PV Development Considerations for US Universities

Contributors, co-authors

Author:

JaredSchoch,TurningPointEnergy

Editors/Reviewers:

JaneCowan,MidwestRenewableEnergyAssocia@on

NickHylla,MidwestRenewableEnergyAssocia@on

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TurningPoint Energy Overview •  Denver-basedclean-techdevelopment,advisoryand

investmentfirmwithafocuson:•  Developingsolar,storage,andrelatedclean-techprojects

forcommercialandu@lityclients•  Advisingu@li@es,publicsectoren@@es,solarcompanies

andemergingnewclean-techcompaniesongo-to-marketstrategies,mergersandacquisi@ons,organiza@onalsystems,processes,toolsandefficiencies

•  Inves.nginsolarprojects,emergingclean-techcompaniesanduniqueopportuni@es

•  Combined$1.7billion(540MW+)indeveloping,financing,installingandservicingsolarandenergyefficiencyprojectsoverthelast12yearsthroughoutNorthAmerica

•  hZp://turningpoint-energy.com/

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TurningPoint Energy Current Projects 1st 1.98MW AC

Community Solar in TX

1MW AC NM with No ITC

25MW AC in NM DOE-backed MREA Solar for Universities

500kW AC Elementary

School in CO Developing 2017 – 2022 Pipeline of New Projects Across the US

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A PV Investment Roadmap for US Universities and Foundations

The Solar Endowment:

Moreinforma@onatwww.solarendowment.org

Ledbystudentteams,theprojectaimstoshowcaseinvestmentandprogramma@cpoten@alofsolarenergyprojectstouniversitygovernanceboardsinaneffortto:•  Generateinvestmentthroughuniversity

founda@ons•  Advancefavorableboardpoliciesthatgovern

investmentsinsolarassets•  Developroadmapsforuniversi@estodeployPV

ontheircampusandmakeinvestmentsthatadvancefounda@onandsustainabilitygoals

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Agenda

Descrip@on

PVDevelopmentConsidera@onsforUSUniversi@es

Contentoutline

•  Sec@on1–StructuringSolarDevelopmentTeams•  Sec@on2–BestPrac@cesandRulesofThumbforPVDevelopment•  Sec@on3–UniversityFinancialOp@onsforPVInvestment•  Sec@on4–BestPrac@cesforPVProcurement

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STRUCTURINGSOLARDEVELOPMENTTEAMS

SECTION1

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What is the Solar Development Process?

Development Financing Operations & Maintenance

(O&M)

Engineering, Procurement & Construction

(EPC)

Origination

Solar Project Development Steps

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Our Focus to Start: Origination, Development & Financing

Development Financing Operations & Maintenance

(O&M)

Engineering, Procurement

& Construction

(EPC)

Origination

Solar Project Development Steps

What We Will Focus on For Our Efforts

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Origination

Site Selection

Economics Analysis

Permitting & Interconnecti

on Qualification

Feasibility Level

Layout / Design

Utility Solar Project & Building Energy

Analysis

Project Origination Steps

Origination

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Development

Local, State and Federal Permitting

Interconnection application, study process

and agreements

Stakeholder education and buy-in to the

Project/s

Land Development

Studies (geotech,

environmental, survey, etc.)

Project Development Steps

Development

Confirmation of Financing

Sources / Path to Success

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Financing

Financial Structuring Analysis / Validation

Procuring Solar Financing

Industry Utilizing All Development

Stage Documentation

Financing Company

Negotiations

Validation of Origination

Assumptions for Financial

Modeling

Project Finance Steps

Financing

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Skill Sets Required to Be a True Solar Development Company – Project Leadership

ProjectManagement/Leadership–Graduatestudent.Musthavetheabilitytounderstandandapplyallbelowstepsingeneral(notasexpertbutasmanager).WetypicallyhireMBAstojoinourteamsasanalystsintoourcompaniesthatsupporttheen@reorigina@onprocess.Verytypicalforthispersontobeinchargeororigina@onforaregionandtypicaltogointocompanyleadership/managementdowntheline.

