FUNDING SOLAR,

BIOENERGY, WIND,

& ENERGY EFFICIENCY

Power Purchase Agreements Power Purchase Agreements

and the Future of and the Future of

Project Finance in CaliforniaProject Finance in California

4th Germany California Solar Day

Matt Cheney

Chief Executive Officer

MMA Renewable Ventures

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AgendaAgenda

1. MMA Renewable Ventures Overview

2. Power Purchase Agreements: Growing Fast in Popularity

3. Project Finance: Managing Risk and Complexity

4. Case Study and Final Thoughts

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MMA Renewable Ventures OverviewMMA Renewable Ventures Overview MMA Renewable Ventures OverviewMMA Renewable Ventures Overview

� MMA Renewable Ventures is a leading owner and sourc e of financing for renewable energy and energy efficiency assets in the U.S.

— 25 MW of solar PV projects in operation; 13 MW of projects under construction — Owns the largest PV system in the North America (14 MW), at Nellis Air Force Base, Nevada — Pipeline of $1 billion of identified project opportunities for 2008—2009 in solar, wind, biomass, and

energy efficiency

� We bring together sophisticated project finance wit h in-depth due diligence and asset management capabiliti es to deliver to customers reliable and affordable clean energy

— Comprehensive market knowledge and solid origination relationships

— Demonstrated expertise in structuring financing around incentives

— Institutional fiduciary / investment management experience

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MMA Renewable Ventures TimelineMMA Renewable Ventures Timeline

Dutch utility NUON launched business unit to exploit renewable

energy opportunities in U.S. in 1999

Pioneered PPAs for utility and on-site

photovoltaics in the U.S. in 2002

1999 2004 2008

Renewable Ventures spun out in management buy-out i n 2004

Investment favored U.S. tax payers

Technology and regulatory risks in nascent industry not appropriate for utility

SF based Renewable Ventures acquired by MMA in 2006 to supercharge capital raising

and pipeline development

2008 – PV, wind, and biomass

(25 MW solar PV portfolio)

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MMA RV Photovoltaic Projects MMA RV Photovoltaic Projects :: PPAs Across Multiple Customer Segments

21 different customers; 10 different engineering/co nstruction providers to date — Municipalities, corporations, military, agriculture, big box retailers — Investment grade and non-investment grade customers — 10 different states

2. Power Purchase Agreements:

Growing Fast in Popularity

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The PPA Value Proposition The PPA Value Proposition

� Retail PV market shifting to Power Purchase Agreeme nt (PPA) model because of its customer value proposition

— Capital conservation: no up-front capital expenditure — Immediate savings compared to utility rates — Long-term hedge on utility rates — Limited operational risk for customer

� Wholesale PPA helps utilities avoid risks around ne wer technologies

� PPA manages risk for the investor and developer as well � PV PPA model began with non-residential systems; no w being

modified for residential systems

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Photovoltaic PPA EmergesPhotovoltaic PPA Emerges

0%

20%

40%

60%

80%

100%

2003 2004 2005 2006 2007 2008* 2009*

Non-PPA PPA

Power Purchase Agreements (PPAs) are growing quickly

Source: Greentech Media, Feb 2008

*Forecast

U.S. Non-Residential PV Installations

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The PPAThe PPA : : A Long MarriageA Long Marriage

The PPA is a long term contract where the customer buys electricity from the system owner at pre-determined prices

SYSTEM OWNER RESPONSIBILITIES

1. Develops and finances the entire system — Permitting — Design — Procurement — Installation

2. Owns and operates the system

— Operations — Maintenance — Insurance

CUSTOMER RESPONSIBILITIES

1. Buys system electricity for 10-25 years

2. Provides the system site

— Roof top or adjacent land — Long-term access under Site

Lease

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Features of the Photovoltaic PPA in the UFeatures of the Photovoltaic PPA in the U ..SS..

