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U.S. Solar Market Overview

U.S. Solar Market Overview. New Mexico Energy Investment Initiatives July 2008. MMA Renewable Ventures Overview. MMA Renewable Ventures is the leading owner and financing source for renewable energy and energy efficiency assets in the U.S. 27 MW of solar PV projects in operation;

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U.S. Solar Market Overview

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  1. U.S. Solar Market Overview New Mexico Energy Investment Initiatives July 2008

  2. MMA Renewable Ventures Overview • MMA Renewable Ventures is the leading owner and financing source for renewable energy and energy efficiency assets in the U.S. • 27 MW of solar PV projects in operation; • 13 MW of projects currently under construction • 30+ customers, 10 integrators/installers • Recently entered into wind, biomass, and large-scale energy efficiency deals • Pipeline of $1 billion of identified opportunities for 2008-09 • Delivering reliable and affordable clean energy with proven • Project finance • Due diligence • Physical asset management

  3. Financial Sponsorship DEVELOPER Financing Risk Implementation Risk EPC Risk Real Estate Risk Regulatory/Rebate MANUFACTURING Technology Risk Brand Protection Risk Regulatory Risk U.S. market will develop around strong financial partners that can manage risks for developers, customers, investors, and manufacturers. INVESTOR Maintenance Risks Operating Expense Credit Risk Regulatory Risk Production Risk CUSTOMER Implementation Risk Relationship Risk Regulatory/Rebate Risk

  4. High Potential U.S. Market United States Germany Source: Solar Energy Industries Association (SEIA)

  5. Growing Market Potential for PV 2 • Rising electricity prices • Global demand for coal and natural gas • Popular opposition to coal plants • Cap-and-trade system may increase electricity prices by 20% (assuming $40/ton carbon) • Falling tech and project costs • Favorable trend in policy, e.g., • Renewable Portfolio Standards • Net metering and interconnection • Federal cap-and-trade system’s distribution of allowances / auction proceeds to renewable energy

  6. U.S. PV Installation Growth MW installed 2000: 17 MW 2006: 141 MW (+31%) 2007: 259 MW (+83%) 2008: 491 MW (+90%) 2009: 913 MW (+86%) 2010: 1590 MW (+74%) • More than 60% large commercial

  7. California remains over half the U.S. market • Power Purchase Agreements (PPA) growing quickly U.S. Non-Residential PV Installations

  8. U.S. PV Industry Market Trends • Utilities entering owner – operator space • Policy uncertainties are becoming a barrier to sustained development • Rapid expansion (or everyone’s got the “solar bug”) • Emerging dominance of Power Purchase Agreements (PPAs) • Utility-scale projects becoming commonplace – hundreds of MWs 100% 0%

  9. Power Purchase Agreement:Opening Markets for Solar • Complicated financial incentives than Europe require PPA + third party ownership • Capital conservation: no up-front capital expenditure • Limited operational risk for customer – key differentiator from lease buyback model • System purchase options for the energy end-user

  10. The Power Purchase Agreement: A Long Marriage The PPA is a long term contract in which the customer buys the electricity from the system owner on a set price schedule CUSTOMER RESPONSIBILITIES SYSTEM OWNER RESPONSIBILITIES • Buys System Electricity • 10—25 year span • Provides System Site • (for retail systems) • Site lease agreement Develop & Finance Permitting Design Procurement Installation Own & Operate Operations Maintenance Insurance

  11. DEVELOPER INVESTOR PV Projects with Third Party Ownership:Competing Interests on the Path to Standardization CUSTOMERS WANT TAILORED SOLUTIONS “Just keep it simple and cover all the bases” “Just this once and then we can replicate.” • Use new technology • Commitments before $ • Make customers happy • Sell high • Secure tax benefits • Minimize risk • Credits, Technology, Operations • Buy low

  12. DEVELOPER INVESTOR Differing Views: Return Expectations “Lower risk than wind” “Where’s the money?” Return Expectations • IRR vs. money • Valuing the PPA Provider • Residual Value “If I deliver, you fund” “Sure…just make sure you deliver” Financing Risk • State regulatory timing issues • Who bridges delays? • Credit market meltdown “No moving parts, …..solar lasts forever” “Get me out in six” Operating Risk • Less than perfect installations • Taxes and changing incentives • Erosion and peeling on modules

