Valuation of Solar Photovoltaic (PV) Projects for Ad Valorem Tax Purposes or for Negotiation of PILOT Agreements

Transcription

1 Valuation of Solar Photovoltaic (PV) Projects for Ad Valorem Tax Purposes or for Negotiation of PILOT Agreements Prepared for the: Massachusetts Department of Revenue George E. Sansoucy, P.E., LLC 7 Greenleaf Woods Drive, Unit 102 Portsmouth, NH (603)

2 Introduction George E. Sansoucy, P.E., LLC (GES) is an engineering and appraisal firm specializing in the valuation and financial feasibility of special purpose properties and consulting on regulatory matters In-house staff includes engineers, appraisers, and consultants Presenters: George E. Sansoucy, P.E. Glenn C. Walker, ASA George E. Sansoucy, P.E., LLC 2

3 Presentation Overview Section 1: Renewable Portfolio Standard (RPS) and Solar Overview Section 2: Massachusetts Solar Energy Program Section 3: Appraisal of PV Solar Energy Projects Section 4: Payment in Lieu of Tax (PILOT) Agreement Overview and Discussion George E. Sansoucy, P.E., LLC 3

4 Section 1: Renewable Portfolio Standard (RPS) and Solar Overview George E. Sansoucy, P.E., LLC 4

5 Renewable Portfolio Standard (RPS) Overview The intent of a RPS is to incent the development of clean or renewable energy technologies that are currently unable to compete on an economic basis Programs are typically administered through the state and require electric utilities and retail providers to procure a certain percentage of their electricity from these resources RPS regulators typically track the programs using Renewable Energy Certificates (RECs) States that have specific solar programs have Solar Renewable Energy Certificates (SRECs) George E. Sansoucy, P.E., LLC 5

6 What is a Solar PV System? Energy Source Energy Inversion & Conditioning Energy Use Direct Consumption Net Metering Virtual Net Metering Energy Distribution Energy Conversion Electric Utility Wholesale George E. Sansoucy, P.E., LLC 6

7 Types of Solar Modules Single and multi-crystalline modules Mono or single-crystalline modules are the most expensive and typically most efficient Multi-crystalline are less expensive and also less efficient Crystalline modules represent largest percentage of market Efficiency in the range of 13 to 20% Degradation approximately 0.5% per year Thin film technology Low cost but also lower efficiency Efficiency in the range of 12 to 15% All systems have lives of 25± years (based on warranty) and most likely 30+ years George E. Sansoucy, P.E., LLC 7

8 Demand for Solar Generation is Created by State Programs Demand for solar power is primarily driven by government regulations requiring utilities in states that have adopted solar carve-outs to supply a portion of their electricity from solar systems Examples include: Delaware Maryland Massachusetts New Jersey Ohio Pennsylvania George E. Sansoucy, P.E., LLC 8

9 SREC Prices Driven by Market and Regulatory Forces Regulatory changes can shift prices in the near term Loss of regulatory requirements would send prices to zero Shifting requirements from 2 million to 4 million SRECs would drive prices up in the near term However, over time prices will typically fall George E. Sansoucy, P.E., LLC 9

10 California and Arizona Lead the U.S. in Solar PV Installations (3 rd Quarter 2012) U.S. solar PV market installed 864 MW in Q Represents 44% growth over same period last year Currently 5.9 gigawatts (GW) of PV operating in U.S. from more than 271,000 installations Colorado, Florida, Maryland, Massachusetts, and Pennsylvania saw growth of 5 MW or greater Behind Maryland, Massachusetts saw the greatest quarter-over-quarter increase, up from 25 MW to 40 MW Massachusetts growth (Q3 2012) came from commercial and residential sectors, boosted by the expansion of net metering allowances Source: U.S. Solar Market Insight, 3 rd Quarter Review (latest data available) George E. Sansoucy, P.E., LLC 10 3 rd Quarter 2012 State Rankings Rank (Q3 2012) State 1 California 2 Arizona 3 New Jersey 4 Massachusetts 5 Nevada 6 Maryland 7 Texas 8 North Carolina 9 Hawaii 10 Pennsylvania

