Power Pruchase Agreement presentation at CCSE on April 13, 2009

1. Overview of the Solar
Power Purchase Agreement (PPA)
Paul Detering
CEO, Tioga Energy
13 April 2009

2. Overview
 First seminar in a series of five. Each seminar will cover various
aspects of PPAs
 Time: 11:30 a.m. - 1:30 p.m. + Q&A
 Your Presenter:
– Paul Detering, CEO of Tioga Energy
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3. Today’s Agenda
 PPA background
– What is a PPA
– Value and market emergence
– Ancestry
 Problems solved by solar and solar PPAs
– Rising electricity rates, societal & environmental issues
– PV cost & risk
 How the PPA works
– PPA structuring - behind the scenes & customer view
– Pricing, value of solar, ideal ―Host‖ profile
– Process & timing
 PPA implementation
– Design & EPC implications
– Operations & Maintenance (O&M)
– Performance tracking and monitoring
 Case Studies
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4. What is a Solar PPA?
Purchase Renewable Energy
• 20-year term
• Early purchase options at yr 7, 15 & 20
• Fixed annual & step-up escalators
• End-of-term: renew, purchase, have system removed
Customers
PPA Provide Renewable Energy from PV
• Design, engineer, construct
Provider • Finance, own, operate, maintain
• RECs, rebates & incentives
• Energy metering, billing
Benefits Without risks
– Price stability, affordability, hedge – No capital
– Environmental benefits — e.g. LEED – No project management
– No system performance risk
– No distractions from customer’s core business
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5. A Brief History of PPAs
 1978 PURPA (Public Utility Regulatory Policies Act)
– Meant to promote renewable energy
– Created market for non-utilty electric power producers
 Drove construction of cogen plants
 ~2002/2003 Solar Commercial and Industrial (C&I) retail PPAs
pioneered
– Renewable Ventures (nee Nuon?)
– Sun Edison (2004)
 2007 – CA CSI program launches first wave of significant
adoption
 2008 – ~75% of C&I solar installations in US are completed
using a PPA structure
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6. PPAs are the Driving Force Behind Solar
$1,126M
$835M
Source: Solar Power Services How PPAs are changing the PV Value Chain
Greentech Media
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7. PROBLEMS SOLVED BY
SOLAR AND SOLAR PPAS
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8. Why the Need for Solar PV
 Electricity costs are on the rise and are increasing
volatile…driving up the difficulty of budgeting
 Budgets are increasingly tight
 The need for green energy is greater than ever
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9. Illustrative Rate Increases – PG&E
Demand Charges Energy Charges
PG&E Rate Increase
March 1 2008 - March 1, 2009 & Year-To-Date % Increase % Increase
Year-To-Date Year-Over-Year Year-To-Date Year-Over-Year
A6 Average -----> 3% 8%
A10 Average -----> 8% 16% 9% 13%
A10 TOU Average -----> 8% 16% 9% 13%
E-19 Average -----> 5% 12% 11% 16%
E-20 Average -----> 4% 12% 11% 14%
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10. Illustrative Rate Increases – SDG&E
SDG& Rate Increases
% Increase Year Over Year
2008 - 2009
Demand Energy
AL TOU 21% 10%
A6 20% 5%
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11. Average Price Change
50%
Electricity in Key Solar PPA States
↑ 80%
45% 10%+  Historically
40% – Rates up 28X
35% out of 35 yrs.
– Rates down 8X,
30%
avg. -2.7%
25% 15%+  Spikes
Percent Change
20% – 10%+ 7X
15% – 15%+ 3X
10%  Most volatile
5% – 1970s oil crisis
0% – Early 2000s
Electric Market
-5% Restructuring
-10% – Likely to
1970 1975 1980 1985 1990 1995 2000 2005 continue
Year
U.S. Government Energy Information Administration, official energy statistics. State energy consumption, price and
expenditure estimates (SEDS). Complete 2005 data, released February 29, 2008.
http://www.eia.doe.gov/emeu/states/_seds.html
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12. What will happen to rates in the future?
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13. Take Control
Solar = Smart
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14. Societal Concerns
 Environmental impacts
 Energy security
 Resource depletion
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15. California Solar Initiatives
 Government action
benefits solar
– Financial incentives
 Renewable Energy
Credits
– Tax breaks
– Targets
…PPAs make these
benefits available to
all
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16. Solar Advantages
 Cost competitive
 Price stability
 Clean and reliable
 Proven
 Positive community
message
 Solar PV  global
solution
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17. Solar Challenge
 Capital intense Minimize Cost
Risk
 Project complexity
 Operations & maintenance
 Maximizing initiative funds
and tax credits
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18. PPAs Resolve the Challenges of Solar
Customers
PPA
Provider
Benefits Without risks
– Price stability, affordability, hedge – No capital
– Environmental benefits— e.g. LEED – No project management
– No system performance risk
– No distractions from customer’s core business
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19. HOW THE PPA WORKS
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20. PPA Provider View Tioga
Parent Company
Guarantee
IRS Tax
Incentives
(Portfolio vantage)
Energy, Inc Master Lease
Installation
Financing Agreement Agreement Investors
Tioga Tioga Project
Ind. Installation
Engineer Lender
Buildco, Holdco, Investment
LLC LLC Bank
Ind.
