Life After the ITC Solar Focus 2014

Yuri Horwitz, Sol Systems

Shayle Kann, GreenTech Media

Lidija Sekaric, Department of Energy

Ralph Mannion, Kingspan Energy

Moderator:

Forecasting 2017

Shayle Kann

Senior Vice President, Research

Greentech Media

MDV SEIA Solar Focus

November 2014

How Far Will System Prices Fall?

Source: GTM Research/SEIA U.S. Solar Market Insight 4

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Insta

lled P

rice (

$/W

)

Residential Commercial Utility

2014-2017 Price Reduction: 21%-27%

Price Reductions Won’t Come From the Module

Source: GTM Research 4

58%

10%

42%

30%

0%

10%

20%

30%

40%

50%

60%

70%

2010-2013 2014-2017Sourc

e o

f R

esid

ential S

yste

m

Pri

ce R

eduction

Module Price Reduction

BOS Price Reduction

$4.84 $4.11

$3.66 $3.38 $3.12 $2.89 $2.66 $2.46 $2.32

$0.00

$2.00

$4.00

$6.00

2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Re

sid

en

tia

l In

sta

lled

Price

($

/W)

So What Happens in 2017?

Source: GTM Research/SEIA U.S. Solar Market Insight 4

0

2,000

4,000

6,000

8,000

10,000

12,000

2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E

Insta

llations (

MW

dc)

U.S. PV Market Forecast, 2011-2018E

Residential Non-Residential Utility

Thank You!

Shayle Kann

Senior Vice President, Research

Greentech Media

Questions? Visit www.gtmresearch.com

Or contact kann@gtmresearch.com

energy.gov/sunshot

energy.gov/sunshot

Life After ITC SEIA/MDV Panel

Dr. Lidija Sekaric

Solar Energy Technologies Office

energy.gov/sunshot

• Deutsche Bank (Oct. ’14): PV is at grid-parity in 10 states and by 2016 the number of states could increase to 47 (with 30% ITC)

• At 10% ITC, PV will still be competitive in 36 states

• Lazard’s Sept. ’14 LCOE reports similar numbers, w/ utility-scale PV at $0.06/kWh by 2017 (w/ 10% ITC)

Source: Bloomberg (10/29/14); Lazard, “Lazard’s LCOE Analysis – Version 8.0” (Sept. 2014).

8

Two Analyst Reports Show PV Competitiveness to

Traditional Generation

2017 (10% ITC)

Offshore

Next-gen

w/ CC

Unsubsidized Levelized Cost of Energy Comparison

energy.gov/sunshot Source: T. James, et al. NREL Internal Cost Model.

PV Utility-Scale System Pathway to SunShot

energy.gov/sunshot

PV Residential-Scale System Pathway to SunShot

Source: T. James, et al. NREL Internal Cost Model.

energy.gov/sunshot

PV Manufacturers’ Cost

Sources: Corporate public filings.

11

$0.00

$0.25

$0.50

$0.75

$1.00

$1.25

$1.50

$1.75

$2.00

$2.25

Q1'10

Q2'10

Q3'10

Q4'10

Q1'11

Q2'11

Q3'11

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Man

ufa

ctu

rin

g C

ost

(N

om

inal

$/W

) First SolarSuntechYingliTrinia SolarCanadian SolarHanwha SolarOneJinko Solar

energy.gov/sunshot

Average System Pricing by Size & Region 100 kW – 500 kW & 500kW – 2 MW

H1 ‘14 MW: (100-500kW) CA H.O. (29); CA 3rd-P (14); MA H.O.(3); (500kW-2MW) . CA H.O. (18); CA 3rd-P (17); MA H.O.(8). Sources: CSI Database, accessed 07/02/14; MA SREC Program, accessed 07/09/14. Note: MA does not report whether a system is 3rd-party owned therefore it was estimated using the “applicant entity” or “installer” for the following organizations: SolarCity, CPF Capital, SunRun, Vivint, Sungevity.