11 Incentives Vary by State and are Evolving Incentives include: SRECs Net metering Reduced or no property tax No sales tax on equipment Income tax credits No permitting costs Public benefits fund and government sponsored loan programs Incentives encourage solar installations by providing SREC revenue which reduces initial equipment and operating costs George E. Sansoucy, P.E., LLC 11

12 Utility-Scale Installations Lead Solar PV Growth According to the Energy Information Administration (EIA), total on-grid PV capacity nearly doubled in 2011 Utility-scale solar PV capacity grew from 70 MW in 2008 to 1,052 MW in 2011 Source: George E. Sansoucy, P.E., LLC 12

13 Section 2: Massachusetts Solar Energy Program George E. Sansoucy, P.E., LLC 13

14 Massachusetts Solar Carve-Out Program A market-based program designed to support 400 MW (DC) of solar PV After 400 MW of qualified projects, new projects are not eligible Solar carve-out participants must meet the following eligible criteria Have a capacity of 6 MW (DC) or less per parcel of land Be located within the Commonwealth Use some of its generation on-site and be interconnected to the utility grid Must have an installation date of 1/1/08 or later The program also has a Solar Credit Clearinghouse Auction designed to support the value of SRECs George E. Sansoucy, P.E., LLC 14

15 Solar Renewable Energy Certificates (SRECs) How Do Massachusetts SRECs Work? An SREC is created each time a system generates 1,000 kwh or 1 MWh of electricity SRECs are minted quarterly and must be sold by the end of the compliance year or reminted by clearinghouse auction Example: 2012 SRECs minted 7/15/12, 10/15/12, 1/15/13, or 4/15/13 must be sold by 6/15/13 SRECs monitored by the NE- ISO SREC tracking system George E. Sansoucy, P.E., LLC SRECs are purchased by electric utilities or retail electric providers to meet the state RPS for solar Energy associated with an SREC can be sold separately and/or used by another party Program has Alternative Compliance Payments (ACP) that establish SREC ceiling prices, beginning at $550 in 2012 and decreasing to $365 in

16 SREC Markets SRECs can be sold under short or long-term contracts or using the Massachusetts Solar Clearinghouse Auction Buyers include: Local distribution companies Energy suppliers The auction is a unique feature of the Massachusetts solar markets designed to provide a price support of $300/SREC and a $285/SREC price to the seller The term to utilize the auction was originally 10 years, likely to be reset to 8 years in 2013 George E. Sansoucy, P.E., LLC 16

17 Recent Trends in SREC Prices in Massachusetts $700 SREC Auction Prices $600 $500 $/SREC Clearing Price $400 $300 $200 $100 $0 Aug 2010 Jan 2011 Jun 2011 Nov 2011 Apr 2012 Sep 2012 Feb 2013 Source: George E. Sansoucy, P.E., LLC Clearing Price Solar Alternative Compliance Payment (SACP) 17

18 Solar Carve-Out SREC Supply and Demand Qualified Surplus / Year Ending Project (MW) SRECs Obligation Deficiency ,738 34,164 (31,426) ,598 78,577 (51,979) ,000 [1] 81,559 34, [2] 250.0± 225,000± 135,495 89,505 [1] The 2012 figure estimates are based on 91,684 actual through Q3 and 25,000± of new SRECs in Q4. [2] The 2013 qualified project and SREC figures are conservative estimates of project installation and SREC production. DOER s proposed SREC program regulations would increase the 2013 obligation to 189,297 MWh, thereby substantially reducing the projected oversupply. George E. Sansoucy, P.E., LLC 18

19 Price Support Auction Mechanism No price guarantee Payments to producers of SRECs pushed into future Compliance obligation is increased based on number of SRECs in auction 10-year term is likely to be adjusted downward to 8 years based on surplus of SRECs likely to be deposited in auction Auction provides SREC producers ability to dispose of SRECs in years of oversupply. For questions on the Massachusetts solar program, contact Dwayne.breger@state.ma.us. George E. Sansoucy, P.E., LLC 19

