IREC Telephone Seminar

Utilities and the ITC – Challenges and

Opportunities for the Solar Industry

January 2009

Christopher Cook, Managing Director

UTILITY SCALE SOLAR, MADE IN AMERICA

 Brief Note on SunWorks –
Who We Are

We build PV factories
locally to reduce cost
 Start-up company focused on building PV
of panels and create manufacturing facilities for utility scale solar
high tech generation and programs.
manufacturing jobs.

 Management team comprised of experienced solar

project developers -- 3 formerly with SunEdison –
and solar and renewable project finance experts.

 We provide consultation to Utilities and others on

creating large scale solar programs and projects.

IREC Seminar January 2009 www.sunworksLLC.com Page 2

 ITC and Utilities – The Way We Were

Prior to the ITC

change, the solar
 Prior to 8 year extension of ITC, the tax credit
industry developed statute included a utility prohibition (those who have
3rd party ownership rates set by regulators) on using the ITC for solar.
model to bring the
tax credit to utility
 Prohibition meant that a utility could either own a
deals. PV or other solar generator and forgo the 30% tax
credit or, needed a 3rd party owner of the system
who could claim the credit and offer lower prices to
the utility for the solar power produced
 PPA model used for large scale utility solar
projects Nellis AFB 14MW and Alamosa 8 MW
for Xcel (PSCo).
 Solar developers created offerings for utilities that
included 3rd party ownership and financing of solar
projects: MMA and SunEdison.

IREC Seminar January 2009 www.sunworksLLC.com Page 3

ITC and Utilities – Challenges

 Investor owned utilities (IOU’s) can now own solar

systems directly and claim the tax credit
 Need for creative 3rd party owner/financier
structures diminished for this customer/market.
 Exceptions:
 Utilities with poor credit
 Those who do not want to or are not
allowed by their regulators to own systems
or add to ratebase
 Municipal utilities (LADWP, SMUD, City of Austin,
etc.) and cooperatives do not have a tax base that
allows them to use the ITC.
 These utilities will still need 3rd party
owner/financier for solar projects

IREC Seminar January 2009 www.sunworksLLC.com Page 4

 Utility Challenges – Regulated IOU owned
solar investments

 For regulated IOU’s the state utility regulator would have to approve
major solar investments where the utility would own the solar power
generator.
 Regulators might reject utility ownership in favor of a 3rd party
owned/financed system because:
 PPA model is less costly to ratepayers than utility ownership
 PPA finance structure may use greater debt to equity than that
set for the utility
 Regulator does not want to have utility add significantly to
ratebase – solar investment would have no fuel component
making it ratebase “heavy” compared to other generation types.
 Regulator does not want to upset either an existing state solar
program or competitive businesses in the space.

IREC Seminar January 2009 www.sunworksLLC.com Page 5

 ITC and Utilities – Benefits to Solar

Greater Utility
interest in solar?
 Now that utilities can ratebase and earn a return on
solar, they should have more interest and create
more demand.
 SCE; PSE&G; Duke all have sought regulator
approval of utility solar programs/projects
 Cost of separate state run solar program appears
large -- cost of same solar program that is
ratebased may be a very small percentage of total
rates.
 New Tax Equity investor
 Utilities coming into market as private tax equity
interest in serious decline.

IREC Seminar January 2009 www.sunworksLLC.com Page 6

ITC and Utilities – Benefits to Solar

 IOU direct ownership of solar allows a utility to claim

a longer life of a solar generator than PPA model
(limited to 80% of useful life – 20 years of 25 year
warranteed panel). The 20 year life is key to setting
the PPA rate.
 In the regulated environment the true useful life of a
solar generator may be claimed – 30 to 40 years.
 Longer life means more MWh produced which in
turn lowers the cost per MWh of solar
 On a non-discounted basis a solar panel with a
40 year life is ½ the cost per MWh of a system
with panels based on 20 year life.

IREC Seminar January 2009 www.sunworksLLC.com Page 7

 Solar is Popular with
Ratepayers
Solar is a proven Letter to the Editor --- The Ledger (Lakeland, Florida)
generator of goodwill
amongst ratepayers
“In a recent letter, I accused the leadership of Lakeland Electric and the
city commissioners as lacking in vision when it comes to solving the
ongoing problems with Unit 5 ["Lakeland Electric Management Should be
Axed," Sept. 20]. After reading Rick Rousos' Oct. 7 article ["Utility Gets
OK For Solar Energy"] it would appear that I was wrong - and am not
afraid to admit it.
What an immense pleasure to read that "Lakeland plans to sign a
contract with Maryland-based Sun Edison to install solar panels on the
roofs of private buildings and on city property…."
While concerned readers such as myself are often poised to pounce
on local government for its foibles and faux pas, we should also be
just as ready to compliment and support them when they get it right.
My only regret is that Sun Edison stopped doing residential work in 2006
or its workers would be on the roof of my home as we speak.”
CRAIG B. MCKEE

IREC Seminar January 2009 www.sunworksLLC.com Page 8

ITC and Utilities – Opportunities

 New utility appetitive for solar should

allow for more:
 Large scale utility solar projects
(Nellis, Alamosa, CST)
 Utility based solar programs
 Rooftops
 Groundmount DG (substation feed)
 Groundmount community solar

 Solar Technology for Utilities

 Must be “proven” and have financial
assurance for long term power
production.
IREC Seminar January 2009 www.sunworksLLC.com Page 9
 In Summation
Utilities and the ITC –
 Good or Bad for the solar industry
Solar Perspective
 Good: IOU ownership provides large new tax equity appetite
 Bad: 3rd party ownership/financing offerings reduced
 Neutral: Municipal owned utilities and cooperatives largely unaffected
 Bad (as a traditionalist): Utility solar programs will reduce the demand
for traditional state solar in incentive programs based on rebates or
RECs
 Good: IOU’s can now earn a return on solar investments which should
make those more attractive
 Good: reduced cost of solar for utilities
 Good: ratebasing provides longer term life for solar asset – lowers net
effective cost
 Good: utilities using solar like they would for other generation
additions fits the build profile for massive solar plants. E.g. 1500MW
nuclear addition costing >$10 billion and taking 10 years to build looks
like a 10 year solar buildout to reach 1500MW and costing $4.5 billion
($3/watt).

 MORE GOOD THAN BAD

IREC Seminar January 2009 www.sunworksLLC.com Page 10

American-Made Energy Independence.

Thank You.
Christopher Cook
o. 202-465-4827
Email: chris@sunworksllc.com