Drivers of Change for

Distributed Resources in

Vermont: Trends in

Policy, Cost & Financing

Jason Gifford, Senior Consultant

Sustainable Energy Advantage, LLC

October 1, 2012

Sustainable Energy Advantage, LLC

Practice Areas:

• Power market and public policy analysis,

tracking, development & implementation.

• Strategy development.

• Financial analysis & economic feasibility

• Renewable Energy supply & procurement.

• Quantitative analysis and modeling.

• Transaction facilitation, contract development

and negotiation support.

• Business infrastructure development.

• Green power product development & pricing.

Services • Interdisciplinary consulting &

advisory services (regional &

national)

• New England Renewable

Energy Market Outlooksm

(REMO) subscription briefings

• New England Eyes & Earssm

Regulatory, Policy & Legislative

Tracking and Analysis

Subscription Service

Solar-specific version also available

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Mission: Sustainable Energy

Approach: Sustainable Advantage

We help build Renewable Energy Businesses, Markets, Policies & Projects…

through Analysis, Strategy & Implementation

Framing a Discussion of

Key Trends for Distributed Generation

• Purpose of this presentation: To stimulate a discussion of how

trends in policy and cost are influencing the characteristics and

volume of distributed generation in New England

• Overarching questions:

1. How is the policy and market landscape for DG changing?

2. Will tomorrow’s DG projects look the same as yesterday’s? (Size, location,

financing and ownership, power use/sale).

3. Is the current wave of DG proposals throughout the region anomalous, or can

we expect the same level of interest in the future?

• ID Drivers for Increasing () or Slowing () development

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Policy Drivers -- Federal

• Production Tax Credit (PTC):

– ~$22/MWh, 10 yrs, available to wind projects on-line

before 12/31/2012 (extension uncertain)

– 50% of face value available to biomass, landfill gas,

anaerobic digestion & small hydro

• Investment Tax Credit (ITC):

– 30%, for solar and small (≤ 100 kW) wind in service by

12/31/2016 (or to large wind in lieu of PTC until 12/31/12)

• Section 1603 cash payment in lieu of ITC:

– For projects w/ safe harbor in place by 12/31/2011

• MACRS depreciation:

– 50% bonus in 2012, standard thereafter

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Policy Drivers – State (1)

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Least Cost, Regional

“Tilt” Policies:

In-state or Emerging Tech. Preferences

Utility-Owned solar, LT Contract RFP; Residential PV Program;

Fuel cell and AD incentives

In-State Offshore Wind Policies

Feed-in Tariffs, Standard Offers and LT PPA Auctions

Solar REC Carve-outs, Virtual Net Metering, Community-based Renewable

Energy Pilot Program

NESCOE Regional Procurement

Pushes for relaxing imports, new ties, eligibility expansion

Appetite for cost premium of Tilt policies?

Interstate Commerce Clause challenges

Policies “Tilt” toward state preferences

Policy Drivers – State (2)

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• LREC, ZREC, Res PV, utility-owned & FC programs up to 40% of incremental CT-I demand in the 2015 to 2018 timeframe.

• ZREC, LREC RFP prices << expected increase installations CT

• Increased NM cap to 6% of load

• Solar Carve-out: development skyrockets, accelerating demand target. Policymakers explore increasing 400 MW target

• adds LT PPA set-aside for AD, biomass & hydro < 6 MW (0.4% of load)

• extends sunset for utility ownership of up to 25 MW solar to 2014

• “Solarize” programs expand in MA, start in CT

MA

• DG Standard Offer for 40 MW

• Falling prices, more could follow RI

• SPEED Standard Offer increased by 77.5 MW to reach a total 127.5 MW over 10 yrs

VT

As implementation accelerates…

… Price Pressure Increases

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MA • solar PPAs $60 to $100/MWh*

• SRECs (broker strips) ~$175/MWh (‘12 – ’15)*

CT • ZREC auction produces lower than expected bid prices (RECs only)

• Solar 250 kW – 1 MW = $117/MWh

• Solar up to 250 kW = $135/MWh

• Based on these bids, solar < 250 kW priced at $148/MWh

RI • 2011/2012 SO Ceiling Price for solar > 500 kW = $289/MWh

• Most recent winning bid price: $209/MWh (1,500 kW solar project)

• All recent winning bids for 151kW-500kW at cap of $316/MWh

• Ceiling prices for all technologies, all sizes under review

VT • Initial standard offer pricing produces

• ~50 MW of “applications accepted” (contracts)

• 126 MW in “applications not yet processed”

• Review of standard offer prices to be conducted over the next

several months.