20 Section 3: Appraisal of PV Solar Energy Projects George E. Sansoucy, P.E., LLC 20

21 Massachusetts Taxation of Solar and Wind Projects Under M.G.L. c. 59, 5, clause 45, qualifying solar or wind powered energy systems or heating devices are exempt from local taxation for a 20 year term. However, not all systems or devices qualify (emphasis added). Power Used on Site In order for the wind or solar system or device to be exempt from local taxation, it must be used as a primary or auxiliary power system for the purpose of heating or otherwise supplying the energy needs of property taxable under this chapter. In our opinion, this means the exemption applies only to those systems or devices being used as the primary or backup heating or power system for the taxable real estate on which they are installed (or associated, e.g., a contiguous parcel owned and used by the same owner together with the other parcel). It is for property owners who install systems or devices for use on their own properties, not for solar or wind facilities or farms constructed and operated for purposes of generating energy for sale to the grid (emphasis added). [1] Projects under discussion are those that sell electricity to third parties and are subject to tax [1] DOR City and Town March 1 Newsletter article by Brenda Cameron, Bureau of Local Assessment, entitled Here Comes the Sun And Wind Power. George E. Sansoucy, P.E., LLC 21

22 Valuation Overview Cost Approach Useful for new solar projects if markets are in equilibrium Potential for economic obsolescence due to low SREC prices and/or removal of other government incentives Sales Comparison Approach Few true arms-lengths sales of operating projects Projects or interests in projects are selling prior to construction Market data expected to expand in the future Income Capitalization Approach Most common method used to value solar projects Accounts for current and future revenue and expenses George E. Sansoucy, P.E., LLC 22

23 Cost Approach Generic project: Install date: 2012 Capacity: 3,000 kw (AC) Capacity factor: 15% Estimated useful life (EUL): 30 years Determine real versus personal property on a site specific basis George E. Sansoucy, P.E., LLC 23

24 Cost Approach Discussion Cost New Original Cost of project available from developer Confirm by recent reported costs Price will vary depending on panel type, civil works, interconnection, etc. Current price of $3,000/kW-DC is reasonable George E. Sansoucy, P.E., LLC 24

25 RPS Solar Carve-Out Qualified Renewable Generation Units Generation Unit Name City/Town Nameplate Capacity (kw)-dc Commercial Operation Date Total Installation Costs Installation Cost/Watt Installation Cost/kW GLC-(MA) Easthampton, LLC Easthampton 2, /1/2012 $11,427,146 $5.05 $5,055 Uxbridge Solar Facility-1 Uxbridge 2, /1/2012 $8,320,000 $3.64 $3,644 Axio - Greenfield Greenfield 2, /19/2012 $6,115,173 $3.04 $3,043 Norfolk Solar-1 Norfolk 1, /25/2012 $6,666,562 $4.17 $4,171 GLC-(MA) Acushnet, LLC Wrentham 4, /17/2012 $18,999,230 $4.02 $4,017 Canton Landfill Solar Facility Canton 5, /3/2012 $28,000,000 $4.95 $4,949 True North Energy, LLC Salisbury 5, /3/2012 $20,000,000 $3.50 $3,503 Westford Solar IV Westford 1, /17/2012 $4,080,300 $3.44 $3,440 Airport Way Solar Barnstable 1, /27/2012 $4,500,000 $3.28 $3,283 Arrowsmith & Sons LLC Kingston /2/2012 $44,106 $4.59 $4,594 Jacob's House Real Estate Trust Hanover /22/2012 $46,944 $4.69 $4,694 Falmouth Service Center Falmouth /26/2012 $23,069 $5.45 $5,454 Hyannis Air Services, Inc., dba Cape AirBarnstable /8/2012 $353,279 $3.40 $3,402 DW Clark Inc. Taunton /4/2012 $2,000,000 $4.00 $3,995 Clark's Covair Parts Shelburne /6/2012 $392,214 $4.94 $4,938 Russel's Excavation Oak Bluffs /12/2012 $31,050 $6.90 $6,900 Groveland Solar, LLC Groveland 3, /22/2012 $8,569,773 $2.34 $2,342 EBZ Solar Shirley 3, /15/2013 $12,090,000 $4.00 $4,000 Marcotte Holdings, LLC FoxBorough /17/2013 $973,500 $2.50 $2,500 Source: George E. Sansoucy, P.E., LLC 25