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Skill Sets Required to Be a True Solar Development Company – Engineering & Construction

Engineering–theymustappreciatetheabstractandalsobegoodwiththedetailsofsolarengineering.

SiteLayout/FeasibilityDesign–TypicallyanengineerwithCADskills/capabili@es.Couldseearchitects/designspecialistsinthisrole.

Interconnec>on–engineeringrequiredbutcanbeleadbypermigng/landdevelopment,legalorothersthatcansimplyleadtheprocessforward.Engineeringwilllearnthemosthere.

Permi?ng/LandDevelopment–commercialrealestateprofessionalskillsetifUniversityhassuchexper@seinitseduca@onprograms.Ifnot,engineering,construc@on,etc.aretypicalskillsetsforthisspace.

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Skill Sets Required to Be a True Solar Development Company – Business Finance / Analytics

Energyanalysis–analyzingu@litybills,ratetariffs,exis@ngsolarprograms,etc.Business,finance,legal,math,spreadsheetgurusaregoodinthisarea.

BusinessFinance–financialmodeling,spreadsheetanalysis,etc.Similartoenergyanalysisskillset.

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Skill Sets Required to Be a True Solar Development Company – Legal Legal–Analyzingexis@ngsolarprogramsavailable,

upcomingpolicychanges,contractnego@a@ons/naviga@onrelatedtofinance,permigng,etc.Notamusthaveforthisteambutanicetohaveforsure.Maymakesenseforthistypeofproject.University-dependent.

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BESTPRACTICESANDRULESOFTHUMBFORPVDEVELOPMENT

SECTION2

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Development Best Practices – Start with the End in Mind

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Development Best Practices – Start with the End in Mind

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Development Best Practices – Start with the End in Mind 1.  Knowyoureconomicprofilebeforeyoustart2.  Maximize/standardizedesignefficiencies3.  Selec@ngtherightsite/s4.  Development/permigng5.  Interconnec@on6.  Standardtemplate/formforsitevisits7.  Otherareaswhereprojectssurvive….ordie

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Know your economic profile before you start – Back into your projects (instead of force fitting them)

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Know your economic profile before you start – Back into your projects (instead of force fitting them) Understandwhatisallowedforsolargenera@onperstateandlocallawand

u@litycommissionrule/sCollectratetariffand24monthsofbillsforallbuildings

•  Somebuildingsmayhavemul@plemetersAnalyzeratetariff/sandverifythepart/por@onofthetariffthatsolarcan

supportValidateanyfederal,stateorlocalincen@vesoraddi@onalrevenuesources

available(paymoreforcoveredparking?)Modelpricingthatisacceptableforthehostclient(buildingowner/energy

user)•  Savingsrequirement?•  Breakevenrequirement?•  Howmuchmorewilltheypay?

Financialstructures/projectinvestorsthatsupportrequiredpricinginconceptDeterminewhatprojectdesignswillworkwiththeseeconomics

•  Roof,groundand/orcanopies?

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Maximize / standardize design efficiencies

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Maximize / standardize design efficiencies Select“standard”inverterandmoduleforgroundmount,rooftopand

canopySelect“standard”sizesforprojectsthatmaximizedesignefficiencies

•  ALWAYSsizeprojecttoinverterspec•  NEVERcreateoddconfigura@ons•  RARELYwillbreakingupthearrayonarooforgroundmakeeconomicsense

Select“standard”PVSystdatasetfromthestartandagreeonsystemlossesupfront(whatwilltheinvestor’sindependentengineeraccept?)

