Advanced Financing to Achieve SunShot: NREL AOP
July 2, 2014
Michael Mendelsohn, NREL
NREL is a na onal 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 par cipa on requires…
(i) Asset and contractual consistency which allows project cash Liquidity and Price flows to be pooled into Transparency tradable and highly liquid securi es, and
(ii) Availability of due Feedback from Consistency in diligence tools Ra ng 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 Securi za on Ac vi es: Project History
3 Yr. DOE Award: NREL Goal Advanced Financing to Achieve SunShot
Expand availability Organize the industry around: of capital • Standard documents • Best Prac ces Lower cost • Robust datasets of capital Conduct analysis to comprehend Reduce opportuni es and barriers transac on cost, me to Promote adop on by developers, access capital financiers, law firms, etc.
3 SAPC: Approx. 300 Par cipant En es (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 Ka en Muchin CleanPath Duke Energy Dechert Deutsche Bank Kroll Bond Ra ngs Skystream Markets HelioPower DLA Piper Energy One Finance KPMG LLP PV Evolu on 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 Ci es 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 Pa on Boggs Nord LB Rocky Mtn. Ins tute SunSpec Sungevity Perkins Coie PNC SAIC Birch Tree Capital SunPower Sidley Aus n Rabobank Sol Systems C2ES SunRun Skadden Arps Seminole Financial Standard and Poor’s Underwriters Laboratory Vivint Solar Stoel Rives Union Bank Trepp Assurant Wiser Capital Troutman Sanders US Renewables Group TUV Rheinland Mayer Brown
4 SAPC Ac vi es • Standard Contracts – first set available and in use: – Residen al Lease (aggregated, disaggregated) – Commercial PPA (version 2.0 recently released) – Residen al PPA near comple on
• Develop Best Prac ces – Installa on, O&M, Independent Engineering – dra s in process via subcommi ees – first public releases due Q4 2014 • Build Robust Datasets - System performance: oSPARC - Credit performance • Develop Mock Filing to Ra ng Agencies – Residen al presented to 5 ra ng 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 Prac ces
• Benefits of Adop on:
o Facilitate cash flows to be pooled into securi es to access capital market investment
o Improve confidence among investors and regulators
o Lower transac on costs
o Speed deployment
o Improve customer protec on
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! • California Solar Ini a ve crossed w/ weather data • Many others in development Enphase, SMA, Clean Power Finance, NY & CT Green Banks
Will be cri cal 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 adop on * NREL is proposing to offer s pends 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 / Na onal Banks • Working group: 100+ members o Build consensus on underwri ng principles o Develop educa onal materials for lenders & regulators (first piece for CEOs just completed) o Find solu ons 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 a orneys to dra template agreements and elucidate processes to ensure high levels of recovery for solar lenders
9 SolarCity Securi za ons
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 Por olio from Residen al 71% 87% Yes Ra ng BBB+ BBB+ neutral Tranches Single Single neutral
While an exci ng development, the SolarCity securi za ons only represent $125 million funding rela ve 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 Ac vity
• Announced: NRG Yield, Nextera Yieldco, Abengoa, SunEdison (TerraForm Power) • Under considera on: SunPower • SAPC benefit: o Standard contracts and best prac ces will facilitate asset consistency and thus improve liquidity of projects o Make it easier to buy and sell projects to add to yieldco por olios
12 SAPC Mock Securi za on: SolarCo Waterfall 1. Trustee and SPE Admin & Extraordinary Expense Reserve Top Off Mock securi za ons will 2. Covered Expenses up to Monthly Cap provide valuable legal 3. Master Servicer & documents and feedback from Special Servicer Fee ra ng agencies to industry, 4. O&M Provider Fee improving opportunity for 5. Transi on Manager Fee smaller en es 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 & Transi on 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 poten al investors o Structured Finance Industry Group (SFIG) o Socially responsible investors (Ceres, others) o Real estate industry (REITs, etc.) • Finalize best prac ces, next suite of standard contracts, oSPARC data acquisi on • Develop mock securi za on for commercial por olio, find structures that can incorporate tax equity • Promote adop on of standard contracts, other assets o Developers o Investors o MUSH, non-profit markets o Large commercial end-users • Engage banks & regulators on underwri ng prac ces, data to comprehend asset class performance, etc.
14 Thank you…
Michael Mendelsohn [email protected] 303-218-0456
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