Renewable Energy Markets October 19,...

Renewable Energy Markets

October 19, 2015

THE OPPORTUNITY

Copyright © 2015 Altenex LLC CONFIDENTIAL 2

Higher education has a unique set of characteristics positioning it with the opportunity to ramp up renewable energy, while reducing energy costs, and controlling energy price risk. Colleges and universities are large, long-term energy users, with strong credit, and are committed to leading on climate solutions.

PPAs provide institutions of higher education with these opportunities:• Cost Savings• Price Certainty • Climate Leadership

GREEN POWER PRODUCT COMPARISON


Product Pros ConsUnbundled RECs • Easy to buy

• Relatively low cost• Incurs cost premium layered on top of energy• Short term

Self-Owned • Cost-effective in some cases• Visible and educational

• Cost-prohibitive in some cases• Scale is limited by space constrains• Scale inhibits cost savings & GHG reductions• In markets with most compelling economics, the

RECs are not retained, i.e. no GHG benefit

Green Power Marketing • GHG reductions associated with the RECs

• Incurs cost premium• Short term

PPA • Significant cost savings• Price-risk avoidance• Long-term• Large-scale• Can be highly visible• Can be educational• Can be on or offsite

• New and unfamiliar• Complex


GREEN POWER MARKET TRENDS

Source: US EPA Green Power Partnership 2015

Power Purchase Agreements, both onsite and offsite, are emerging as a new strategy within higher education.

Green Power Trends in the U.S.

Green Power Trends in Higher Ed.

THE BARRIERS


Schools face barriers to sourcing large-scale renewables. They are adept at sourcing conventional energy in short contracts. But renewable energy power purchase agreements (PPAs) are new and unfamiliar. Furthermore, finding, analyzing and executing PPAs in an opaque marketplace is complex and confusing, especially with insufficient information and limited experience.

The renewable energy marketplace is:• New and unfamiliar• Opaque • Complex and confusing

THE SOLUTION


Power purchase agreements can be a solution.A power purchase agreement (PPA) is the commitment of an energy user to buy the power from a specific project for a specific period of time. A price per kilowatt hour (kWh) is negotiated for an agreed term, typically 10-20 years. Renewable energy costs now compete against conventional power, making it possible to source renewables, while stewarding financial resources, and leading on climate. The Green Gigawatt Partnership aims to catalyze at least one gigawatt of new renewables in higher education by 2020.

PHASE I: ENGAGE STAKEHOLDERS


Embarking on a PPA requires engaging university stakeholders in order to:• Understand goals & motivations• Collect energy profile data• Identify credit, financial or accounting limitations (if any) • Select initial strategy

Typical Stakeholders in a PPA• Credit/Treasury/Accounting• Energy• Sustainability• Legal• Facilities• Students• Faculty

PHASE II: DETERMINE PURCHASING CRITERIA


A unique criteria profile will reflect the input from internal/external counsel, treasury, finance, energy, facilities and accounting departments. This profile is the basis that Altenex uses to match projects in the market.

Term Preference

Location • Onsite and Off-site

Asset Class • Identify any preference for Wind, Solar, Hydro etc., or no specific preference or bias

Structure • Physical or Financial settlement

Size • 162,000 MWh/ year, 100% Renewable by 2025

Term • Determine preferred range of years

Economics • Competitive price compared to brown power based on forecasts

RECs • Determine REC strategy, e.g. retain project RECs, or monetize and replace project RECs

Credit • Moody’s and S&P Ratings

Investment • Identify interest in capital investment

Markets • PJM, ERCOT, Other

PHASE III: ASSESS MARKETPLACE & SELECT PROJECT


There are thousands of renewable energy projects across America. The Green GigawattPartnership will pull back the curtain on this marketplace to reveal the best opportunities for universities. Altenex tracks over 5,000 renewable energy projects in all stages of development.

Wind and Solar Projects

Copyright © 2015 Altenex LLC CONFIDENTIAL

1 Ventyx Spring 2015 Reference Case adjusted for 2.25% annual inflation2 Net Present Value assumes a 9% discount rate3 Generation weighted historical prices using sample project production profile

Sample wind farm offers competitive economics over the term of the contract versus historical and expected future prices. The graph below portrays the performance of an indicative offer from a 14MW (~40,000 MWh) sample project.

PHASE III: ASSESS MARKETPLACE & SELECT PROJECT

Scenarios1 Total NPV2

High Gas Case $25.9 M

$9.1 M

Likely Case $8.0 M $2.5 M

Low Gas Case ($7.7) M

($3.4) MKey Notes:

• Savings in year one of the contract• Existing project = no outstanding development• Close proximity and correlation to customer load• Significant savings over the term of the contract

$0

$20

$40

$60

$80

$100

2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038

Ele

ctri

city

Pri

ce (

$/M

Wh)

Expected Performance: Historical vs Future vs Renewable

Historical PENELEC Zone High Gas CaseLikely CaseLow Gas CasePatton Wind Farm PPA PriceSampl

e

PHASE IV: ASSESS NEGOTIATE PPA - PHYSICAL PPA STRUCTURE


A physical delivery structure is very similar to the financial structure except that the ISO delivers the energy to the customer’s retail provider, who in turn delivers it to the customer.

Diagram Key

1 Wholesale Transaction with Grid: Project schedules power and delivers to customer’s utility / retail provider

3 PPA Payment: Customer signs contract with project and Pays fixed $/MWh for monthly generation.

Transfer of Energy: Grid credits customer’s account for energy produced by renewables project.