Scaleeconomiesandefficienciesarecri@caltogoodeconomicsforasolarprojectmostofthe@me

•  <100kW=loseallscaleefficiencies•  >1MW=starttomaximizescaleefficiencies•  Porqoliosprovidepar@alscale(financingandprocurementefficienciesgained)

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Selecting the right site/s

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Selecting the right site/s Knowhowmuchspaceyouneedfirst

•  10–15Ksquarefeetrequiredper100kWrooftop•  4–5acresrequiredper1MWofgroundmountspace•  40-50parkingspacesper100kWparkingcanopies

Qualify/disqualifybuildingssecond•  Roofmounts–5yearoldrooforlessORreadytore-roofnow•  Groundmounts–adjacenttobuildings/metersANDSouthfacingANDrela@velyflat

•  Parking/shadecanopies–SouthfacingNIMBissues,visualdesiresorrelatedmarke@ngvalue(orlackthere-of)DisqualifyallsitesthatdonotprovideefficientscaleimmediatelyOtherbestprac@ces

•  Photographsites•  Measureavailablespaceasexactlyaspossible•  Keepthinkingaboutdesignconfigura@on•  Talkwithfacilitymanageraboutsiteandaskabouttheirbuildingstandards/requirementsupfront

•  Discusslongtermplansforsiteswithclientrealestate/planningteamupfront

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Development / Permitting

=

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Development / Permitting Confirmwhichfederal,stateandlocaljurisdic@onshave

oversightofyourprojectloca@ons

Confirmthepermigngprocessforyourproject•  Roofmountstypicallyeasiestandstraightforward•  Canopyprojectsrequiresomefloodplainandrelatedanalysisefforts•  Groundmountscanbecomplexandrequirespecialusepermitsandheavyanalysisonlanddevelopmentstudiesandpropertytaxrequirementsthatcantakemonthsandcost$100K+

Developmentrequirements•  Typically5–10differentstudiesforground-mountedprojectsthatwilltake60–90days

•  RoofmountsrequireliZlemorethanqualifyingtheroofintegrity,structure,designcapabilityandroofwarrantyrequirements

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Interconnection

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Interconnection

Engageyouru@lityearlyandqualifytheinterconnec@onprocessandallrequirementsupfront

Obtaininterconnec@onagreementsandformsupfront

Takephotosofthecurrentmeter,locateonyoursitemapandthinkabouthowthewirewouldgetfromyoursolarprojectinvertertothatmeter

Interconnec@on(I/C)requirementscankillaprojectquickly(newtransformerrequired,upgradedservice/s)

Combiningmul@plemeters/accountsonasitecancreatescaleefficienciesandsavemoneyinsomeinstances

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Standard template / form for site visits – Create Institutional Memory for Your Project

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Standard template / form for site visits – Create Institutional Memory for Your Project

CreateanExcelspreadsheetformupfronttoincludealltheaboveitemsandfillinforeachbuildingsoyoucan:

•  Gainalignmentonprojectrequirementswithyourhostclientandprojectteamupfront

•  Keepalogofallsitesqualified/disqualifiedandwhy•  Comparebuildings/projectsquicklyandefficiently•  Capturealltherequiredinforma@onthatprojectdevelopers,investors,EPCfirmsandhostclientswillwanttoreview

•  Sharewiththeen@reteamefficientlyandquickly

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Other Ways Projects Survive…Or Die

Survival Death

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Other Ways Projects Survive…Or Die

•  Contracts,lawyersandwhatisallowedperuniversitycharter/bylaws/locallaw/statelawvs.whatsolarindustrycanaccepttofinancecontracts

•  Expecta@onsandpoli@csnotaligned(orchangemid-process)fromfacultytostafftoadministra@ontoexecu@veteam

•  Everchangingpolicyandprogrambytheu@lity,u@litycommission,stategovernment

•  Notselec@ngtherightcompanythatcanactuallydeliverthroughprocurement

•  Unknownstateandlocaltaxrequirementsforaproject

•  Ever-changingpriceofelectricityandforecasts

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UNIVERSITYFINANCIALOPTIONSFORPVINVESTMENT

SECTION3

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Solar Financial Structures

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Solar Project Structure Options