Construction Project Sale Engineer
Loans Lease Backs
Tioga Solar State
Tioga Solar Rebates
Equip. II, LLC
Tioga I, LLC
Vendors
Integrated REC
Design Sales
Engineer
Insurance
Sub
Contractors Turnkey EPC
Utility Net
O & M Contracts Contractor Host PPAs, Com. Op. Metering
Construction Contracts PPAs, Initial Phase
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21. Customer View…
Tioga Energy,
Inc
Solar PPA
Utility Net
Host Metering
…PPA makes it simple.
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22. What Drives PPA Price?
Fixed Elements Negotiated Elements
 EPC cost  Term
 Energy performance  PPA price escalator
 Financial markets – Rate
 Incentives – Steps
– Federal ITC and MACRS  Disposition of RECs
– State/local utility incentives  Service level commitments
– State tax credits
 System size
 Recurring expenses
– Insurance
– O&M
– Monitoring and billing
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23. Ideal Host Profile
 Credit
– Investment grade credit (BBB- or better)
– 3 years audited financial statements
 Geography
– Access to incentives - CA, NJ, HI, MA, CT, AZ, MD, PA, OR, etc.
 Facilities
– Host controls facility for PPA term (15+ years)
– Available space (25,000 ft2 min.)
– Available Load (150,000 kWh/yr min.)
– Minimum improvements required
– Multiple facilities ideal
 Electric Rates
– Time of Use
– Commercial (vs. industrial) usage
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24. PPA Development Process
 Preliminary assessment
– Gather data
 Site information
 Energy usage and costs
 Environmental requirements
– Budgetary evaluation
 Savings potential
 Financial model and pricing
 Firm Proposal, LOI
– Design development, costing
 Contracting
– PPA, EPC
 Construction, Operation
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25. Value of Solar And Utility Escalation Studies
 Pre Sale Evaluation of Customer Energy Use
Determine which portions of utility rates solar energy will offset
and estimate near and long term financial benefit to host
– Hour by hour energy production modeling
– Review of host utility bills
– Analysis of host’s interval load data to determine demand
charge reductions
– Analysis of alternative utility tariffs and rate switch
opportunities
– Analysis of EIA data to forecast long term trends to localized
energy prices
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26. Value of Solar Study Results
 Optimize System Design to Maximize Utility Rate
Offset
– We can often reduce post-solar utility charges to $0 by
modeling an optimal system size and output
 Move Customer to Optimal Post-Solar Utility Rate
Schedule
– Minimize or eliminate demand charges
– Choose tariff with highest TOU differentials
– Optimize for net metering
 Determine Savings
– Provide customer accurate year 1, buyout and term savings
over do-nothing utility base case
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27. SurePath Solarsm PPA Timeline
Assessment
Financing,
Preliminary
Incentive Application
Design, Engineering, Installation, Approvals, Operation and
Permitting, Procurement Interconnection Maintenance
2 to 4 3 to 6 months 3 to 6 months To 25 years
weeks
LOI PPA Construction System
Starts Online
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28. PPA IMPLEMENTATION
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29. Design Requirements
 Safety
 Detailed shading analysis
 Permitting/utility approved interconnection practices
 Minimize panel mismatch/multiple orientations
 PPA provider-approved products
 Data Acquisition System (DAS)
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30. PPAs, EPCs & Project Finance
 PPAs use Project Finance — Each Project is
Financially Self-Sufficient
– All risks are managed internally in each project
– Each project is owned by a separate subsidiary
– Project performance is secured only by project assets
– Each project has to stand on its own financial ―legs‖
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31. Financing Sources Utilized
 Construction Period
– Construction/installation loans (loan facilities recycled upon
project completion)
– Investor equity (recycled upon project completion)
 Operations Period — ―Take Out‖ (Term)
Financing
– Tax Equity Investors (for tax benefits)
– Term Lenders
– Grants
– Debt
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32. Project Assets — Collateral for Project Obligations
 Construction Period:
– PPA
– EPC
 Operations Period
– PPA
– Equipment / Completed Plant
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33. Finance-Related EPC Contract Provisions
 Lender controls
– Milestone payment process, engineer review, site inspection
– Punch list items and hold-back (retainage)
– Assignment of EPC & subcontracts
 Contract scope and overall risk mitigation
– Fixed-price, turnkey contract; change order process, structural
and/or geotechnical surveys
– Payment and performance bonds
– Indemnification and insurance
– Termination for convenience
 System performance and production
– Performance guarantees (kW), testing, correction of deficiencies
– ―As-built‖ documentation
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34. Finance-Related EPC Contract Provisions (more)
 Financial performance versus projections
– Mechanical and substantial completion dates
– Performance shortfall and delay liquidated damages, including
incentive programs
– Suppliers, manufacturers, installers warranties
– Installer default and owner remedies
 Ownership & title
– Conditional / unconditional lien waivers
– Passage of title, clear title
