Multi- PerspecTive SOLARnOMICS

1. Multi-PerspecTiveSOLARnOMICS A Road Map To Rational Policy Discussion Green Summit, March 8, 2012 Duane T. Kexel President, Duane T. Kexel Consulting, LLC duane@kexelconsulting.com

2. Motivations For This Paper • Polarization Does Not Promote Progress – Can We Find The Common Ground? • Economics, Not Politics Nor Religion Should Guide Renewable Energy Policy • Issues Are Consequential and Immediate in Wisconsin • Identify Stakeholder Groups Roles for Each and Research Agendas In Moving Policy Forward

3. Why Solar As Case Study? Generally Seen As An Acid Test Frontier For Policy Cottage Glen Project Provides 2011 Test Case 14.1 kW Condo Rec Center PV Project – HOA NFP Sponsor One Year of Project Evaluation and Development July 11 – Feb 12 - 10 Minute Production History Installed Cost Per Watt • Total $5.33 100.0 • FOE/WPS Grant $3.52 66.0 • Fed Tax Credit $0.54 10.1 • Total Net $1.27 23.8

4. Will Players Each Push or Pull?

5. Buyer Group Challenges • Communicate Willingness To Pay Tied to Payback • Assess Potential • Demonstrate Impact of Various Incentives • Expose Critical Barriers • Champion Programs That Work Must Let Policy Makers Know What Incentives Are Needed and Likely Impacts !!!

6. Modeling Impacts of Incentives

7. Cottage Glen Survey Results 61% Decisive or Strong Influence

8. Anecdotal Evidence • Co-op Panel Leasing Programs Sell Out Quickly With 12 Year Payback • Full Cost Leasing – 30 to 40 Year Paybacks • Consumers Power 25 Cents/kWh for 15 Years Oversubscribed • MGE Green Pricing Participation @+2.0 Cents?

9. Supplier Challenges Commit To Cost and Performance Goals Demonstrate That Incentives Are Transitory

10. Utilities – A Major Focus Contrarian Views AdVOCATe VIEWS • Solar Expensive, Rates Up • Solar Not Firm – No Capacity Value • MISO Prices Do Not Support • DOE Sunshot – 10 Years $1.00 Per Watt • Green Pricing Now Provides Choice for Those WTP • CG Prodn At WPS Peaks ~50 – 55% of Capacity • Synergistic Solar Wind, DR, Seasonal Cap Plans • Nor Any New or Some Existing Capacity

11. Can Solar Compete With New Capacity On Cost and Risk?

12. Utility Solar Leasing Programs • Utility Builds, Owns and Operates Solar Plant • Financing Costs Much Lower Than Fossil Plants • Smaller Projects, Modular Designs • Strong Long-Term Warranties • Federal ITC – 30% • Dramatic Risk Reduction Compared to Fossil Plants – WACC Less 3.0% • Sell 25 Year Panel Leases At Cost With Proportionate Bill Reductions – Customers Finance New Capacity • Allows Solar Participation in $1,000 blocs – Better than Packer Stock • Mitigates Affordability Barrier

13. Utility Incentive Programs • Design Incentives To Yield 5.0% Return & 10 to 15 Year Payback on Roof Top Solar – Say 50% of Investment • Utility Gets 40 Year Load Reduction of X kW and kWh at 50% Of Known Up-front Cost + Admin (20%) • Load Reduction of X equals (1+Loss %) X Capacity Addition – Reduces Future T&D Needs • Utility Expenses Incentives and Admin Costs – After Tax Cost = 60% of 60% = 36%. • Customer/Owner Pays All Future Costs • Tune Design To Response to Match Needs • Incentives Reduced Over Time As Solar Costs Decrease

14. Policy Maker Agendas • Federal – Investment Tax Credit Is Key • State – Shaw-WPSC Redesigning Renewable Incentives Q1 - 2012 • Believe “Incentives to Renewables Were Excessive” • “Overcommitment Harmed Cost Effectiveness of FOE” • “Incentives Artificially Inflate Renewable Costs” • “TRC > 1.0 Is Relevant Test for FOE Portfolio” • “Select Non-Monetary Criteria – Maturity, Risk, Jobs • Will Public Be Engaged To Provide Input In A Transparent Process On This Major Policy Revision?

15. WPSC Requires Portfolio TRC>1.0

16. Will Additional B-C Tests Be Prepared? • TRC Test – Should Measure Public Interest • Societal Test – Should Include Externalities • Utility Test – Impact on Revenue Requirements • Participant Test – Impact on Adoptions (Payback?) • Non-Participant Test – Impact on Rates • All Tests Combine To Inform Public Policy

17. Conclusions • Detailed TRC Requires Specific Data on Marginal Resources and Avoided Costs Over Time • Results Suggest That Utility Solar May Pass TRC Test • If Solar Passes Test, Combined Solar-Wind, Solar DR, Solar EE, Programs Will Certainly Pass • Solar Incentives That Yield Paybacks in the 10 – 15 Year Range Should be Possible and Beneficial • Cottage Glen Incentives Were Just Sufficient to Proceed and Can Be Justified In the Public Interest • All Stakeholders Must Contribute To Gain Ideal Share