Lease Land / Roof Only

Buy Solar Electricity

Only

Solar as an Investment

for University Endowment

Fund

Energy Generation Asset for

Operations

Buy Solar RECs on the Open Market

Only

Easiest (& Lowest Value) to Most Complex (& Highest Value)

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Solar Project Structure Options – Third vs. First Party

Lease Land / Roof Only

Buy Solar Electricity

Only

Solar as an Investment

for University Endowment

Fund

Energy Generation Asset for

Operations

Buy Solar RECs on the Open Market

Only

Easiest (& Lowest Value) to Most Complex (& Highest Value)

Third party owned-solar project financing structures

First party owned-solar project financing

structures

First big decision is ownership decision and what level of complexity and risk your

culture will allow for. 38

Solar Project Structure Options – Third vs. First Party

Lease Land / Roof Only

Buy Solar Electricity

Only

Solar as an Investment

for University Endowment

Fund

Energy Generation Asset for

Operations

Buy Solar RECs on the Open Market

Only

Easiest (& Lowest Value) to Most Complex (& Highest Value)

Third party owned-solar project financing structures

First party owned-solar project financing

structures

•  Off-campus project •  Commodity purchase

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Solar Project Structure Options – Third vs. First Party

Lease Land / Roof Only

Buy Solar Electricity

Only

Solar as an Investment

for University Endowment

Fund

Energy Generation Asset for

Operations

Buy Solar RECs on the Open Market

Only

Easiest (& Lowest Value) to Most Complex (& Highest Value)

Third party owned-solar project financing structures

First party owned-solar project financing

structures

On-campus project

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Solar Project Structure Options – Third vs. First Party

Lease Land / Roof Only

Buy Solar Electricity

Only

Solar as an Investment

for University Endowment

Fund

Energy Generation Asset for

Operations

Buy Solar RECs on the Open Market

Only

Easiest (& Lowest Value) to Most Complex (& Highest Value)

Third party owned-solar project financing structures

First party owned-solar project financing

structures

•  On-campus project •  Off-campus project – community solar •  Off-campus project – deregulated market

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Solar Project Structure Options – Third vs. First Party

Lease Land / Roof Only

Buy Solar Electricity

Only

Solar as an Investment

for University Endowment

Fund

Energy Generation Asset for

Operations

Buy Solar RECs on the Open Market

Only

Easiest (& Lowest Value) to Most Complex (& Highest Value)

Third party owned-solar project financing structures

First party owned-solar project financing

structures

On-campus project

42

Solar Project Structure Options – Third vs. First Party

Lease Land / Roof Only

Buy Solar Electricity

Only

Solar as an Investment

for University Endowment

Fund

Energy Generation Asset for

Operations

Buy Solar RECs on the Open Market

Only

Easiest (& Lowest Value) to Most Complex (& Highest Value)

Third party owned-solar project financing structures

First party owned-solar project financing

structures

•  On-campus project •  Off-campus project – community solar •  Off-campus project – deregulated market

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Complexity of Financing Structures

BuySolarElectricityOnly

•  ThirdPartyPPA•  On-campus•  Off-campus

•  Pre-paidPPA

•  PACEhybridPPA

(3-6monthstonego@ate)

SimpleTransac.ons• 15–25yearpropertylease(rooforground)• PurchaseSRECS(solarrenewableenergycredits)(1-3monthstonego@ate)

BuySolarAssetforOpera.onsand/orInvestment

•  Pre-paidPPA•  PACE•  Performancelease•  Capitallease•  Loan(6-24monthstonego@ate)

Complexity, Time Commitment & Cost to Structure

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Solar Financing Realities and Success Factors •  Financialmodelsareproprietaryinthesolarindustry…nooneshares

•  Validateyourinternalreturn/pricetargetsandrequirementsupfront

•  Getacrediblethirdpartytoaccuratelymodelyourprojectearly.It’sworththeconsul@ngfeeastherestoftheprocesswilldemonstrate.

