Advanced Financing to Achieve SunShot: NREL AOP

July 2, 2014

Michael Mendelsohn, NREL

NREL is a naonal laboratory of the U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, operated by the Alliance for Sustainable Energy, LLC. Capital market parcipaon requires…

(i) Asset and contractual consistency which allows project cash Liquidity and Price flows to be pooled into Transparency tradable and highly liquid securies, and

(ii) Availability of due Feedback from Consistency in diligence tools Rang Agencies Cash Flows necessary to build and Investors market confidence in the asset class.

Investor Confidence in Tools to Conduct Asset Due Diligence Performance

2 NREL Securizaon Acvies: Project History

3 Yr. DOE Award: NREL Goal Advanced Financing to Achieve SunShot

Expand availability Organize the industry around: of capital • Standard documents • Best Pracces Lower cost • Robust datasets of capital Conduct analysis to comprehend Reduce opportunies and barriers transacon cost, me to Promote adopon by developers, access capital financiers, law firms, etc.

3 SAPC: Approx. 300 Parcipant Enes (as of June 2014)

Developers Legal Investment Advisory Manuf. / Other

Affordable Solar Akin Gump B of A Merrill Lynch Black & Veatch Enphase Altus Power Bingham McCutchen Barclays Ci Trust Services Hanwha Q-Cells Amicus Solar Chadbourne & Parke CalCef CohnReznick KACO Borrego Solar Chapman & Cutler Ci Corelogic SMA CleanPath Cooley Clean Power Finance First Associates Solectria Distributed Sun Coronal Mgt Credit Agricole GL Garrad Hassan Energi Enfinity Covington Credit Suisse Kaen Muchin CleanPath Duke Energy Dechert Deutsche Bank Kroll Bond Rangs Skystream Markets HelioPower DLA Piper Energy One Finance KPMG LLP PV Evoluon Labs Main Street Power Hunton & Williams Foresight Group Lease Dimensions Solar Electric Power Ass. NextEra K&L Gates Global Capital Finance Locus Energy Global Cool Cies OneRoof Kramer Levin Hannon Armstrong Mercatus Demeter Power PsomasFMG Milbank KeyBanc Moody’s Ballard Spahr Recurrent McCauley Lyman kW Financial Novogradac Standard Solar Rosendin Nixon, Peabody Macquarie Power Factors Amp Solar SolarCity Orrick, Herrington MorganStanley PwC Department of Energy SPG Solar Paon Boggs Nord LB Rocky Mtn. Instute SunSpec Perkins Coie PNC SAIC Birch Tree Capital SunPower Sidley Ausn Sol Systems C2ES Skadden Arps Seminole Financial Standard and Poor’s Underwriters Laboratory Solar Stoel Rives Union Bank Trepp Assurant Wiser Capital Troutman Sanders US Renewables Group TUV Rheinland Mayer Brown

4 SAPC Acvies • Standard Contracts – first set available and in use: – Residenal Lease (aggregated, disaggregated) – Commercial PPA (version 2.0 recently released) – Residenal PPA near compleon

• Develop Best Pracces – Installaon, O&M, Independent Engineering – dras in process via subcommiees – first public releases due Q4 2014 • Build Robust Datasets - System performance: oSPARC - Credit performance • Develop Mock Filing to Rang Agencies – Residenal presented to 5 rang agencies – currently before S&P – Commercial mock in development • Conduct legal analyses on RA risk concerns • Convert to industry-led group: SEFA

5 Standard Contracts and Best Pracces

• Benefits of Adopon:

o Facilitate cash flows to be pooled into securies to access capital market investment

o Improve confidence among investors and regulators

o Lower transacon costs

o Speed deployment

o Improve customer protecon

o Enable market liquidity of projects

6 Task 3: Data sets oSPARC: Will be first major public database of system performance

First release will be at InterSolar! • Solar Iniave crossed w/ weather data • Many others in development Enphase, SMA, Clean Power Finance, NY & CT Green Banks

Will be crical resource for DOE, NREL, PUCs, other labs, non-profits, etc. oSPARC Plus was launched with GTM in April, 2014 to provide value-added services and build industry adopon * NREL is proposing to offer spends up to $5k to cover interface programming costs

7 Task 4: Banking on Solar

• Designed to facilitate direct lending for solar deployment o Community banks o Credit Unions o Regional / Naonal Banks • Working group: 100+ members o Build consensus on underwring principles o Develop educaonal materials for lenders & regulators (first piece for CEOs just completed) o Find soluons to complex legal / banking issues o Educate on PACE program benefits & opportunity o Promote to retail banking industry

8 Clarifying Legal Issues

What is the priority of liens between the mortgage holder and solar lender in the case of a homeowner default?

Mortgage Holder Solar Lender Banking on Solar is working with leading aorneys to dra template agreements and elucidate processes to ensure high levels of recovery for solar lenders

9 SolarCity Securizaons

Nov., 2013 April, 2014 Improvement? Yield 4.80% 4.59% Yes Bond Size $54.4 mm $70.2 mm Yes ADSAB (PV of cashflows) $87.8 mm $106.2 mm Yes Advance Rate (% of ADSAB) 62% 66% Yes Wtd. Avg. Seasoning 22 months 12 months Yes Porolio from Residenal 71% 87% Yes Rang BBB+ BBB+ neutral Tranches Single Single neutral

While an excing development, the SolarCity securizaons only represent $125 million funding relave to total industry annual investment of approximately $14 billion

10 SolarCity Customer Contract Reassignments

Reassignment % of Contract As % of Total of PV Recovery % Reason Reassignments Systems Normal Sale 85 1.75 99 All Other 15 0.31 92 Total 100 2.07 98

11 YieldCo Acvity

• Announced: NRG Yield, Nextera Yieldco, Abengoa, SunEdison (TerraForm Power) • Under consideraon: SunPower • SAPC benefit: o Standard contracts and best pracces will facilitate asset consistency and thus improve liquidity of projects o Make it easier to buy and sell projects to add to yieldco porolios

12 SAPC Mock Securizaon: SolarCo Waterfall 1. Trustee and SPE Admin & Extraordinary Expense Reserve Top Off Mock securizaons will 2. Covered Expenses up to Monthly Cap provide valuable legal 3. Master Servicer & documents and feedback from Special Servicer Fee rang agencies to industry, 4. O&M Provider Fee improving opportunity for 5. Transion Manager Fee smaller enes to access low- 6. Class A Interest cost debt

7. Class B Interest 8. Reserve Account & Top-off 9. O&M Expense Reserve Acct. & Top-Off

10. Class A Expected Principal* 11. Class B Expected Principal* 12 - 15. Add. Covered Expenses, Master Servicer Fees, O&M Provider Fees & Transion Manager Fees in * Only to extent required to meet excess of monthly caps, etc. coverage / spread requirement 16. Turbo Principal Payments ** Based on turbo formula to Noteholders** 13 17. Remainder to Issuer 13 Next Steps for Advanced Financing AOP

• Expand pool of potenal investors o Structured Finance Industry Group (SFIG) o Socially responsible investors (Ceres, others) o Real estate industry (REITs, etc.) • Finalize best pracces, next suite of standard contracts, oSPARC data acquision • Develop mock securizaon for commercial porolio, find structures that can incorporate tax equity • Promote adopon of standard contracts, other assets o Developers o Investors o MUSH, non-profit markets o Large commercial end-users • Engage banks & regulators on underwring pracces, data to comprehend asset class performance, etc.

14 Thank you…

Michael Mendelsohn [email protected] 303-218-0456

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