26 Cost Approach Discussion Physical Deterioration Useful life for projects ranges from 20 to 35 years Assume an inverter replacement at approximately 15 years Panels degrade at the rate of about 0.5%± per year George E. Sansoucy, P.E., LLC 26

27 Cost Approach Discussion Economic Obsolescence 1603 Grants reimburse original project developer for a maximum 30% of construction costs the actual reimbursement is in the range of 28±% Grants are not transferrable, are consumed at end of construction, and consider obsolescence after first day of commercial operation Last date to file grant application was 10/1/ Grant program allows for Began Construction criteria that allows projects to be completed prior to the grant or credit termination date of 1/1/17 George E. Sansoucy, P.E., LLC 27

28 Cost Approach Example Description $ in 000s % to the Good Cost New: 3,000 kw (AC) $3,000/kW $9, % Less: Physical Deterioration: 1 year 30 year EUL = 3.3% $297 Subtotal: $8, % Less Economic Obsolescence for 1603 Grant ($9,000,000 28% net Grant) $2,520 Subtotal Cost New Less Deterioration and Obsolescence $6, % Plus Land Value: $100 Total Project Cost New Less Deterioration and Obsolescence $6,283 George E. Sansoucy, P.E., LLC 28

29 Sales Comparison Approach Few, if any, sales of operating projects Predevelopment sales and partial interest sales have occurred No firm pricing to date Sales will be on a $/kw or $/MW basis George E. Sansoucy, P.E., LLC 29

30 Factors Impacting Comparability of Sales Location Power prices/contracts SREC prices/contracts Age of system Efficiency Type of interconnection George E. Sansoucy, P.E., LLC 30

31 Income Capitalization Approach Most common method of valuing solar PV projects Direct capitalization or discounted cash flow (DCF) application Most common method is after-income tax DCF Allows for changes in SREC prices Typically accounts for tax benefits George E. Sansoucy, P.E., LLC 31

32 Key Assumptions in Income Capitalization Approach Description Sample Project Project size kw (DC) 3,000 DC Total cost of project ($/Kw-DC) $3,000 Project Cost ($) $9,000,000 Initial kwh 15% Capacity Factor 3,942,000 Degradation Factor 0.5% Power Purchase Agreement (PPA) rate ($/kwh- $0.10 DC) SREC price (1 SREC = 1,000 kwh-dc) $200 George E. Sansoucy, P.E., LLC 32

