Financing Utility Scale Solar

Transcription

1 Financing Utility Scale Solar Matt Handel Vice President Solar, Distributed Generation & Storage August 25, 2016

2 Headquartered in Juno Beach, FL, NextEra Energy, Inc. has operations in 27 states, Canada, and Spain Company Overview Generating electricity for more than 85 years $74.9 billion in assets Strong credit: S&P: A; Moody s:baa1; Fitch: A- More than 46 GW of generating capacity Most admired utility for 9 out of the past 10 years FORTUNE magazine Largest generator of wind and solar in the world (NextEra Energy Resources and its affiliates) 2

3 NextEra Energy (NYSE: NEE) is composed of two strong businesses supported by our Core Values Fortune 200 company ($57.06B market cap) (1) 46,400 MW in operation (2) $82.4B in total assets 14,300 employees One of the largest electric utilities in the nation by retail MWh sales The global leader in electricity generated from the wind and sun Core Values: Commitment to Excellence / Do the Right Thing / Treat People with Respect 3 1) As of June 13, ) Megawatts shown include megawatts sold to NEP as of December 31, 2015 Note: All other data as of December 31, 2015

4 Ninety-five percent of the electricity generated by NextEra Energy Resources comes from clean or renewable sources More than 18.7 GW in operation 4

5 We ve been developing, constructing, owning, and operating power-generating assets for nearly 30 years NextEra Energy Resources Generating electricity since 1985 Development and construction funded on balance sheet Best-in-class plant operation and maintenance Centralized asset monitoring at company headquarters National wholesale generator currently operating in 25 states Wide spectrum of customers and project sizes Investment grade credit (NEE) with access to low-cost capital 5

6 NextEra has raised nearly $30 billion in debt and equity over the last several years NextEra Energy Security Issuances ($ in Billions) Types of Products Project finance Tax Equity Term Loans First Mortgage Bonds Debentures Equity Units Hybrids Common Equity We utilize a diverse mix of products that appeal to several investor sources to support our growth 6

7 NextEra maintains a deep and diverse bank group that provides low cost financing for its projects Funding by Country 7 1) Secured over $22 billion in credit, which reflects corporate credit facilities, commitments and term loans outstanding as of January 31, 2016 and original balances of project debt funded or committed by banks since 2003

8 We are aggressively expanding our utility scale solar portfolio Energy Resources Cumulative Solar Growth (1) MW (1) Includes highly probable additions in 2016 and represents gross, utility-scale, capacity developed and operated 8 Proprietary & Confidential Information

9 Our Distributed Generation (DG) business delivers small-scale PV solar solutions for utility (IOU, COOP, JAA), municipal, commercial and institutional end-use customers DG Highlights Transacted on more than 210 MW to date Projects in 15 states Aggregate project size from 1MW to 20MW Over $250 MM in project capital deployed Variety of installation types, mounting structures, and module technologies States with completed DG solar projects States with DG solar projects in construction or development 9

10 NextEra can help you create a strategy or execute on a DG plan Representative Solar Customers 10

11 While utility-scale projects represent two-thirds of the U.S market, corporations are increasingly demanding renewables, some signing large power procurements Corporate Renewable Deals ( )¹ 11 1) Business Renewables Center / Rocky Mountain Institute

12 Energy Storage is set to breakout in the next few years, and it provides the perfect complement to solar PV U.S. Energy Storage Installation Facts¹ 226MW installed in 2015, up from 62MW in 2014 Installations in 2016 are expected to reach 281MW By 2021, the energy storage industry is expected to install over 2GW Annual U.S. Energy Storage Deployments E¹ The Solar-Plus-Storage market is expected to reach 170MW and a market value of $1 billion by 2018¹ 12 1) GTM Research / Energy Storage Association

13 Many munis and coops are exploring locally based DG projects as an alternative to offsite utility scale generation Large Scale Renewables Economies of scale allow for best pricing at point of interconnect Allows for single transaction to meet resource planning needs May have transmission constraints or basis issues Not tangible to local customers Does not directly contribute to local economy Longer lead time to COD Local Scale Renewables Tangible to local customer base Supports local economy through jobs, land payments, and taxes Local permitting support allows more rapid deployment No transmission or basis issues Can be coupled with storage to defer system upgrades and provide resiliency May not realize similar economies of scale to utility scale projects Both grid connected DG and utility scale solar offer competitive ways to meet oncoming compliance requirements and customer demand 13

14 Utilizing low-cost municipal financing instead of project debt in a prepayment structure may reduce the effective PPA rate Municipal Financed Prepaid PPA Structure NextEra $/MWh Traditional PPA $60.00 Prepayment Bonds MWh (Power, RECs) MW (Capacity) Principal & Interest $ Prepayment $ PPA G&T or JAA Prepayment ($) Ongoing ($/MWh payment) Ongoing ($/MWh payment) Prepaid PPA Prepayment Credit Rate $20.00 Interest Expense $20.00 Ongoing $/MWh payment $15.00 Total $55.00 Savings $5.00 Member #1 Member #2 Member #3 14

