RENEWABLE ENERGY PROJECTS THE PIECES OF THE PUZZLE FINANCE COURSE 2012
WHAT ARE THE PIECES OF THE PUZZLE? WHAT ARE YOUR COMPARITIVE ADVANTAGES? ARE YOU USING AN INTEGRATIVE PROCESS? DO YOU HAVE ALL THE KEY COMPONENTS OF YOUR RENEWABLE ENERGY PROJECT?
COMPARITIVE ADVANTAGES DEFINE YOUR REGION DETERMINE YOUR MARKETS/PRODUCTS IDENTIFY YOUR COMPANIES OPPORTUNITY LIES IN THE INTERSECTION OF REGIONS/MARKETS/COMPANIES
INTEGRATIVE PROCESS IDENTIFY THE PROJECT IDENTIFY THE PARTICIPANTS UNDERSTAND RELATIONSHIPS AMONG THE PARTICIPANTS IMPACTS OF EACH PARTICIPANT ON OTHERS INCLUDE ALL PARTICIPANTS AT INITIAL DEVELOPMENT MEETING PROCEED IN COOPERATIVE, NON-LINEAR APPROACH SAVE TIME AND MONEY
PROJECT COMPONENTS TECHNOLOGY SELECTION FEEDSTOCK SELECTION SITE SELECTION PERMITTING PROCESS OFF-TAKE AGREEMENTS INTERCONNECTION AGREEMENT INCENTIVES CONSTRUCTION AGREEMENTS BUSINESS PLAN PRO FORMA FINANCING
TECHNOLOGY SELECTION Bankability Proven technology: current or next generation Substantial number of commercialized projects Warranties/insurability Lender/investor s prior experience with technology Availability Domestic Content Requirements Do you have a license or purchase agreement in hand?
FEEDSTOCK SELECTION Good match for technology selection Access Sufficient supply over the life of the project Sufficient number of suppliers Pricing Term: Match the off-take agreement Do you have agreements in hand?
SITE SELECTION Good match for technology selection Proximity to off-taker Site control demonstration Purchase agreement/lease Option agreement Fees Timing of payment Source of payment Do you have agreements in hand?
PERMITTING PROCESS Identification of required permits Coordination of permitting processes/timing Fees Timing of payment Source of payment Do you have permits in hand?
OFF-TAKE AGREEMENTS Type of off-taker Utility/Grid Private or governmental consumer Owner/user Credit quality of off-taker Pricing Term: Match the feedstock agreement Do you have the power purchase agreement ( PPA ) in hand?
INTERCONNECTION AGREEMENTS Required for projects selling to the grid Coordination of process/timing Fees Timing of payment Source of payment Even smaller owner/user projects require some interface with the utlity Do you have the agreement in hand?
INCENTIVES Types of incentives available/selected Financial (pre or post-closing) In-kind (e.g., site assistance) Constraints Timing (deadlines for applications/funding rounds) Other (e.g., match funding, job creation requirements) Financiers appetites for incentives Lender s regard for federal guaranties Investor s ability to use and comfort with different incentives (e.g., ITCs, Renewable Energy Credits) Do you have award notice/letter agreement in hand?
CONSTRUCTION AGREEMENTS Type of contract EPC (Engineering, procurement and construction combined) Traditional construction (functions separated) Experience in renewable energy/selected technology selection and capacity to bond the project Pricing Term Performance requirements/incentives Soft costs: review very closely to make sure all costs are included Do you have the agreement in hand?
BUSINESS PLAN Complete description of all puzzle pieces Strong presentation of competitive advantages and value-adds Risk Identification Consideration Mitigation Management team experience Skin in the game
PRO FORMA Clear and complete set of numbers Input based upon contracts/agreements in hand and illustrated in supporting schedules Multiple scenarios considered/stress tests done Clearly showing: All income streams (main product and byproducts) Operating costs and expenses Debt service coverage Return on Investment Reliance upon any incentives
FINANCING Pre-development costs from early money Skin in the Game /Principals equity Family and Friends Targeted Incentives Venture Capital from private or public sector Development costs from later money Debt: investment banks, commercial banks, public sector Equity: investment banks or strategic partners EPC financing: PPAs and tax leases
NEW JERSEY BIG BOX RETAILER WAREHOUSE/DISTRIBUTION FACILITY ANNUAL CONSUMPTION BEFORE 8 million KWH of electricity $500,000 1 million sq. ft. roof ANNUAL PRODUCTION BEFORE 4,000 metric tons of carbon
RENEWABLE ENERGY SOLUTION: ROOFTOP SOLAR X TECHNOLOGY SELECTION: 5.38 MW Thin Film w/custom racking system. Concerns: Sufficient energy production; avoid roof penetration and maintain roof warranty. X FEEDSTOCK SELECTION: Sun. X SITE SELECTION: Company s distribution center rooftop. X PERMITTING PROCESS: Local zoning and building code. X OFF-TAKE AGREEMENTS: Investment grade off-taker; 20 year term. X INTERCONNECTION AGREEMENT: Company and local utility. X INCENTIVES: SRECs, federal tax incentives & depreciation. X CONSTRUCTION AGREEMENTS: EPC firm hired. X BUSINESS PLAN: Company committed to stay at this location. X PRO FORMA: Company & project had positive cash flows. X FINANCING X PRE-DEVELOPMENT: Company funds. X DEVELOPMENT: PPA funded by an investment group; 20 year term.
WAREHOUSE/DISTRIBUTION FACILITY AFTER ROOFTOP SOLAR SYSTEM ROOFTOP UTILITY 5.38 MW on 70% of roof Up to 72% of annual electricity usage 28% of annual electricity usage 6 million KWH annually 2 million KWH annually Up to $366,000 savings annually $134,000 annual cost annually ANNUAL PRODUCTION 1,000 metric tons of carbon
DO YOU HAVE ALL THE PIECES?