•  BecauseofthefederalITC,mostprojectsarethirdpartyowned(90%+)andrememberthatmeansratesofreturninthe7-9%pre-tax,12–15%+post-tax

•  Bereadytosharethreeyearsauditedfinancialsandyourcreditra@ngwiththesolarmarket

•  Solarprojectinvestorsaredifferentfordifferentprojectshapesandsizes

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One More Solar Financing Reality

Aggregators Actual investors Developers

Financing Arrangers

•  Pension funds •  Banks •  Large IPPs •  Yield Cos…for now

•  Respond to RFPs •  Develop projects •  Sometimes build •  A few remaining

vertically integrated groups do 2 of 3 steps •  Vertically integrated shops

•  Hedge funds •  Pure finance shops

Project Finance Process

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BESTPRACTICESFORPVPROCUREMENT

SECTION4

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The Rules of Good Procurement

Knowthyself.

Beupfrontandbrutallyhonestwithyourstakeholdersandsolarindustry.

Ifyoudothis,youwillgetwhatyouwant,oratleastbeefficientwithyour>meandfindoutwhat

youcanhave.

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Best Practices for PV Procurement

•  Thefurtheryourprojectisdeveloped,thelesschangeyouwillseefrombeginningprocurementtosignedcontract

•  Knowyourobjec@veandoutcomespre-RFI,pre-RFQorpre-RFPupfront

•  Assembleaprocurementreviewteamthatmatchesyourdevelopmentteam

•  No@fyabroadenoughspectrumofthesolarindustrytogetbestresults(butnotsobroadyougetchaos)

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The further your project is developed, the less change you will see from beginning procurement to signed contract •  Thisiswhereyourworkfromselfdevelopmentpaysoff

(fromSec@on2)

•  Thelessdevelopedyourproject,themoreassump@onsandthemoreriskforpriceincreasesfromprocurementbeginningtosignedcontractend

•  Developersclassicallystartpricinglowwithpileofassump@onsandmovepriceupasprocessgoesforwardandassump@onsarevalidated

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Know your objective and outcomes pre-RFO, pre-RFQ or pre-RFP upfront •  Whatareyoutryingtoaccomplish?Knowitandwhat

procurementproductmakessenseasastar@ngpoint•  RFI=requestforinforma@on…dippingyourtoeinthewater.•  RFQ=determiningtherightsolardeveloperstoworkwith.•  RFP=gegngtheprice,terms,condi@ons,designandrelateddealparametersright.Veryseriousaboutyourproject.

•  Whatisyourreturn/pricemaximum,minimumandtarget

•  Whatotherstrategicgoals,scopeandlegalrequirementsdoyouhave?Telltheindustryupfronttogetwhatyouwant

•  Yourprocurementprocesswilldetermineyourreputa@onandpercep@onquicklywiththesolarindustry

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Assemble a procurement review team that matches your development team •  Includeyourinternaldevelopmentteaminyour

procurementprocess–atleastasadvisorsforinput•  Theyshouldnotbethefinaldecisionmakersbutdoprovidedataandrecommenda@onstothedecisionmakingteam

•  Greatlearningprocessifstudentsinvolved(butyouhavetorespectconfiden@alityandprocurementprocesslimita@onshere)

•  Opera@ons,financeandlegalteammembersallhavetobuy-offeventually…includingthemupfrontcancuttothechase

•  Solarexper@se–internalorexternal–willensureyougetthebestpossibledeal

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Notify a broad enough spectrum of the solar industry to get best results (but not so broad you get chaos) •  Doyouwant100proposalsfromallovertheplanetthat

won’tmatchwhatyouwantor10reallygoodproposalsfromtherightcompanies?

•  Targetthosecompaniesthatmeetyourqualifica@onscriteriatotransactwithonly

•  Usesolarmediachannelstospreadtheword…orregionalorlocalchannels…dependingonyourloca@onandneeds

•  Solarindustryexpertonyourteamcanhelptoachievethis

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Thank You

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Jared Schoch Principal

Turning Point Energy 303-913-2478

jschoch@tpoint-e.com www.turningpoint-energy.com