• System prices in the above states, of the above sizing, fell on average 5 – 25% between 2013 & ’14 YTD

• Consistent declines experienced over 5 years

12

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

2009 2010 2011 2012 2013 2014 YTD

Avg

. Sys

tem

Pri

ce (

No

min

al $

/WD

C)

100 kW - 500 kW

CA, Host-owned

CA, 3rd-party

MA, Host-owned

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

2009 2010 2011 2012 2013 2014 YTD

Avg

. Sys

tem

Pri

ce (

No

min

al $

/WD

C)

500 kW - 2 MW

CA, Host-owned

CA, 3rd-party

MA, Host-owned

energy.gov/sunshot

Systems Installed Without Incentives

• CA distributed PV installations continue to grow, however majority of them are now doing so without CSI incentives (more than 100 MW in Q2 ‘14)

• In Arizona, many systems that are installed without incentives

Sources: CA: CSI Database, accessed 10/01/14; GTM/SEIA Q4 2013 U.S. Solar Market Insight. AZ: APS & Salt River Project (SRP), accessed 10/06/14. Dataset segmented by “incentive type”; all projects listed as “non-incentive”, “non-incentive residential”, or “non-incentive commercial” assumed to have received non incentives.

13

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

50

100

150

200

250

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

% o

f To

tal Q

uar

terl

y In

stal

lati

on

s

Qu

arte

rly

Inst

alla

tio

ns

(MW

)

California

CSI Installs Non-CSI, CA Distributed CSI % of Total

0%

20%

40%

60%

80%

100%

120%

0

10

20

30

40

50

60

70

Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14

% o

f To

tal Q

uar

terl

y In

stal

lati

on

s

Qu

arte

rly

Inst

alla

tio

ns

Arizona

APS & SRP w/ incentives APS & SRP w/o incentives

% of capacity w/ incentives

energy.gov/sunshot

U.S. Utility-Scale Solar Projects (> 5MW)

14

• Large-scale PV and CSP plants face challenges with anticipation of ITC step-down

Note: As of 10/23/14.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Q1'10

Q2'10

Q3'10

Q4'10

Q1'11

Q2'11

Q3'11

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q2'14

Cap

acit

y (G

WA

C)

PV - Under ConstructionPV - OperatingCSP - Under ConstructionCSP - Operating

energy.gov/sunshot

Sources of Utility-Scale PV Costs – LCOE vs. Upfront Costs

• There are a significant amount of hardware and business operations that contribute to the upfront cost of utility-scale PV

• However, equally important to the competitiveness of PV is the cost of financing these systems

– A required 9% rate of return represents 42% of a PV system’s LCOE – Reducing financing costs to inflation would be the equivalent of cutting all hardware costs

Sources: NREL internal cost modeling. Note: numbers quoted in $2013.

Module 36%

Inverter 7%

Installation Materials

19%

Labor 12%

Permitting & Commissioni

ng 8%

Land Acquisition

2%

Site Preparation

3%

Installer Profit & OH

8% Sales Tax

5%

Utility ground mount (Fixed axis) $1.80/W

Hardware Costs, $0.029

Upfront Soft Costs, $0.016

O&M, $0.019

2.5% Financing,

$0.020

9% Financing,

$0.027

$0.00

$0.02

$0.04

$0.06

$0.08

$0.10

$0.12

LCOE - utility ground mount

LCO

E (2

01

3$

/kW

h)

15

energy.gov/sunshot

Sources of Residential PV Costs – LCOE vs. Upfront Costs

• The potential impact on the LCOE of residential rooftop PV is greater due to its current higher required rate of return

• Reducing financing costs to 2.5% could reduce 32% of LCOE

Sources: NREL internal cost modeling. Note: numbers quoted in $2013.

Module 21%

Inverter 10%

Installation Materials

19% Labor 9%

Permitting & Commissioni

ng 3%

Supply chain costs 6%

Installer Profit & OH

29%

Sales Tax 3%

Residential Rooftop $3.29/W

Hardware Costs, 4%

Upfront Soft Costs, $0.043

O&M, $0.030

2.5% Financing,

$0.037

9% Financing,

$0.074

$0.000

$0.050

$0.100

$0.150

$0.200

$0.250

LCOE - Residential Rooftop

LCO

E (2

01

3$

/kW

h)

16

energy.gov/sunshot

Comparison of annual payment between residential PV systems, financed under a PPA or loan, and retail rates

• Solar-specific loan financing is growing in the United States

• LCOE of loans was found to be 19%-29% lower than LCOE of PPA’s due largely to the higher cost of capital for TPO

Source: “Banking on Solar: An Analysis of Banking Opportunities in the U.S. Distributed Photovoltaic Market,” NREL, forthcoming.

