Solar Project Risk from the Developer’s Point of View - Presented at the Illinois Chapter of ASHRAE April 2011 Meeting.

1. Solar Project Risk from the Developer’s Point of View Regulatory Incentives Project Finance Market-based Incentives

2. Regulatory Incentives At the Federal level: 1705 RE loan guarantees 1603 Cash Grant, 2011 only Investment Tax Credit, through 2016 New Market Tax Credits 1-year depreciation, 2011 only 5-year depreciation, after 2011

3. Regulatory Incentives State Incentives -Always check the DSIRE website; State programs come and go. (mostly go) -Some State programs such as grants and tax-based incentives; -State rebates-once generous-can vary with the election cycle -Illinois rebate program very limited and underfunded;

4. Regulatory Incentives PACE- Property Assessed Clean Energy (Calif) Feed-In Tariffs- Europe, Ontario, Michigan, Oregon and Washington Carbon Offset Credits (New England, RGGI) Local utility distributed clean energy incentives (Ohio, Pennsylvania, NY) Net Metering (many states) RPS-based Renewable Energy Credits

5. Solar Funding Sources Investment Banks Tax Equity Private Equity Venture Capital Some local banks Private Investors who have; Tax ‘appetite’ for the Investment tax credit Ability to use all of the depreciation

6. The Development Checklistthat Investors want to see Is the project distributed or centralized Site Control and associated risks Quality of the PPA Quality of the Developer System Technical Specifications Installer/OEM Legal and Insurance Issues SRECs plan

7. Solar Project Risk Even with tax benefits and depreciation fully allocated, there may be considerable risk; What is weakest link ? Developer, Installer, Lender? How is the Power Purchase Agreement configured? Does it insure profit/eliminate risk? How are the Solar Renewable Energy Credits monetized?

8. Solar Project RiskPower Purchase Agreement Typically 10-25 years; Easement or Site License? How solid is the site owner/ off-taker? Are there future risks inherent in adjacent sites? What if there is a default within the first 5 years? What if the business or site is shut down?

9. Market- Based IncentivesSREC Sales The SRECs market is the “incentive of choice” inside the solar industry, but is as yet volatile; SRECs avoid the political risk inherent in the regulatory incentives at the Fed and State level; States are creating a foundation for the solar market by strengthening the SREC programs; Range is value from $ 150 to $ 650 per Mwh;

10. RECs for wind, bio, or hydro, and SRECs for Solar projects can be monetized in several ways; Sold directly in advance to utilities under the state RPS; Sold via forward contracts to individual buyer or speculators ; Sold on the spot market; Sold at auction; Market-Based IncentivesSREC Sales

11. Solar Project Riskfrom the Developer’s Point of View Federal Incentives good for the next few years State Incentives purely a bonus Few experienced developers Few standard legal documents Equipment risk/OEM Future condition of off-taker SRECs often extremely discounted Risk of lower gas and electric markets