15 More utilities are exploring utilizing their low cost of capital to meet their goals Prepaid PPA Overview Customer makes upfront prepayment for large percentage of MWh s to be delivered over PPA term Prepayment for up to P50 generation Potential ongoing payment for RECs and other attributes NextEra develops, owns, and operates the project for years NextEra ownership allows for monetization of tax benefits Customer reaps the benefits of NextEra s world class operations team Buyout option to transfer ownership at end of PPA term Low cost of capital reduces effective PPA rate 15

16 Self-ownership is an alternative for customers looking to deploy solar Solar Project Self-ownership End users develop, finance, construct, own and operate solar project Project development experience is necessary Lead site control, interconnection, site studies, permitting, and Engineering, Procurement & Construction contract negotiation Access to low cost capital is key Upfront investment is large If unable to monetize tax benefits, effective cost of solar will increase or tax equity investment is needed Tax equity financing is complex and time consuming with high transaction costs Strong operational performance required to maximize benefit of solar 16

17 NextEra s primary business is the development, construction and long-term operation of power plants Benefits of NextEra Ownership v. Self-Ownership Expertise in development, construction, ownership and operations - customers don t have to oversee an area that is not their core business Our access to capital markets is better than any other company in the renewable energy space Customers often have core business needs where it makes sense to invest, rather than in solar projects We are able monetize tax benefits We manage the risk so customers don t have to 17

18 Entering a long term power purchase agreement (PPA) is another alternative to deploy solar PPA Overview PPAs are long-term contracts to buy electricity at a predetermined rate Customer typically agrees to buy all power from system Developer absorbs the costs of proposal, design, construction, operation, and maintenance of the system No upfront costs Operational and performance risk stays with developer Customer typically realizes energy cost savings over the length of the contract Customer stays attached to the electric grid for the balance of their power needs 18

19 Entering a long term power purchase agreement (PPA) is another alternative to deploy solar Financial strength Key PPA Considerations Customers are entering into a long term relationship; important to understand long term viability of project owner has seen significant disruption for many solar developers Developer s access to capital Many developers are in the business of flipping projects for fees, and can not access necessary long term financing Operational experience Customers only benefit from solar savings if the project is producing 19

20 Synthetic power purchase agreements can be implemented without disruption to existing power supply arrangements Asset Backed Financial Hedge Synthetic Power Purchase Agreement Energy Marketer Market Utility/E SP 20

21 Synthetic power purchase agreements allow customer to create additional renewable capacity and receive long term hedge value Asset Backed Financial Hedge Synthetic PPA Financial Transaction Customer s supply activities unchanged Where there is value or for greater transparency, supply can be directed to direct access/retail supplier Environmental attributes transferred to Customer Customer avoids FERC regulation, operational and marketing issues Supplier can assume Dodd-Frank Act reporting and recordkeeping responsibilities Can be structured to avoid derivative accounting or capital lease treatment Avoid notionals through use of project availability metrics, not through minimum energy guarantees Avoid buyer control and properly set value and term of lease 21

22 When considering a Synthetic power purchase agreements as a financial hedge for energy costs, certain risks must be evaluated 22 Asset Backed Financial Hedge Risks Is the asset in the same market as the energy consumption In the same regional markets? i.e., CAISO/MISO/SPP Regulatory regime of purchaser bundled service v. direct access Volumetric production and consumption quantity mismatch Temporal production and consumption timing mismatch Basis difference in value at the point of production v. liquid trading hub or other pricing point of interest Long-term price of power, RECs and capacity

23 Deploying local Distributed Generation projects for Community Solar is a great opportunity to get ahead of behind-the-meter growth Community Solar 101 Solar PV system shared by multiple end-users ( subscribers ) Subscribers participate through up-front or ongoing payments Subscribers receive on-bill credit proportional to payment and amount of energy produced by project Sites can be from 1 to 20 MWs depending on subscriber interest NextEra can lead the subscriber marketing or leave to the muni 23

24 Community solar keeps utilities engaged with customers, provides a means to satisfy regulatory requirements, and facilitates resource planning Advantages of Community Solar Maintains revenue streams Community Solar ensures utility remains one-stop shopping for customer energy needs via a 20+ year contract Maintains utility/customer interface rather than entry by third party provider Can be used for green tariff program Satisfies customer demand May fulfill a portion of regulatory requirements Facilitates resource planning and avoids uncertainty Congestion managed internally rather than externally Fully financed alternative to large capital expenditure RECs and RPS compliance 24

25 Tax equity investments can be used to monetize project tax benefits, but are complex and costly Tax Equity Overview Tax Equity s return is derived primarily from the ITC and depreciation Most transactions are completed as a fixed-flip partnership or yield-based partnership Fixed-flip price based on a $/ITC with a 6 year term Tax allocation: 99% pre-flip/ 5% post-flip; 2% preferred cash return based on initial investment through year 6 (~10%-15% of project cash) Approximately 80% levered assuming back leverage Yield-based partnership has a typical 7 year term Tax allocation: Y1: 99%, Y1-Y5: 67%, To flip: 99%, Term: 5% Cash: Pre-flip: 35%, Term: 5% post-flip Approximately 85% levered assuming back leverage Critical Points for maximizing leverage include fair market value step up and integration of tax equity and back leverage 25