17

Opportunities for Solar Loans

$0.142 $0.148 $0.162

$0.199

$0.255

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

5-yearLoan

10-yearLoan

20-yearLoan

20-yearPPA

SDG&ERes. Tier

2/3

LCO

E ($

/kW

h)

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

1 2 3 4 5 6 7 8 9 1011121314151617181920

Ye

arly

pay

me

nts

Years

5-year Loan

10-year Loan

20-year Loan

20-year PPA

SDG&E Res. Tier 2/3

LCOE of residential PV systems, financed under a PPA or loan, compared to retail rates

energy.gov/sunshot

• GTM/SEIA report that more than 1.5 GW of PV has been, or will be, used to finance publicly traded investment vehicles

• In Sept/Oct. ‘14 SolarCity launched several financial initiatives

• Launched its first residential loan product in eight states

• 30 year term of loan; rate as low as 4.5%; no penalties or fees for prepayments

• SolarCity’s CEO quoted saying loans may required $0.5B - $1.0B to finance in 2015

• Has filed to sell up to $200MM worth of solar asset-backed debt directly to the general public through their on-line platform (Common Assets)

• minimum purchase requirement is $1,000, maturities range from 1-7 years, and interest rates go up to 4%

• Nextera Solar Fund announced in Sept. ‘14 it would raise $426MM by selling shares in order to purchase more projects

• SunEdison filed papers in Sept. ‘14 to form second yield-co, this one focusing on operating projects in Asia and Africa

• NY Greenbank announced in Oct. ‘14 its first seven programs, which will provide $800MM in public and private funding over several years

• NYSERDA/LI PSEG this summer announced the introduction of on-bill recovering loan program that allows customers to repay loans through their electricity bills

Solar Finance

Sources: Bloomberg (10/08/14, 10/16/14); BNEF (09/10/14, 09/24/14, 10/17/14, 10/24/14); Forbes (10/08/14); GTM/SEIA Q2 ‘14 SMI; Seeking Alpha (10/15/14)

18

energy.gov/sunshot

Capital market participation requires…

Liquidity and Price Transparency

Consistency in

Cash Flows

Tools to Conduct

Due Diligence

Investor Confidence in

Asset Performance

Feedback from Rating Agencies

and Investors

energy.gov/sunshot

Project Goal

Expand availability of capital

Lower cost of capital

Reduce transaction cost, time to

access capital

Activities

Promote adoption by developers, financiers, law firms, etc.

Organize the industry around:

• Standard documents

• Best Practices

• Robust datasets

Conduct analysis to comprehend opportunities and barriers

NREL Public Access to Capital Projects (2012-14)

energy.gov/sunshot

Balance of System (Soft Costs)

energy.gov/sunshot

ROOFTOP SOLAR CHALLENGE

SAME-DAY /

EXPEDITED

PERMITTING

Local Innovations to Make Solar Faster, Easier,

Cheaper }

FAST, ONLINE

INTERCONNECTION

} SOLARIZE

& FINANCING

PROGRAMS

CHICAGO, IL

CITY

BROWARD COUNTY,

FL

COUNTY

CONNECTICUT

STATE

PACIFIC NORTHWEST

REGION

energy.gov/sunshot

23

energy.gov/sunshot

• Results suggest that 13-19% of the total PV price change from 2011 to 2012 might be attributed to improvements in permitting and other local regulatory processes

Source: Burkhardt, J., Wiser, R., Darghouth, N., Dong, C., Huneycutt, J. “How Much Do Local Regulations Matter? Exploring the Impact of Permitting and Local Regulatory Processes on PV Prices in the United States,” LBNL, 2014.

24

Impact of Permitting and Local

Regulatory Processes on PV Prices

energy.gov/sunshot

SunShot Incubator

Program

energy.gov/sunshot

Find the Customer

energy.gov/sunshot

Prepare the quote

energy.gov/sunshot

Finance the system

energy.gov/sunshot

Install, Connect, Maintain

energy.gov/sunshot

Creating A Soft Cost Ecosystem

energy.gov/sunshot

Augmented Reality Edition

SUNLAYAR, INC.

Sunlayar AR Edition could reduce solar soft costs by $0.31.

A cloud-based software platform architected by solar industry and technology veterans,

designed to digitize and pare down much of the workload (soft costs) needed across the

majority of the residential solar provider value chain.

energy.gov/sunshot

32

Lidija Sekaric SunShot Initiative

US Department of Energy

lidija.sekaric@hq.doe.gov

Thank you

Ralph Mannion Kingspan Energy

Thanks to our sponsors!

Thanks to our sponsors!

Thanks to our sponsors!

Thanks to our sponsors!