� Two common types — Retail: “behind the meter” PPA customized for electricity customer — Wholesale: utilities provide “standard-offer” PPAs to system owners

� Electricity prices are predetermined by PPA, with s et

escalation/steps tailored to customer needs � Performance-based: customer only pays for the power produced � System purchase option available after the 6 th year of operation � Environmental attributes (RECs, greenhouse gas attr ibutes) can

be included in the PPA or sold separately

3. Project Finance:

Managing Risk and Complexity

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Competing Interests Competing Interests

� Use new technological

� Gain commitments before expending $

� Make customers happy

� Sell at a high price

� Secure tax benefits

� Remove most risk — Safe Credits

— Safe Technology

— Safe Operations

� Buy at low price

INVESTOR DEVELOPER

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UU..SS. . market will develop around strong financial sponsor s that can market will develop around strong financial sponsor s that can manage risks for developersmanage risks for developers , , customerscustomers , , and investors and investors

DEVELOPER Financing Risk

Implementation Risk EPC Risk

Real Estate Risk Regulatory/Rebate

DEVELOPER Financing Risk

Implementation Risk EPC Risk

Real Estate Risk Regulatory/Rebate

INVESTOR Maintenance Risks Operating Expense

Credit Risk Regulatory Risk Production Risk

INVESTOR Maintenance Risks Operating Expense

Credit Risk Regulatory Risk Production Risk

CUSTOMER Implementation Risk

Relationship Risk Regulatory/Rebate Risk

CUSTOMER Implementation Risk

Relationship Risk Regulatory/Rebate Risk

Industry must understand and manage risks

Industry needs a successful track

record

Financial SponsorshipFinancial Sponsorship

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Capital Providers in UCapital Providers in U ..SS. . PV Project FinancePV Project Finance

� Equity investors with tax appetite and strong energy knowledge (ownership stage). Tend to be passive and highly risk adverse. Mainly investment banks, commercial banks, insurance companies

� Cash equity investors seeking higher returns (development stage)

� Capital equipment leasing providers

� Developers with patient capital

� European debt providers

� U.S. debt providers

NELLIS AIR FORCE BASE

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Meeting Equity Investor and Lender ConcernsMeeting Equity Investor and Lender Concerns

� Review of underlying contracts (traditional project finance diligence)

— Deals are highly structured

— Focus on tax and accounting issues under tax credit-based policies

� System production estimates require careful validat ion

� Debt service coverage ratio needs to account for variability in production

� Whether / how to value environmental attributes in cash flow analysis

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A Typical UA Typical U ..SS. . Solar Fund SyndicationSolar Fund Syndication

� Diverse Financial Products — Aggregation of PV projects – diversification of risk — Leveraged structure with senior debt at the project level — Majority of returns come from federal tax benefits (Investment Tax Credit

and accelerated depreciation)

— Partnership structure – not a lease

� Yields — Matching risk & return. Depends on fund-level risk, amount of leverage, and

credit protection coming from financer, customer, and system integrator. Since each deal is unique, risk/return profile differs with each financing

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Looking ForwardLooking Forward : : Utility-Scale PV

� PV price / technology mix getting closer to meeting peak wholesale price and reliability targets

� Projects like Nellis prove these systems can be bro ught into operation quickly and with utility-grade quality

� Of nearly all renewable energy options, only “distr ibuted-generation” utility-scale PV plants can be built qu ickly, efficiently, and without transmission constraints

� Partnership (not just procurement) with qualified d evelopers and owners is important to help utilities bridge risks of creating a real future of clean energy infrastructure

4. Case Study and Final Thoughts

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� ~$100MM project on Nellis Air Force Base property, eight miles northeast of Las Vegas, Nevada

� Ground mounted tracking system that covers 140 acres,

utilizing approximately 75,000 solar modules. At 14.2 MW, largest solar PV plant in North America

� Partnered with SunPower Systems to design, install,

and maintain system � Electricity sold entirely to U.S. Air Force under 20 year

Power Purchase Agreement contract � Renewable energy certificates (RECs) sold to the

regional utility Nevada Power under contract. Helps them meet their Renewable Portfolio Standard obligation

Case Study Case Study –– Large Scale PV Large Scale PV Nellis Air Force Base, Nevada

FINANCIER – OWNER – OPERATOR

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� U.S. PV market is still in its infancy, but is very promising — More supportive federal policy likely in the medium term, including greenhouse

gas cap-and-trade policy and long term extension of federal tax credit

� Sponsor and third-party capital necessary for growt h of the industry. Smart money = Smart growth

� Risk allocation and mitigation key to closing deals

� Lower costs & economies of scale will be needed to maintain momentum

Summary Summary & & Final ThoughtsFinal Thoughts

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Thank youThank you

Matt Cheney

Matt.Cheney@MMARenew.com D: 415.229.8801 M: 415.244.6787 www.mmarenewableventures.com

Matt Cheney

Matt.Cheney@MMARenew.com D: 415.229.8801 M: 415.244.6787 www.mmarenewableventures.com