Time to consider buying out. You need an independent partner you. your solar PPA? can trust. It s going to save us general fund money.

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1 Time to consider buying out Don Ulrich, Clovis USD your solar PPA? TerraVerde emphasizes education and transparency. We feel confident that they provide us an unbiased assessment of the risks and benefits. You need an independent partner you Robert Groeber, Visalia USD can trust. It s going to save us general fund money. Prop.39 Execution Solar Energy Battery Storage Eric Cederquist, Fowler USD Facility Master Planning Operations & Maintenance Savings Reporting 1 Ready Steve Bolman, to do Petaluma City Schools something TerraVerde worked as a true partner, providing information in a about fullyrising transparent manner, have worked demand collaboratively with us to address issues and problems that charges? inevitably arise during the development process. Russell Freitas, Firebaugh-Las Deltas USD Let s create energy More than an independent advisor, TerraVerde empowered us in every savings, phase of the process through excellent together. communication, deep expertise, and critical insights.

2 Is It Time to Buy-out Your Solar PPA? November 15, 2016

3 Presenters Rick Brown, PhD President Charles Monk Executive Vice President

4 Who We Are $280 Million in solar projects completed at over 200 sites to date; another 40 sites under construction Captured over $14 MM in solar rebates; helped secure over $35 Million in low-interest financing for solar and energy efficiency projects(cec Loans, Build America Bonds, QSCBs, CREBs) Completed first solar plus battery storage School District project in California; over 20MW in total storage projects under development Developed Prop 39 Energy Expenditure Plans for 45 LEAs; $40 Million in projects completed or under construction Wide ranging experience with solar PV, energy efficiency, advanced energy storage, alternative financing, multi-site construction, specification driven RFQ processes, public agencycentric policies and regulations, ADA, DSA, and turnkey design/build management 4

5 Solar PPA Buy-out Opportunity PPA providers typically retain ownership of solar assets for at least 6 years, or risk losing tax benefits due to IRS recapture (forfeiture of tax benefits due to early asset transfer) Many schools and other public agencies who entered into solar power purchase agreements (PPAs) between 2006 and 2012 may have the opportunity to buy out their contracts now or within the next few years 5

6 Why A Solar PPA? There a number of reasons public agencies decided to implement solar through a PPA rather than through a direct purchase in the early days of solar : solar was a relatively new idea and many customers wanted to have someone else take the technology risk of owning and operating the solar facility many agencies didn t view owning a solar power asset as within the mission of their organization many agencies were uncomfortable financing a project on their balance sheet, particularly at a time when the economy was in such bad shape, and California s tax-exempt interest rates were so high 6

7 What s changed? Tax exempt financing costs are lower today and other economic conditions are significantly better than the period And, many districts are finding success in persuading their constituents to pay for solar projects through GO Bond financing 7

8 How does it work? Most PPA contracts provide the option for customers to buy-out their contract as early as 6 years after project completion. In most cases, the PPA includes language stating that the purchase price for the solar asset will be the greater of [$X] or fair market value (FMV). Where [$X] is a price typically set by the provider at a level that makes all project investors whole, or at least returns their outstanding principal. The Fair Market Value provision is based on IRS rules associated with claiming the solar investment tax credit. 8

9 Determining Fair Market Value No single valuation methodology should be employed to value an aging/operating asset; rather, a blend of methodologies shall be employed to capture a number of key variables impacting value: Income Approach value based on the capitalization of the net earnings or cash flows expected from the property, discounted to adjust for time value of money. Market Approach value based on analysis of recent sales of comparable property. Cost Approach value based on the proposition that an informed purchaser would pay no more for property than the cost of producing a substitute property with the same economic utility. 9

10 FMV: Specific Considerations Engineering/Operational Factors What is the physical condition of the solar facility? i.e., what if any, deferred maintenance, repairs, or upgrades are needed upon purchase? How is the system performing? i.e., is the solar facility producing as promised in the Pro Forma, or at the least, the amount of electricity guaranteed in the warranties on the panels and inverters? Economic Factors How does the PPA price compare to the cost of electricity from the local utility provider? Many mature PPAs today are out of the money. Cost-vs-benefit; given various financing options, what are the additional savings one could realize from a purchase (after consideration of repair, O&M and insurance costs) versus continuation of the PPA? PPA escalator; many early PPAs had relatively high annual increases in the PPA price resulting in a relatively poor long-term savings outlook that might be fixed by a buyout. Of particular concern are PPAs that included a PPA step-up price which included a 10-20% increase in the PPA price at year 6 to incentivize the customer to buy-out the contract. 10

11 How do we start? Commercial Contract Review: evaluate PPA contract from a commercial perspective in order to verify and summarize your specific facility purchase option procedures and requirements Project Assessment: Engineering: complete physical inspection and warranty status assessment Economic: full financial savings analysis (including cost of deferred and preventive maintenance, ongoing O&M, insurance and asset management/reporting) Negotiation Strategy: determine how to best approach negotiations with your PPA provider FMV Methodology: reach agreement with PPA provider on FMV approach; decide if 3 rd party appraisal is appropriate 11

12 Example-1: Cost-vs-Benefit Analysis As you can see, the Stated Buyout Price included in the PPA for year-6 is out of the money. This price did not pass the Cost-vs-Benefit test. 12

13 Example-2: Cost-vs-Benefit Analysis In this case, the Client decide to approach the PPA provider with a counter-offer at a price that would yield significant positive net savings. 13

14 Best Practices: Asset Management Monitor and Maintain Systems for Peak Performance Monitor on continuous basis, compare to predicted output Schedule and conduct preventive maintenance Respond to alarms on a timely basis Initiate warranty claims and dispatch technicians Compare actual meter values to projected output and identify cause of any discrepancies. Report findings Provide quarterly production/performance reports Provide annual realized savings report and future maintenance budget forecast 14

15 AMS Report 15

16 Contact Information Rick Brown, PhD, President TerraVerde Renewable Partners, LLC 1100 Larkspur Landing, Suite 155 Larkspur, CA