benefits
Direct Ownership Third Party Ownership
Upfront Cost High Low to None
O&M Costs Yes No
Electricity Costs None Predictable Payments
Development Risk Yes No
Performance Risk Yes No
Difficulty Complex Easy
Value to Customer Higher ROI for Customer Shared Benefits
Availability Everywhere Only in some states
Third Party Ownership
Source: GTM Research/ Solar Energy Industries Association, U.S. Solar Market Insight 2012 Year-in-Review
& U.S. Solar Market Insight Q2 2014
0
10
20
30
40
50
60
70
80
90
100
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
%
California
Arizona
Colorado
Massachusetts
New Jersey
New York
2011 2012 2013 2014
Apparently disallowed by state or otherwise restricted by legal barriers
Status unclear or unknown
Authorized by state or otherwise currently in use, at least in certain jurisdictions within in the statePuerto Rico
Third Party Ownership: State Policy
Third Party Ownership is not always available
Third Party Ownership: Cost
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
Third Party Ownership Direct Ownership with Debt
Weighted Average Cost of Capital
Third Party
Ownership can
be expensive
DOE WACC Targets
Source: National Renewable Energy Laboratory (NREL) 2013
DOE WACC Targets
Source: National Renewable Energy Laboratory (NREL) & Rocky Mountain Institute 2013
Over 20 years Loans can beat PPA
Source: EnergySage
LCOE of Loans vs. PPA
Source: NREL (2014)
$0.14 $0.15 $0.16
$0.20
$0.26
$-
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
5-Year Loan 10-Year Loan 20-Year Loan 20-Year PPA SDG&E Res. Tier
2/3
LCOE for Residential Solar PV based on Financing
San Diego
Res. Retail
Rate
Additional Local Benefits
Source: John Farrell, Institute for Local Self-Reliance
Growing Market Opportunity
Source: Solar Energy Industries Association
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Inst
alled
Cap
acti
y (
MW
)
US Annual PV Installation Capacity
10-20 Billion of available investment in the next several years.
Fewer than 5%
of the
6,500 banks in the US
are
actively financing solar PV projects
New Lending Product Opportunity
Why Lend for Solar?
Source: GTM Research/ Solar Energy Industries Association, U.S. Solar Market Insight 2012 Year-in-Review
0
10
20
30
40
50
60
70
80
90
100
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012
Thir
d P
arty
Ow
ne
d R
esi
de
nti
al M
arke
t Sh
are
Percentage of New Residential Installations Owned by Third Party in CA, AZ, CO, and MA
California Arizona Colorado Massachusetts
Local lenders have the opportunity to provide
many of the benefits of third party ownership
with fewer drawbacks
Meister Consultants Group
chad.laurent@mc-group.com
Chad Laurent
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