33 Inputs Used in DCF (generic solar project) PROJECTION BASIS: GES NOMINAL DOLLARS IN THOUSANDS UNLESS NOTED DESCRIPTION 31-Dec Projection Period Year Electric Price Forecasts Annual Contract/PPA Price ($/MWh) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ SREC Rate ($/MWh) $ $ $ $ $ $ $ $ $ $ Net Generation (MWh) 3,942 3,922 3,903 3,883 3,864 3,844 3,825 3,806 3,787 3,768 3,749 3,731 3,712 3,693 3,675 3,656 3,638 3,620 3,602 3,584 Contract/PPA Revenue $ 394 $ 392 $ 390 $ 388 $ 386 $ 384 $ 383 $ 381 $ 379 $ 377 $ 375 $ 373 $ 371 $ 369 $ 367 $ 366 $ 364 $ 362 $ 360 $ 358 SREC Revenue $ 788 $ 784 $ 781 $ 777 $ 773 $ 769 $ 765 $ 761 $ 757 $ 754 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Total Revenue $ 1,183 $ 1,177 $ 1,171 $ 1,165 $ 1,159 $ 1,153 $ 1,148 $ 1,142 $ 1,136 $ 1,130 $ 375 $ 373 $ 371 $ 369 $ 367 $ 366 $ 364 $ 362 $ 360 $ 358 Expenses Fixed O&M ($/kw-year) $ 10 $ 10 $ 11 $ 11 $ 11 $ 11 $ 12 $ 12 $ 12 $ 12 $ 13 $ 13 $ 13 $ 14 $ 14 $ 14 $ 15 $ 15 $ 16 $ 16 Administrative & General ($/kw-year) $ 5 $ 5 $ 5 $ 5 $ 6 $ 6 $ 6 $ 6 $ 6 $ 6 $ 6 $ 7 $ 7 $ 7 $ 7 $ 7 $ 7 $ 8 $ 8 $ 8 Insurance ($/kw-year) $ 35 $ 36 $ 37 $ 38 $ 39 $ 40 $ 41 $ 42 $ 43 $ 44 $ 45 $ 46 $ 47 $ 48 $ 49 $ 51 $ 52 $ 53 $ 55 $ 56 Total Fixed O&M $ 50 $ 51 $ 53 $ 54 $ 55 $ 57 $ 58 $ 59 $ 61 $ 62 $ 64 $ 66 $ 67 $ 69 $ 71 $ 72 $ 74 $ 76 $ 78 $ 80 Cash Flow or EBITDA $ 1,133 $ 1,125 $ 1,118 $ 1,111 $ 1,104 $ 1,097 $ 1,090 $ 1,082 $ 1,075 $ 1,068 $ 311 $ 307 $ 304 $ 300 $ 297 $ 293 $ 290 $ 286 $ 282 $ 278 Plant Capital Additions $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 700 $ 5 $ 5 $ 5 $ 5 $ 5 Total Cash Flow $ 1,128 $ 1,120 $ 1,113 $ 1,106 $ 1,099 $ 1,092 $ 1,085 $ 1,077 $ 1,070 $ 1,063 $ 306 $ 302 $ 299 $ 295 $ (403) $ 288 $ 285 $ 281 $ 277 $ 273 Generation is declining by 0.5% per year SREC price most volatile input Inverter replacement at 15± years George E. Sansoucy, P.E., LLC 33

34 Typical Solar Project Projection $1,200 Typical Generic Solar Project Revenue and Cash Flow Forecast $1,000 $800 $ in Thousands $600 $400 $200 $ Contract/PPA Revenue SREC Revenue Cash Flow or EBITDA George E. Sansoucy, P.E., LLC 34

35 Income Capitalization Approach Variables SREC revenue volatile PPA typically fixed and varies from $ $0.12/kWh Inverter replacement at approximately 15± years O&M typically fixed and includes monitoring and insurance Income tax benefits provide a significant number of incentives for development 1603 Grant Five year depreciation for tax purposes Production tax credits George E. Sansoucy, P.E., LLC 35

36 Discount Rates Used in DCF Typically use two discount rates 10%± rate typical for long-term PPA revenues 15%± typical for SREC revenue Significantly more volatility At the mercy of state lawmakers State programs can dramatically alter pricing Property tax rate typically added to discount rate George E. Sansoucy, P.E., LLC 36