* Data are empirical. Not an offer to transact.

Wind Trends: Cost & Performance

Improving Installed Cost Trend

“Lag between turbine prices and project costs should lead to

substantial project-level installed capital cost reductions by

2012-13”

“Turbine price quotes in 2011 for “standard” technology are

reportedly as low as $900/kW (Tier 1: ~$1,100-1,250/kW, with

average at ~$1,100/kW); higher costs typical for smaller

orders, larger rotors/towers, etc. (also more-favorable terms

for buyers and improved technology; balance-of-plant costs

also reportedly lower than in recent past)”

Production Trend

“Move to Lower Wind Speed Sites and Increased Curtailment

Hide the Very Real Increases in CFs Witnessed in Individual

Wind Resource Classes”

“Technology advancement for lower wind speeds has

narrowed the gap in LCOE between lower and higher wind

speed sites”

Source: Wind Power Economics: Past, Present, and Future Trends;

Ryan Wiser Lawrence Berkeley National Laboratory, December 14,

2011

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DG Wind Snapshot

Community Scale : Customer-Sited

8 Source: http://www.windpoweringamerica.gov/newengland/projects.asp

Installed Cost of Solar Dropping Fast But are challenges on the horizon?

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Residential Real Installed Cost Trends,

Various Forecasts, 2010-2025

From: NYSERDA New York Solar Study Jan. 2012

Source: NY Solar Study

(NYSERDA, 2012)

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• Recent Module Prices drop: – Global supply glut

– Recent cost/kW near low end of range

• But… – Anti-dumping actions & trade disputes

– Prices below cost

– Manufacturer bankruptcies, closures

– could increase or level off

Levelized Cost of Energy, by

Technology for 2011 and 2025 (2011$)

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Source: NY Solar Study (NYSERDA, 2012)

Putting It All Together:

Different Market Segments Can Diverge Sharply

Based on Economics and Policy

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Source: NY Solar Study (NYSERDA, 2012)

VT Dataset limited to approved

Standard Offer solar

Operating Capacity Growth

Public Private

< 25 25-500 500-1000 > 1000 < 25

25 - 500

500 - 1000 > 1000

MW/Mo (Since Sep '11) 0.0 0.4 0.1 0.7 0.5 1.1 0.4 0.7

Development Pipeline Growth

Public Private

< 25 25-500 500-1000 > 1000 < 25 25 - 500

500 - 1000 > 1000

MW/Mo (Since Sep '11) 0.1 0.4 0.4 7.9 0.5 1.1 1.8 20.6

A Snapshot of MA Solar Market Segments

Shows Evolution

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Observations on Market Development

& Project Financing • Policy approaches influence financing:

– Competitive bid vs. Standard Offer

– Annual allocation vs. long-term target

• The value of a long-term contract with a creditworthy entity should not be

understated. Determines availability of debt @ project level.

• Ownership & financing landscape: at least 3 types of players

1. Small developers seeking project finance partnerships w/ local banks

2. Large developers assembling portfolio of projects – for resale

3. Utility affiliates, funds, strategic investors – finance on equity basis, later apply

debt at the portfolio level, have ability to be patient

• Market Summary: – MA & CT: market activity, interconnection requests up sharply; current exuberance not likely

sustainable, but targets likely to be met – even if expanded – as industry develops.

– VT & RI: bids will exceed available contracts for foreseeable future; policy targets may limit

the opportunity to develop a sustainable market were it not for the regional demand for DG.

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Sustainable Energy Advantage, LLC

Jason Gifford

tel. 802.846.7627

jgifford@seadvantage.com

www.seadvantage.com

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