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 parGcipaGon requires… (i) Asset and contractual consistency which allows project cash Liquidity and Price flows to be pooled into Transparency tradable and highly liquid securi7es, 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 SecuriGzaGon AcGviGes: 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 ParGcipant EnGGes (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 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 Paon Boggs Nord LB Rocky Mtn. Ins*tute SunSpec Sungevity Perkins Coie PNC SAIC Birch Tree Capital SunPower Sidley Ausn 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 AcGviGes • 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 Pracces – Installaon, O&M, Independent Engineering – draBs in process via subcommiCees – first public releases due Q4 2014 • Build Robust Datasets - System performance: oSPARC - Credit performance • Develop Mock Filing to RaGng Agencies – Residen*al 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 PracGces • Benefits of AdopGon: 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*ave 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 s7pends 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 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 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 Porrolio from Residen*al 71% 87% Yes Rang BBB+ BBB+ neutral Tranches Single Single neutral While an exci7ng development, the SolarCity securi7za7ons only represent $125 million funding rela7ve 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 AcGvity • Announced: NRG Yield, Nextera Yieldco, Abengoa, SunEdison (TerraForm Power) • Under consideraon: 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 porolios 12 SAPC Mock SecuriGzaGon: SolarCo Waterfall 1. Trustee and SPE Admin & Extraordinary Expense Reserve Top Off Mock securiCzaCons will 2. Covered Expenses up to Monthly Cap provide valuable legal 3. Master Servicer & documents and feedback from Special Servicer Fee raCng agencies to industry, 4. O&M Provider Fee improving opportunity for 5. Transi*on Manager Fee smaller enCCes 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 potenal investors o Structured Finance Industry Group (SFIG) o Socially responsible investors (Ceres, others) o Real estate industry (REITs, etc.) • Finalize best pracGces, next suite of standard contracts, oSPARC data acquision • Develop mock securiGzaGon for commercial poreolio, 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 underwriGng pracGces, data to comprehend asset class performance, etc. 14 Thank you… Michael Mendelsohn [email protected] 303-218-0456 15 .