37 Sample Solar DCF NOMINAL DOLLARS IN THOUSANDS UNLESS NOTED DESCRIPTION Year Ended 31-Dec Projection Period Year Valuation Date 1/1/2013 O&M Escalation Rate 2.5% Electric Price Forecasts Annual Contract/PPA Price ($/MWh) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ SREC Rate ($/MWh) $ $ $ $ $ $ $ $ $ $ Net Generation (MWh) 3,942 3,922 3,903 3,883 3,864 3,844 3,825 3,806 3,787 3,768 3,749 3,731 3,712 3,693 3,675 3,656 3,638 3,620 3,602 3,584 Capacity Factor (calculated using 3 MW) 15% 15% 15% 15% 15% 15% 15% 14% 14% 14% 14% 14% 14% 14% 14% 14% 14% 14% 14% 14% PROJECTED CASH FLOW STATEMENT REVENUE Contract/PPA Revenue $ 394 $ 392 $ 390 $ 388 $ 386 $ 384 $ 383 $ 381 $ 379 $ 377 $ 375 $ 373 $ 371 $ 369 $ 367 $ 366 $ 364 $ 362 $ 360 $ 358 SREC Revenue $ 788 $ 784 $ 781 $ 777 $ 773 $ 769 $ 765 $ 761 $ 757 $ 754 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - TOTAL REVENUE $ 1,183 $ 1,177 $ 1,171 $ 1,165 $ 1,159 $ 1,153 $ 1,148 $ 1,142 $ 1,136 $ 1,130 $ 375 $ 373 $ 371 $ 369 $ 367 $ 366 $ 364 $ 362 $ 360 $ 358 EXPENSES Fixed Operation and Maintenance Expenses Fixed O&M ($/kw-year) $ 10 $ 10 $ 11 $ 11 $ 11 $ 11 $ 12 $ 12 $ 12 $ 12 $ 13 $ 13 $ 13 $ 14 $ 14 $ 14 $ 15 $ 15 $ 16 $ 16 Administrative & General ($/kw-year) $ 5 $ 5 $ 5 $ 5 $ 6 $ 6 $ 6 $ 6 $ 6 $ 6 $ 6 $ 7 $ 7 $ 7 $ 7 $ 7 $ 7 $ 8 $ 8 $ 8 Insurance ($/kw-year) $ 35 $ 36 $ 37 $ 38 $ 39 $ 40 $ 41 $ 42 $ 43 $ 44 $ 45 $ 46 $ 47 $ 48 $ 49 $ 51 $ 52 $ 53 $ 55 $ 56 Total Fixed O&M $ 50 $ 51 $ 53 $ 54 $ 55 $ 57 $ 58 $ 59 $ 61 $ 62 $ 64 $ 66 $ 67 $ 69 $ 71 $ 72 $ 74 $ 76 $ 78 $ 80 Cash Flow or EBITDA $ 1,133 $ 1,125 $ 1,118 $ 1,111 $ 1,104 $ 1,097 $ 1,090 $ 1,082 $ 1,075 $ 1,068 $ 311 $ 307 $ 304 $ 300 $ 297 $ 293 $ 290 $ 286 $ 282 $ 278 Plant Capital Additions $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 700 $ 5 $ 5 $ 5 $ 5 $ 5 Cash Available from Contract $ 339 $ 336 $ 333 $ 329 $ 326 $ 323 $ 320 $ 316 $ 313 $ 309 $ 306 $ 302 $ 299 $ 295 $ (403) $ 288 $ 285 $ 281 $ 277 $ 273 Cash Flow From Sale of SRECs $ 788 $ 784 $ 781 $ 777 $ 773 $ 769 $ 765 $ 761 $ 757 $ 754 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - % of Cash Flow From SRECs 70% 70% 70% 70% 70% 70% 71% 71% 71% 71% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Taxable Cash Flow $ 1,128 $ 1,120 $ 1,113 $ 1,106 $ 1,099 $ 1,092 $ 1,085 $ 1,077 $ 1,070 $ 1,063 $ 306 $ 302 $ 299 $ 295 $ (403) $ 288 $ 285 $ 281 $ 277 $ 273 Annual Depreciation $ 4,536 $ 1,037 $ 622 $ 373 $ 373 $ 187 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Taxable Income $ (3,408) $ 84 $ 491 $ 733 $ 726 $ 905 $ 1,085 $ 1,077 $ 1,070 $ 1,063 $ 306 $ 302 $ 299 $ 295 $ (403) $ 288 $ 285 $ 281 $ 277 $ 273 Taxable Income With Loss Carry Forward $ (3,408) $ (3,325) $ (2,834) $ (2,101) $ (1,375) $ (470) $ 615 $ 1,077 $ 1,070 $ 1,063 $ 306 $ 302 $ 299 $ 295 $ (403) $ (115) $ 170 $ 281 $ 277 $ 273 Income Taxes 40% $ - $ - $ - $ - $ - $ - $ 434 $ 431 $ 428 $ 425 $ 122 $ 121 $ 120 $ 118 $ - $ - $ 114 $ 112 $ 111 $ 109 Total After-Tax Net Cash Flow $ 1,128 $ 1,120 $ 1,113 $ 1,106 $ 1,099 $ 1,092 $ 651 $ 646 $ 642 $ 638 $ 184 $ 181 $ 179 $ 177 $ (403) $ 288 $ 171 $ 169 $ 166 $ 164 Partial Period Mid-Year Convention PV Factor 1st 10 Discount Rate 16.5% PV Factor 2nd 10 Discount Rate 11.5% Present Value of Contract Cash Flows $ 968 $ 826 $ 704 $ 600 $ 512 $ 437 $ 223 $ 191 $ 162 $ 138 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Present Value of SREC Cash Flows $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 55 $ 49 $ 44 $ 39 $ (79) $ 51 $ 27 $ 24 $ 21 $ 19 Total Cash Flows $ 968 $ 826 $ 704 $ 600 $ 512 $ 437 $ 223 $ 191 $ 162 $ 138 $ 55 $ 49 $ 44 $ 39 $ (79) $ 51 $ 27 $ 24 $ 21 $ 19 PRESENT VALUE CASH FLOWS $ 5,010 George E. Sansoucy, P.E., LLC 37

