presented by: gerald w. braun, director business development june 17, 1998 a business unit of...

Presented by: Gerald W. Braun, Director Business Development June 17, 1998

A Business Unit of Amoco/Enron Solar

Financing of Renewables: Considerations and Outlook

Presentation to:

FINSOL Workshop

Albuquerque, NM



Conditions are Right for Growth

• Wind

– Market $1.3 billion in 1996

– Small group of competitors; no one dominant player

– Costs generally competitive with fuel based power

– New generation needed and planned worldwide

– Environmental/regulatory factors generally favorable

• Solar

– Market $1 billion in 1997

– Small group of vertically integrated manufacturers; no one dominant player

– Remote markets expanding; cost approaching breakeven with retail grid electricity

– High degree of public support



Considerations

• In general, renewables are capital intensive

• Applications and market diversity drive financing strategy diversity

• Keys to economic attractiveness:

– First and life cycle costs

– Revenues and avoided costs

– Financing costs

• Cost and revenue risks drive financing costs



Principal Elements of Wind Project Financing

• Wind resource• Power purchase agreement• Interconnect agreement• Transmission rights• Real estate rights• Environmental studies• Construction and operating

permits• Construction contract

• Wind turbine supply contract• Wind turbine warranty• Project owner• Equity Financing• Debt financing - construction and term• Operations and maintenance contract• Predictable legal, regulatory and

political environment



Applications (and Avoided Cost) Diversity

• Grid-Tied Applications

– Central Power (high voltage AC)

– Local Grid Support (medium voltage AC)

– Grid Supplement at Point of Use (low voltage AC)

• Grid-Independent Applications

– Rural Electrification (low voltage DC and AC)

• Home Power, Village Power, Water Pumping

– Industrial Applications (low voltage DC)

• Telecommunications, Monitoring Stations



Market Diversity Drivers

• Extent and nature of market regulation

• Subsidies and barriers

• Maturity/stability of national/regional/local economy and banking/credit infrastructure

• Local costs, taxes and fees



Wind Project Financing

• Financing generally available; need competitive terms

• Financing structures vary significantly from country to country

• Caveat vendor; warranty terms need to converge on conventional technology

• Bonds/Guarantees - usage increasing



Comparison of Wind Project Financing Structures

U.S. U.K. Greece

Debt 50% 75% 20%

Equity 50% 10% 40%

Grant 0% 15% 40%

100% 100% 100%



Financing Strategies

Application Technology LikelyStrategy

PrimaryRisk

Experience

Grid-tied- Central Power W, S, B, H Project or Utility Market Extensive,

California, etc.- Grid Support W, S, B Utility Technology Limited- Point of Use S Mortgage or

ConsumerTechnology Extensive,

Japan & EuropeOff-grid- Industrial S, W Cash and Carry Market Extensive,

Diverse, Global- Village Power S, W, B Project or Utility Technology and

MarketLimited

- Home Power S All Technology andMarket

Limited,Diverse, Global

Notes: W = Wind, S = Solar, B = Biomass, H = Hydro



Cost and Revenue Risks

• Market related

– Equipment prices and long term power prices

– Tax policy

– Currency valuation

• Technology related

– System performance

– Component quality

• Resource related



Rooftop PV Economic Sensitivities

5

10

15

20

25

30

35

40

3% 4% 5% 6% 7% 8% 9% 10% 11% 12%

Loan Interest Rate

Le

ve

lize

d C

ost

of

PV

Ele

ctr

icity (

¢/k

Wh

, re

al 1

99

7$

)

$7/W

$6/W

$5/W

$4/W

$3/W

PVPrice

Entire U.S.

Most U.S. Markets

Retail Electricity Price Range



Renewables Outlook

• Near term:

– Continued hardware cost reduction based on technology improvements, volume and experience

– Evolution toward “best” financing strategy for rural electrification

• Long term:

– Continued high growth rates

– Major contribution to future energy supply



Breakeven PV System Costs for Market Entry

0

5

10

15

20

25

1985 1990 1995 2000 2005 2010 2015 2020 2025

Year

$/W

p In

sta

lle

d

Remote Power

Rooftop Grid Support Solar Farm

Electricity

Solar FarmHydrogen



Renewable Energy Targets and Growth Rates

Source1990 Primary

Energy-EJ2025 Primary

Energy-EJ2050 Primary

Energy-EJAvg. Annual

Growth 1990-2025

Hydroelectric Geothermal 28.7 31.8 31.5 <1%

Biomass 3.3 74.4 181.4 9%

Intermittent Renewables

- PV- Solar Thermal- Wind

0.0655

0.0065 0.009 0.050

37.1

18.5 3.714.9

61.0

36.6 6.1 18.3

20%

25%19%18%

Solar Hydrogen 0 0 37.8 N/A

Total Renewables 32.0 143.3 311.7 5%



Wind Industry - Growth Worldwide

Source: BTM Consult



PV Capacity and Investment Requirements through 2025

Market Growth Rate (%) 25Manufacturing Capacity at End of Period(MW/year x 1,000)

200

Capital Investment in Manufacturing Capacity($x1,000,000,000)

200

Capital Investment in Generation Capacity($x1,000,000,000)

1,000



Conclusions

– Market Transformation and Eco-Investment Scenarios Are Underway Which Support Renewables

– Intermittent Renewables Play a Primary Role in All Scenarios

– Major Capital Investment is Required, e.g. $1 Trillion for PV by 2025

– Many Financing Strategies Needed

– Risk Management is Key to Successful Strategy

presented by: gerald w. braun, director business development june 17, 1998 a business unit of...

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