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35. O&M Requirements & Procedures
 Preventative Maintenance
– Combiner box fuse – terminal checks
– Combiner box source circuit measurements
– Inverter checks
– Racking and mounting system inspection
– DAS maintenance checks
– Panel inspection
– Panel cleaning / site landscaping
– Reporting – checklists
 On-Call Services
– Monitoring/dispatch
– Diagnostics & repair – response time is critical
– Spare parts - inventory is key
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36. Power Grid - System Diagram
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37. Performance Monitoring & Alerts
Lobby
Display – Daily
Kiosk Power
Viewer Monitoring
Power
Performance
Profile
Monitoring &
Solar &
Optimization
Load
Alerts & Alarms
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38. CASE STUDIES
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39. City of Santa Barbara Case Study
 Central California Coast
 Population 400,000
 Committed to Sustainability
– Fuel cell generator at wastewater
treatment plant
– 15 kW solar power system on fire
station
– 384 kW solar PPA for public
works campus
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40. City of Santa Barbara Solar Project
 Challenge – Install largest PV
array possible given limited
space
 Solution – Solar PPA
 Benefits
– Leverage tax incentives
– Hedge against utility costs
– No upfront capital System Details
– No ongoing maintenance • Public Works campus
– No project development • 385 kW DC
resources • 1,830 SunTech solar modules
• 4 Hi-E SatCon inverters
– Supports City’s sustainability
• Roof mounted, fixed-tilt array
goals
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41. How the PPA Works
 CoSB contracts to buy solar electricity at a
predictable, low price
 PPA provider handles all details
– Design, engineering, and construction
– Financing and RECs
– Rebates and incentives
– Operation, maintenance, insurance, repair
– Energy metering and billing
 COSB pays ONLY for electricity delivered
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42. Electric Rate CAGR Probability Distribution
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43. Probability of Savings
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44. Potential Cumulative Savings
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45. Summary of Economic Analysis*
EIA Electricity Price Data Set CA, Statewide average electricity price
Average Historical Utility CAGR 5.91%
Most Probable Future Utility CAGR 5.93%
Annual Electricity Consumption, kWh 850,000 kWh/yr
Utility Rate Offset by Solar, $/kWh $0.125/kWh
Solar Power System Size, kW 384 kW
PPA Initial Rate, $/kWh $0.119
PPA Escalator, % 4.5%
Estimated 1st Year Production, kWh 514,520
Annual Production Degradation, % 0.50%
Estimated Percentage of Energy Requirement Provided by Solar: 60.5%
Host Discount Rate, % 8.00%
Financial Results
Most probable first-year savings $5,000
Most probable cumulative 20-year savings $465,000
Most probable Net Present Value (NPV) of savings $173,000
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46. Non-Economic Benefits
 Highlight community sustainability policies
 Support CA environmental initiatives
 Help reduce greenhouse gas emissions
Environmental Benefits, Annual (CO2) Reduction Equivalencies
Vehicle miles not traveled 270,000
Gallons of gasoline conserved 14,100
Passenger vehicles taken off the road 23
Barrels of oil conserved 290
Number of tree seedlings grown for 10 years 3,200
Acres of pine or fir forests storing carbon for one year 28
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47. 47

48. 48

49. Athenian School Case Study
 Bay Area Private College Prep School
 75-acre campus
 450 students, grades 6-12
 Committed to Environmental
Stewardship
– One of five founding principles
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50. Athenian School Solar Project
 Challenge – Deploy a large
solar array w/o sizable up-
front capital
 Solution – solar PPA
 Benefits
– No upfront capital investment or
ongoing maintenance
responsibilities
System Details
• 220 kW
– Hedge against rising utility costs • 1,296 Mitsubishi PV Modules
• 2 – 100kW Xantrex inverters
– System provides nearly 50% of • Ground mounted, fixed-tilt array
the school’s electricity, saving • Offsets significant energy use
money from day 1
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51. How the Athenian PPA Works
 Athenian contracts to buy solar electricity at a
predictable, low price
 PPA provider handles all details
– Design, engineering, and construction
– Financing and RECs
– Rebates and incentives
– Operation, maintenance, insurance, repair
– Energy metering and billing
 Athenian pays ONLY for electricity delivered
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52. Non-Economic Benefits
 Supports commitment to environmental stewardship
 Provides hands-on curriculum for renewable energy
 Send positive message to current and prospective
students
Environmental Benefits, Annual (CO2) Reduction Equivalencies
Vehicle miles not traveled 503,500
Gallons of gasoline conserved 26,500
Passenger vehicles taken off the road 44
Barrels of oil conserved 543
Number of tree seedlings grown for 10 years 6,000
Acres of pine or fir forests storing carbon for one year 53
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53. Q&A
 Any questions?
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54. Thank you.
www.tiogaenergy.com
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