38 Section 4: PILOT Agreement Overview and Discussion George E. Sansoucy, P.E., LLC 38

39 Payment in Lieu of Tax (PILOT) Agreements PILOT agreements: Allowed for solar projects Provide stability to both municipality and project owner Can be for 5, 10, or 20 years Should reflect market value over term George E. Sansoucy, P.E., LLC 39

40 Revenue-Based Versus Fixed Payment Payments can be based on gross revenue or cash flow Requires more monitoring and auditing Potentially more volatile Volatility can result in more or less benefits Fixed payments Create most certainty Simple to administer George E. Sansoucy, P.E., LLC 40

41 PILOT Agreement Considerations Contract(s) with municipality Municipal land or site is the host for solar project Type of PPA Applicable municipal tax rate Future consideration of SREC pricing George E. Sansoucy, P.E., LLC 41

42 Examples of PILOT Agreements in Massachusetts PILOT Agreements in Massachusetts are being compiled and will be posted at a later date. George E. Sansoucy, P.E., LLC 42

43 Supplemental Note The cost valuation in this presentation starts with the assumption that the 1603 IRS grant of approximately 30%, while used to fund the construction, is not transferable value in the market sales approach. The grant is consumed by the developer the moment the site goes online. The 20% direct capitalization rate of the first year s income in the valuation model summary, while high by real estate standards, is necessary to discount the high SREC revenue in the first years and recognize the lower energy revenue in the out years. We realize that both of these items are unusual in mass appraisal for towns and cities in Massachusetts, but are unique to this solar buildout program. George E. Sansoucy, P.E., LLC 43

44 Questions Contact Information: Any specific questions regarding the workshop should be addressed to: Mike Waddell (603) Presenters: GEORGE E. SANSOUCY, P.E. 279 Main Street Lancaster, NH (603) GLENN C. WALKER 7 Greenleaf Woods Drive, Unit 102 Portsmouth, NH (603) gwalker@sansoucy.com George E. Sansoucy, P.E., LLC 44

45 Assessor s Generic Request for Information from Developer Relating to a Solar Photovoltaic (PV) Project Please provide the following information for the Solar PV Project (Project) as it pertains to your specific site. A. A brief narrative description of the Project that includes: 1) Name of Project owner(s) (individual, LLC, corporation, etc.) 2) Address 3) Map and lot number(s) 4) Total site acreage 5) Number of panels 6) Type of panel(s) 7) Type of inverter 8) Total AC and DC watts or kilowatts capacity 9) Total onsite use per year (include electric bills), total onsite generation estimated per year B. The Original Cost (as defined below) of the following major components: 1) Panels 2) Inverter 3) Interconnections 4) Civil works 5) All other project Original Costs Original Cost is defined as: The cost of the property at the time of installation as part of the system. This includes the amount of money paid for the property or the estimated monetary value of the property, if acquired by other consideration or by grant or gift, at the time of acquisition. Such cost shall also include all direct and indirect costs of construction to place said property in operation, including, but not limited to, labor, engineering, materials and supplies, transportation, contract work, protection, taxes, allowance for funds used during construction, insurance, construction services and any other indirect construction costs. C. The warranty terms in years for the following components: 1) Panels 2) Inverter 3) Any other component subject to warranty D. Annual delivery of net AC kilowatts since the commercial operation date. (If any year is partial, indicate as such in the response.) George E. Sansoucy, P.E., LLC Page 1 of 2