University

Solar / Wind Project 1

22

Fixed Price PPA Payment

Utility / Retail Provider

Credit to Electric Bill

Physical Energy

3

PHASE IV: ASSESS NEGOTIATE PPA – FINANCIAL PPA STRUCTURE

Copyright © 2015 Altenex LLC CONFIDENTIAL12

In financial fixed-for-floating swaps, no electric power is actually delivered to the customer. The customer continues to purchase electricity under their normal rate from their retail energy provider who are not a party to the deal structure.

Physical Energy

Floating Price Cash Payment

2

1

Fixed Price PPA Payment

University

Floating Price Cash Payment

Solar / Wind Project Grid

1

3

2

Diagram Key

Wholesale Transaction with Grid: Project schedules and delivers energy to the Grid and received in return the spot price of power.

PPA Payment: Customer signs contract for differences with project and pays fixed $/MWh for monthly generation. Customer receives floating $/MWh from project. Net savings to Customer is the difference between these two payments.

Retail Transaction (NOT SHOWN): Customer continues to purchase electricity from their utility provider at the normal rate using their existing arrangements with their utility and/or Retail Electric Provider. The financial contract for differences with the wind farm is settled financially and is a separate agreement which does not impact the customer’s current procurement relationships.

1

2

CASE STUDY: New York Wind


A leading private university wanted to purchase renewable energy from a community-based wind developer in order to mitigate greenhouse gas emissions, control energy costs, and support the development of renewable energy. The university worked with the developer for over five years but was unable to structure an agreement or make the internal business case. The university hired Altenex to assist in the transaction.Altenex worked with the university to understand their goals, and was able to: A) help the developer reduce costs and optimize their financing strategy, reducing the PPA price by 20%; and B) help the developer secure project financing to enable construction. Commercial operation is expected by the end of 2016.

Key Benefits:

·

The off-taker has budget certainty through an agreement for over 45,000 megawatt-hours per year from a community-based wind project. The PPA is for 10 years of power and environmental attributes.

·

The project will arbitrage RECs for years 1-10, and donate project RECs to the university in years 11-25.

·

This project is expected to generate 12% average annual savings relative to the expected cost of brown power over the term of the agreement. Note

EXAMPLE CUSTOMER ACCOMPLISHMENTS


175 MWPJM

Buyer:F500

Term:20 years

Asset: Wind

34 MWMEXICO

Buyer:F500

Term:15 years

Asset: Wind

110 MWERCOT

Buyer:F500

Term:20 years

Asset: Wind

16 MWNYISO

Buyer:University

Term:10 years

Asset: Wind

96 MWERCOT

Buyer:F500

Term:12 years

Asset: Wind

8 MWISO-NE

Buyer:F500

Term:20 years

Asset: Solar

50 MWERCOT

Buyer:F500

Term:20 years

Asset: Wind

23 MWSPP

Buyer:F500

Term:20 years

Asset: Wind

3 MWPJM

Buyer:F500

Term:20 years

Asset: Solar

30 MWMEXICO

Buyer:F500

Term:7 years

Asset: Wind

46 MWPJM

Buyer:Municipality

Term:20 years

Asset: Wind

120 MWERCOT

Buyer:F500

Term:12 years

Asset: Wind

50 MWERCOT

Buyer:F500

Term:12 years

Asset: Wind

124 MWERCOT

Buyer:F500

Term:15 years

Asset: Wind

100 MWPJM

Buyer:F500

Term:15 years

Asset: Wind

43 MWNYSIO

Buyer:F500

Term:20 years

Asset: Wind

25 MWPJM

Buyer:F1000

Term:15 years

Asset: Wind

130 MWERCOT

Buyer:F500

Term:15 years

Asset: Wind


Chris O’BrienDirector – Higher Education [email protected]

TODAY’S AGENDA


1. Introductions

2. Establish university goals3. Review key factors that will drive a successful outcome for the University

• Phase I – Determine University Criteria • Phase II - Develop Onsite Projects• Phase III – Identify Offsite Projects & Analyze Market• Phase IV - Negotiate Commercial Agreement & Manage Risk

4. Proposed Schedule

5. Overview of Altenex6. Discussion


PHASE II: DEVELOP ONSITE PROJECTSAssess Onsite Solar “Readiness”

• Roof age, type, warranties, replacement schedule• Bldg height, available unshaded roof areas with OSHA setbacks• Identify electrical interconnection configuration, site logistics and crane requirements• Historic preservation requirements, planned bldg renovations, additions, new equipment on roof

Qualify Onsite Providers• Safety record• Experience in projects of similar scope and scale• Experienced management team• Strong access to financing and necessary balance sheet to fully wrap contract

Gather Onsite Information• Single line electrical plan, and structural plans• Roofing manufacturer, type, warranty• 12 month utility data for each site, including meter numbers

Run Competitive Process, Select Provider & Manage Project

OPTION #1: ONSITE SOLAR CONSIDERATIONS


Scale• Size is constrained by your rooftops, parking lots, & undeveloped land• Typically can only produce a small portion of total load

Assessing “Solar-Readiness”• Roof age, type, warranties, replacement schedule• Interconnection location• Structural and electrical plans• Impacts on campus master plan, e.g. new taller bldgs nearby, • Planned bldg renovations, additions, new equipment on roof• Bldg height and shading

Choosing a developer• Safety record• Experience in projects of similar scope and scale• Experienced management team• Strong access to financing and necessary balance sheet to fully wrap contract

Renewable Energy Markets October 19,...

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