Dartmouth Project Energy Finance Presentation (4-13-2021) v2

RENEWABLE ENERGY PROJECT
FINANCE BASICS PRESENTATION

JOSH PEARSON ‘97
APRIL 13, 2021
1
Relevant Context
• Discussion focused on utility-scale onshore wind and solar projects in
the US
• There are many other types of renewable energy projects (e.g., distributed
generation, offshore wind, battery storage, pumped hydro storage, hydrogen,
hydro, biogas, biomass, geothermal, etc.)
• Each topic is only being given a cursory overview (there is significant
complexity and variability involved in each project)
• Many project finance considerations are common across all resource
types, but each also have their particular differences
• Developer = Sponsor = Generator
2
3
Macro Drivers for US Renewables
• State Renewable Portfolio Standards (RPS) or Clean Energy Standards
• Commercial and Industrial (C&I) PPA buyers (via voluntary corporate
sustainability goals and consumer preferences)
• Federal tax credits
• Falling costs and increased efficiency in wind turbines and solar
panels
• Transmission infrastructure investment
• Trade policy and tariff effects
• FERC market policies
• EV adoption, offshore wind, Community Choice Aggregators,
community solar, distributed generation, microgrids, etc.
• Carbon tax or cap-and-trade programs? 4
TYPICAL WIND AND SOLAR PROJECT LIFE CYCLE
5
Economic Drivers for Renewables Projects (from
the Sponsor’s perspective)
• Offtake Agreements
• Renewable Energy Credits (RECs)
• Federal Tax Credits: ITCs and PTCs
• Some ancillary services (i.e. other project services that are
compensated in certain markets, such as “capacity” revenues and
“reactive power tariffs”)
• State tax credits
• State or County tax abatements
6
Power Purchase Agreements (PPAs) and other
“Offtake Agreements”
• Traditional (“busbar”) PPAs – long-term (15-25 years) fixed-price
purchase and sale agreements for electricity and RECs with utility
buyers
• “Virtual” PPAs or “Contracts for Differences” – shorter-term (7-15
years) financial “fixed-for-floating” contracts with corporate
buyers
• Commodity Hedges – shorter-term (5-12 years) physical or financial
“fixed-for-floating” contracts with energy trading counterparties
• Forward REC Sales Contracts – small value overall
• Common theme for Offtake Agreements: (hopefully) relatively

consistent and reliable revenue stream
7
Tax Equity Financings
• An investor with “tax appetite” (i.e. taxable gains) acquires an equity

interest in a project for upfront cash in exchange for the right to
receive substantially all the tax benefits from the project until the tax
equity investor meets a negotiated rate of return
• Tax equity financing allows sponsors who do not have tax appetite to
monetize these tax benefits
• Main tax benefits are Investment Tax Credits (ITC) primarily for solar,
Production Tax Credits (PTC) for wind, and depreciation
8
Tax Equity Financings (cont’d)
• ITC: Credit for 30% of project costs (“eligible energy property”), with
credit phasing down over the next several years
• PTC: Credit $0.015/kWh production-based credit for 10 years after
project begins generating electricity, with credit phasing down over
the next several years
• ITC/PTC eligibility is determined based on the year in which a project
begins construction
• Projects generally need to be operational within 4 years of beginning
construction (safe harbor) to qualify for the credit and obtain tax
equity financing
9
U.S. electricity generation and share from selected fuels and
renewable sources
U.S. electricity generation from selected fuels U.S. renewable electricity generation, including end use
AEO2021 Reference case AEO2021 Reference case
billion kilowatthours billion kilowatthours
2020 2020
6,000 2,500
history projections history projections
5,000
2,000
36% natural gas solar
4,000 renewables 47% wind
nuclear 1,500 geothermal
40%
coal hydroelectric
3,000 other
16%
42% 1,000 46%
21%
2,000 34%
19% 41%
500 2%
1,000 11% 2%
34% 13%
19% 11% 7% 4%
0 0
2010 2020 2030 2040 2050 2010 2020 2030 2040 2050
Source: U.S. Energy Information Administration, Annual Energy Outlook 2021 (AEO2021) www.eia.gov/aeo 10
11
Source: www.dsireusa.org/
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Source: https://atlas.eia.gov/
15

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RENEWABLE ENERGY PROJECT

FINANCE BASICS PRESENTATION

• Common theme for Offtake Agreements: (hopefully) relatively

• An investor with “tax appetite” (i.e. taxable gains) acquires an equity

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