  13. A Typical U.S. Solar Fund Syndication • Diverse Financial Products • Aggregation of PV projects – diversification of risk • Leveraged structure with senior debt at the project level • Majority of returns come from federal tax benefits • Partnership structure – not a lease • Proven technology • Exit for Investor • Clear exit path, terms, and overall deal • Yields • Matching risk & return. Consider fund-level risk, leverage, and credit protection from each party

  14. Uncertainty in Federal Policy • No long-term Federal policy is established. • Delay in extending the 30% Solar Investment Tax Credit (ITC) undercuts installation. Industry believes another one year extension is likely, though timing is uncertain. Current ITC restrictions include: • Not available to utilities • Residential credit capped at $2000 • Not available to Alternative Minimum Tax (AMT) payers • Several carbon emissions schemes are currently under debate in the Senate. Discussion of national Renewable Portfolio Standard too. • The leading Presidential candidates all favor a federal cap-and-trade system for carbon emissions.

  15. Solar Investment Tax Credit • Extension is held up due to lack of compromise between Senate Republicans and House Democrats over funding • Fundamentally, ITC caught up in larger political issues and election • Industry impact from delay • Temporary demand spike to qualify for 2008 driving up prices • Orphaned projects • Layoffs at project firms • Domestic firms (and jobs!) going offshore • Accelerate industry consolidation? I T C

  16. The Solar Alliance • An Alliance of • PV Manufacturers • Systems Integrators • Financiers • Working at the state level to adopt cost-effective solar policies and programs

  17. State Rebate Programs D.C. Both state & utility/other programs available State programs available Utility/other programs available DSIRE: www.dsireusa.org March 2008

  18. Solar Policy Puzzle RPS Net Metering Interconnection Insolation Utility Rates State Incentive Tilt & Orientation Fixed/Tracker TOU Decoupling Demand Total System Cost = Modules + BOS Property & Sales Tax Exemptions ITC MACRS

  19. 2010—2012 Track Record at Scale vs Price Wind Geothermal Solar Photovoltaic Crystalline Biomass TRACK RECORD Solar Thin Film Solar – Parabolic Trough Solar – Concentrating PV Solar – Stirling Dish PRICE

  20. Creating the Next Nellis • The two biggest PV projects in U.S. are located in Nevada (Nellis) and Colorado. Both states have: • Good solar insulation – not nearly as good as New Mexico • Stable, long-term policy regimes – state Renewable Portfolio Standard with a solar carve-out – enabling long-term contracts with utilities • Building similar projects in New Mexico will depend on: • Certainty on federal ITC extension through 2010-2011 • Motivated communities and stakeholders to help bring all the required pieces into place (expedited permitting, additional financial support, etc)

  21. Nellis Air Force Base Nellis Air Force Base – 14.2 MWs Ground mounted tracking system that covers 140 acres Using over 70,000 solar modules with tilted trackers Largest PV system in Americas

  22. Nellis Air Force Base • MMA RV: Financed, Owned & Operated • ~$100MM project on Nellis Air Force Base (AFB) property, eight miles northeast of Las Vegas, Nevada • All electricity sold to U.S. Air Force under 20 year Power Purchase Agreement contract • All Renewable Energy Certificates (RECs) sold to Nevada Power under contract under State Renewable Portfolio Standard w/solar carve out • Saves Nellis ~$1 Million annually

  23. Total Third Party Construction Cost ~ $100 million Nellis Construction Funding Schedule 12/21/07 – Final Completion Date and Perm Debt Funded * A typical solar project construction takes approx. 8 – 9 months.

  24. Final Thoughts • U.S. is the most promising solar market in the world today • U.S. solar industry competing with European firms • Third party ownership facilitates entry of European firms • ITC risk pushing U.S. firms overseas • But, U.S. solar industry still playing catch-up with Europe, due to weaker policy environment • Project financier and third party capital necessary for U.S. market growth due to incentives structures

  25. Seeking a Level Playing Field for Solar • Congress considering permitting utilities to receive ITC (currently not permitted) • Utilities starting to enter the North America PV generation market (SCE, Duke) • Utilities can bring scale to industry • But utilities are already receiving federal subsidies and regulatory advantages • Incentives should encourage all market participants to make the solar marketplace

  26. Thank You! Matt Cheney matt.cheney@mmarenew.com 415.229.8801 www.renewableventures.com

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