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Ownership & Financing of

Municipally-Sponsored
Renewable Energy
Projects

Tyler Leeds, Sustainable Energy Advantage, LLC


April 29, 2010
Sustainable Energy Advantage, LLC
Mission: Sustainable Energy
Approach: Sustainable Advantage
We help build Renewable Energy Businesses, Markets, Policies &
Projects…
through Analysis, Strategy & Implementation
Services Practice Areas
• Interdisciplinary consulting & • Public policy and market analysis, tracking,
advisory services (regional & development & implementation.
national) • Strategy development.
• New England Renewable • Financial analysis & economic feasibility
Energy Market Outlooksm • Renewable Energy supply & procurement.
(REMO) subscription briefings • Quantitative analysis and modeling.
• New England Eyes & Earssm • Transaction facilitation, contract development
Regulatory, Policy & Legislative and negotiation support.
Tracking and Analysis • Business infrastructure development.
Subscription Service
• Green power product development & pricing
Introduction & Context
• Improving environment for renewable power in Massachusetts
– Electricity prices high relative to other regions
– Unprecedented federal support, in both word and incentives
– New state incentives in place:
net metering, S-RECs, long-term contracts, green communities
– Wind project installations increasing
– Solar sector vibrant
• Diversity of project sizes and types
– Community-scale projects being embraced
– Diversity of ownership/financing options
Understanding & prioritizing your goals
• What are the RE project opportunities in your town?
– Tap federal and state assistance to figure this out.
• Does the town want RE projects in the community?
• Does the town want to get involved in the projects?
• Is the town able to commit time and/or money?
• Does the town want to share in the risk/reward or collect
a fixed $ or % royalty?

RE investing is not a riskless proposition

 Community support is vital.


 Who are the “champions” that will see the project
through feasibility, permitting and completion?
Align ownership options with Town
interests, capabilities & risk tolerance
Town has discussed its interests and abilities and is… Conclusion:
Committed Interested Seeking role in Prepared Based on these
to wind in development, to finance criteria, the best fit
power ownership construction & the project ownership option is:
operation
#1 Yes No No No Lease land/buy power
from Private Party
#2 Yes Yes No No Public-Private
Partnership (PPP)
#3 Yes Yes Yes No Public-Private
Partnership (PPP)
#4 Yes Yes Yes Yes Government Entity
Ownership
Financing Options
Ownership Financing Options
Structure
#1 Third Party  Private owner selects mix of cash, grants, 3rd party equity, & debt
ownership  Town receives lease income from land; buys power under LT
contract
#2 Public-  Majority of initial financing via 3rd-Party options above
Private  Town invests for a minority share, using either cash-on-hand or
Partnership debt
(PPP)  Allocation of cash flows “flips” once 3rd-Party realizes required
returns.
 Town has option to buy remaining interest in the project
#3 Public-  Town either obtains grants and hires consultants, or uses its own
Private monies and staff resources to support its role in the development
Partnership process
(PPP)  Permanent financing options same as above
#4 Government  Use free cash on hand; sell an asset (e.g. Hull)
Entity  Tax-free bonds (municipal, zone bonds, etc)
Ownership  Clean Renewable Energy Bonds (CREBs)
 RUS Loans
Key economic drivers

Wind projects are most sensitive to variations in:


• Wind resource
– Power output is the cubic function of wind speed
• Total installed cost (highly site-specific)
– Wind projects are capital intensive
– Revenue requirement based mostly on fixed costs
• Market value of production
– Energy, capacity & RECs
– Avoided retail, net metering, wholesale sales
Sensitivity Analysis: Wind Resource
Sample MW-Scale Project:
(1) Installed in Massachusetts
(2) Owned by a government-entity, financed with municipal debt
(3) Qualifying as a net metering generator
Sensitivity Table #1:
Sensitivity of NPV, Loan Payoff & Min DSCR to Variations in Net Capacity Factor
Net Capacity Loan Payoff w/ Min
Factor NPV @ 10% Cash Sweep DSCR
Base Case 24.0% $1,174,707 Year 15 1.22
18% ($426,828) Year
N/A 0.85
20% $249,468 Year 19 0.97
22% $715,741 Year 17 1.10
24% $1,174,707 Year 15 1.22
26% $1,633,673 Year 13 1.34
28% $2,092,639 Year 12 1.46
Sensitivity Analysis: Installed Cost
Sample MW-Scale Project:
(1) Installed in Massachusetts
(2) Owned by a government-entity, financed with municipal debt
(3) Qualifying as a net metering generator

Sensitivity Table #2:


Sensitivity of NPV, Loan Payoff & Min DSCR to Variations in Installed Cost
Installed Loan Payoff w/ Min
Cost NPV @ 10% Cash Sweep DSCR
Base Case $5,000,000 $1,174,707 Year 15 1.22
$4,500,000 $1,532,536 Year 13 1.35
$4,750,000 $1,353,622 Year 14 1.28
$5,000,000 $1,174,707 Year 15 1.22
$5,250,000 $995,792 Year 16 1.16
$5,500,000 $816,878 Year 17 1.11
Sensitivity Analysis: Value of Production
Sample MW-Scale Project:
(1) Installed in Massachusetts
(2) Owned by a government-entity, financed with municipal debt
(3) Qualifying as a net metering generator
Sensitivity Table #3:
Sensitivity of NPV, Loan Payoff & Min DSCR to Variations in Forecast of NM Credit
NM Credit Loan Payoff w/ Min
Adjustment NPV @ 10% Cash Sweep DSCR
Base Case 0% $1,174,707 Year 15 1.22
-20% $211,657 Year 19 0.97
-15% $460,244 Year 18 1.03
-10% $698,398 Year 17 1.09
-5% $936,553 Year 16 1.16
0% $1,174,707 Year 15 1.22
5% $1,412,861 Year 14 1.28
10% $1,651,016 Year 13 1.34
15% $1,889,170 Year 13 1.41
20% $2,127,324 Year 12 1.47
Case Study: Town of Falmouth
• Project to be owned by Town for entire useful life
• Majority of cost financed via General Obligation Bond
– Supported by the Town’s full faith and credit
• Initial temporary (2 year) bond
– Interest-only payment after 12 and 24 months (from issuance)
• Convert to permanent bond financing after 24 months
– 15-year tenor
• Financing includes:
– Turbine & installation costs (selected by competitive bid)
– Cost of financing, interconnection, owner’s engineer, and
reserve accounts (which typically include debt service, O&M and
decommissioning)
• Bond repaid via net metering credits and REC revenue
Learning from others
Ownership Examples of New England wind projects
Structure
Lease to Third  Scituate (proposed)
Party  Hanover (proposed)
Public-Private  Fox Islands Wind LLC (Maine): RUS financing arranged through
Partnership Fox Islands Electric Cooperative; tax equity provided by Portland
(PPP) Maine-based Diversified Communications.
Government  Town of Falmouth
Entity  Massachusetts Military Reservation
Ownership  Massachusetts Maritime Academy
 Princeton Municipal Light Department
 City of Medford
 MWRA – Deer Island
 Templeton Municipal Light Plant Department
 Town of Ipswich
For more information on wind projects throughout New England, please visit
the New England Wind Forum
Contact

Tyler M. Leeds
Sustainable Energy Advantage, LLC
10 Speen Street, 3rd Floor
Framingham, MA 01701
(508) 665-5859
tleeds@seadvantage.com
www.seadvantage.com