46 E. The annual net forecast of kilowatt (AC) and Solar Renewable Energy Certificate (SREC) production for the life of the Project. F. The assumption of panel degradation for the life of the Project. G. All contracts for the sale of electric commodities or SRECs for the Project, including all schedules and attachments. H. The annual revenue and expenses for the Project since the commercial operation date for the following items. (If any year is partial, indicate as such in the response.) 1) Revenue from the sale of electricity 2) Revenue from the sale of SRECs 3) Any other miscellaneous revenue 4) Land lease expenses 5) Operating and maintenance expenses including inverter replacement cycle 6) Insurance expenses 7) Any other expenses 8) Capital replacement costs capitalized on the accounting records of the Project s owner(s) I. A copy of all pro formas used to obtain financing (either equity or debt) for the Project. J. The most recent pro forma or forecast for the Project. K. The year of any planned inverter replacement along with the planned cost of such replacement. L. Identify if the Project site is owned or leased. M. If the Project site is owned identify the date of purchase, book and page of deed, and all consideration paid. N. If the site is leased, provide a copy of the lease. O. If the panels and or inverters are leased, a copy of the lease(s). George E. Sansoucy, P.E., LLC Page 2 of 2

47 GLOSSARY AC Crystalline Silicon DC Interconnect Intertie Inverter Kilowatt Kilowatt-hour Net-metering Panel Photovoltaic cell Photovoltaics Alternating current, electricity that changes voltage periodically, typically 60 times a second (or 50 in Europe). This kind of electricity is easier to move. The material from which most photovoltaic cells are made; in a single crystal cell, the entire cell is a slice of a single crystal of silicon, while a multicrystalline cell is cut from a block of smaller (centimeter-sized) crystals. The larger the crystal, the more exacting and expensive the manufacturing process. Direct current, the complement of AC, or alternating current, presents one unvarying voltage to a load. To connect two systems, often an independent power producer and the grid. The electrical connection between an independent power producer for example, a PV-powered household and the utility s distribution lines, in such a way that each can supply or draw from the other. The electrical device that changes direct current into alternating current. 1,000 watts, a measure of instantaneous work. Ten 100-watt bulbs require a kilowatt of energy to light up. The standard measure of household electrical energy use. If the 10 bulbs left unfrugally burning in the preceding example are on for an hour, they consume 1 kilowatt-hour of electricity. A desirable form of buy-back agreement in which the line-tied house s electric meter turns in the utility s favor when grid power is being drawn, and in the system owner s favor when the house generation exceeds its needs and electricity is flowing into the grid. At the end of the payment period, when the meter is read, the system owner pays (or is paid by) the utility depending on the net metering. Any flat modular structure; solar panels may collect solar energy by many means; a number of photovoltaic modules may be assembled into a panel using a mechanical frame, but this should more properly be called an array or subarray. The proper name for a device manufactured to pump electricity when light falls on it. PVs or modules that utilize the photovoltaic effect to generate useable amounts of electricity. George E. Sansoucy, P.E., LLC

48 Photovoltaic system Power Purchase Agreement (PPA) Renewable Energy Solar panels Thin-film module The modules, controls, storage, and other components that constitute a stand-alone solar energy system. A common contract instrument used in energy project development. A solar PPA is a contract between a project owner and a project host through which the project host buys the electricity generated by the PV array from the project owner at a predetermined rate. An energy source that renews itself without effort; fossil fuels, once consumed, are gone forever, while solar energy is renewable in that the sun we harvest today has no effect on the sun we can harvest tomorrow. Any kind of flat devices placed in the sun to harvest solar energy. An inexpensive way of manufacturing photovoltaic modules; thin-film modules typically are less efficient than single-crystal or multi-crystal devices; also called amorphous silicon modules. George E. Sansoucy, P.E., LLC