Date post: | 10-May-2015 |
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Business |
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Welcome to Today’s Webinar:Winning Renewable Energy Investment Strategies for Fortune 1000 Firms
Tuesday, April 8, 201411:30 a.m. EST
Craig Schultz, Principal
2icfi.com |
Why Now?: Drivers of Increasing Viability for RenewablesWINNING RENEWABLE ENERGY STRATEGIES FOR FORTUNE 1000 COMPANIES
• Renewable energy cost & performance improvements• Ongoing high levels of Federal incentives for many renewable energy
technologies– Investment Tax Credit (ITC) & accelerated depreciation (MACRS)
• State, local, and utility incentives in many markets• Wide range of financing options• Volatility in market electricity prices (desire to hedge costs)
2004 2005 2006 2007 2008 2009 2010 2011 2012 20130
50,000
100,000
150,000
200,000
250,000
300,000
U.S. Renewable Generation Capacity (excluding traditional hydro)
MW
Source: EIA, U.S. Dept. of Energy
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Renewable Energy Transaction Types: A SpectrumWINNING RENEWABLE ENERGY STRATEGIES FOR FORTUNE 1000 COMPANIES
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Financing Types: Self-Purchase vs. PPA/LeaseWINNING RENEWABLE ENERGY STRATEGIES FOR FORTUNE 1000 COMPANIES
Self-Purchase Power Purchase Agreement (PPA) or Lease
Customer provides capital (with or without external debt) and needs to monetize investment tax credit
and accelerated depreciation
Renewable developer provides capital; no upfront capital cost to end-use customer
Most money is paid upfront, with typically modest O&M costs thereafter
Monthly payments based upon asset’s electricity output or fixed schedule
Customer is responsible for all asset decisions, though often enters into long-term O&M contract
Often a turnkey service; developer finances, permits/interconnects, owns, operates, and
decommissions asset
Key contract is < 2-year engineering, procurement, & construction (EPC)
Key contract is 15- to 25-year PPA or lease (with site easement if on-site);
However, PPAs are not allowable in certain states
Counterparty risks relevant, but not long-term Counterparty risks central and long-term
No fixed duration for investment Expensive buyout options intra-term; extension, purchase, or removal options at contract
conclusion
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Growing Popularity of PPA Financing for On-Site Solar PVWINNING RENEWABLE ENERGY STRATEGIES FOR FORTUNE 1000 COMPANIES
2011 2012 2013 2014 YTD0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Self-Finance Third-Party Finance (PPA)
Source: California Solar Initiative (CSI) for “Large Commercial” Systems
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Typical 2 MW+ Renewable Project LocationsWINNING RENEWABLE ENERGY STRATEGIES FOR FORTUNE 1000 COMPANIES
Renewable Energy Technology On-Site Off-Site
Rooftop or Parking Canopy Solar PV
Ground-Mount Solar PV
Biomass and Biogas
(if local feedstock exists)
Wind
Geothermal
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Common Renewable Energy Transaction ExperienceWINNING RENEWABLE ENERGY STRATEGIES FOR FORTUNE 1000 COMPANIES
• Do not expect that thoughtfully
reviewing, selecting, and executing a $2MM - $50MM renewable energy transaction will be easy
• Short-term rollercoaster to secure smooth and sustainable electricity supply for 15-25 years
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Inside the Rollercoaster RideWINNING RENEWABLE ENERGY STRATEGIES FOR FORTUNE 1000 COMPANIES
1. Internal Support Obtained/This Might Work
2. Realize the # of Pieces Involved
3. Strong Interest from Qualified Vendors
4. Complications: Contract Length, Counterparty Risks,
REC Sales, Etc.
5. Initial Complications Resolved
6. Board or Sr. Mgmt. Produce
Unexpected Questions
7. Close Deal Internally
8. Negotiation of Contracts & Wait for Commissioning
9. Operating Project/Fin’l & Environmental Gains
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Catalog of Information Needed from PPA or Lease BiddersWINNING RENEWABLE ENERGY STRATEGIES FOR FORTUNE 1000 COMPANIES
1. Price & payment schedule
2. Inclusions and exclusions in bid
3. Equipment to be used
4. System layout/design and engineering (including total capacity)
5. System performance and degradation
6. Warranties (equipment as well as any on workmanship and performance)
7. Construction, installation, and commissioning process and schedule
8. Interconnection and permitting process
9. Integration of system with facility warranties
10. Insurance, safety, and vandalism protection
11. Monitoring
12. O&M
13. Assistance with RECs and other incentives
14. Financial standing of vendor
15. Designation of specific people who would likely manage project
16. List of planned subcontractors and how they have worked with prime contractor
17. Statements of whether contractors have been in bankruptcy or had lawsuits against them
18. Summary of local renewable energy experience
19. References
20. Copy of supplier’s standard legal contract
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Weighing Bid Information According to Customer PrioritiesWINNING RENEWABLE ENERGY STRATEGIES FOR FORTUNE 1000 COMPANIES
Meeting bid specsPriceOutputExperience (industry & local)Financial strengthDesign & technologyEquipment & labor source of originOther procurement pref-erences
Adapted from national webinar presented by ICF staff for U.S. Department of Energy
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Summary: Do’s and Don’ts for Renewable Energy TransactionsWINNING RENEWABLE ENERGY STRATEGIES FOR FORTUNE 1000 COMPANIES
Do’s Don’ts
Analyze hourly (8,760 hours/year) renewable electricity production vs. your rate
structure
Be in a hurry as these are 20-year+ investments (but try to implement by Dec. 2016 when investment tax credit declines)
Select the technology type & capacity that matches your electricity consumption
Expect a perfectly smooth process
Decide how communications (environmental claims) about project will be managed
Sole source the transaction (there are many qualified renewable developers and EPCs)
Involve senior management early in the process
Assume exorbitant increases in conventional utility power prices (doing so would inflate
the renewable project returns)
Review counterparty/credit risk carefully (especially for PPAs/leases)
Open new facilities without first considering their energy supply
Determine whether you will need outside assistance (legal, financial, engineering) to
complete the transaction
Neglect on-site clean fossil fuel generation (e.g., combined heat-and-power) as a
possible solution
12icfi.com |
Craig Schultz manages renewable energy projects ranging from market assessments and feasibility analyses to project selection, policy formulation, negotiation, and implementation. Mr. Schultz has spent 18 years in the energy industry, working with solar, wind, and other renewable electricity projects as well as conventional energy supply, pricing, and risk management.
His professional focus has been on helping energy market participants manage the costs and volatility of their energy transactions and helping them optimize their conventional and renewable energy assets. He has been the lead advisor for many successful renewable energy projects.
Mr. Schultz received his MBA from The University of Chicago Booth School of Business with beta gamma sigma honors and his Bachelor’s in Economics from Wesleyan University with phi beta kappa honors.
Today’s Featured ICF Speaker
[email protected]+1.202.669.6200
http://www.icfi.com/about/our-people/icf/s/schultz-craig