2. Solar Energy Finance_Stern Brothers

8/3/2019 2. Solar Energy Finance_Stern Brothers

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Presented by Kaylynn Kim, Esq.

Managing Partner

Tierra Global Advisors/Stern Brothers

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There are currently 13,100 megawatts (MW) of large-scale solar projects

scheduled in the US by the end of 2012, with many more smallerprojects also scheduled.

These projects are typically financed through project finance strategiesthat combine debt financing, tax equity investments (described later inthis presentation), and owner/sponsor equity investments.

There are currently opportunities in the US solar energy project marketthat could provide investment returns and tax efficiencies to US taxablecorporations with stable long-term taxable income.

The market for this opportunity in tax equity investments alone wasestimated to be $3 billion in 2010, and growing for the next few years.

Opportunities to invest at attractive projected returns may decrease asthe sector grows more mature.

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The US solar market grew from almost nothing in 2000 to acumulative 2 GW (2000 MW) in grid-tied photovoltaic (PV)installations by 2010.

The US solar PV market ranks #4 in the world, after Germany,Spain, and Japan.

Globally, renewable energy produced 19% of the 2009 totalenergy consumption, of which solar energy is a very smallfraction. Grid-tied solar PV, however, increased the fastest of allrenewable technologies, with a 60-percent annual averagegrowth rate for the five-year period from 2004 to 2009.

* http://www.ren21.net/Portals/97/documents/GSR/REN21_GSR_2010_full_revised%20Sept2010.pdf

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Factors contributing to the growth of the US solar markets are:

Heightened awareness about global climate changes and thenegative impact of fossil fuel energy.

Concerns about US national security issues post-911 given relianceon oil from the Middle East.

Federal /State/Local legislative (mostly in tax incentives) support for

renewable energy. Establishment of Renewable Standard Portfolio at State and Local

levels

Job creation potential

There is an established market of participants that take advantage of

these favorable tax treatments – tax investors – that are now seekingopportunities in the solar market.

*http://irecusa.org/wp-content/uploads/2010/10/Sherwood-IREC Oct2010.pdf

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The US federal government has various tax incentives:

The Energy Tax Act of 1978, established the federal Investment Tax Credit(ITC) to aid the financing and build-out of renewable energy projects.

The federal Production Tax Credit was enacted in 1992, and is a per/kw hourcredit for electricity provided by renewable energy (solar is currentlyexcluded).

The Modified Accelerated Cost Recovery System (MACRS) enables commercialand industrial owners to accelerate the depreciation of the renewable energyequipments.

The Emergency Economic Stabilization Act (2008) extended the solar ITC by8 years to 2016.

The American Recovery and Reinvestment Act (2009) and the extension lawthat was passed in December 2010 allow for a cash grant in lieu of the ITCfor new renewable energy projects which start construction by the end of

2011.

States:

Some states and local municipalities provide additional incentives toinvestors in the form of production-based incentives (PBI), feed-in-tariffs(FIT) and/or solar renewable energy credits (SREC).

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Solar equipments produce electricity, which are then sold to utilitycompanies or end-users, typically through a solar power purchaseagreement or a sale leaseback arrangement

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The solar services provider will typically establish a special purpose entity/ DelawareLLC as the Project Company.

The Project Company is the legal entity which will enter into the various contracts.

Capital investments are sourced and used in the following manner:

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There are three sources of revenue to the project company.(1) Revenue from sales of electricity according to the power

purchase agreement.(2) Other production-based incentives (PBI) offered by state and

local municipalities.

(3) Sales of solar renewable energy credits (SREC).

There are two sources of tax benefits to the project company.

(1) Investment Tax Credits (“ITC”) that can be deducted fromtaxable income. The ITC is calculated as 30% of the cost of

eligible solar property.(2) Accelerated depreciation (over 5-years). Depreciation is

calculated on 85% of the cost of eligible solar property.

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New Markets Tax Credit (NMTC) EB-5 Immigration Visa Investments

Municipal bonds (tax-exempt and non-taxexempt bonds)

DOE Loans and Loan Guarantee Programs

Department of Agriculture Loan GuaranteePrograms under 9003

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Among the various risks to a potential solar projects and itsparticipants are:

– Legislative/regulatory/tax risks

– Credit risk of the power purchaser

– Performance risk of the solar serviceprovider and other service providers to the

project company.

– Climate risk

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Tract Records Capitalization of the Sponsor

PPA (long term contract with investment grade off taker)

• Long Term Contract

• Investment Grade Off Taker• Limited Assignment

• Termination Clause in case non-performance

• Hell or high water clauses

• Separate SREC contracts (in New Jersey Market)

Permitting, Siting, Entitlements

Equipments (quality)

Project Proforma

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Kaylynn L. Kim, Esq.

Kaylynn L. Kim, Esq.

Managing Partner

Tierra Global Advisors, LLC

Stern Brothers & Co.

Investment Banking Since 1917 515 S Flower St.

36th Floor

Los Angeles, CA 90071

Ph: 323.620.4592

E-Mail: [email protected]

[email protected]

Kaylynn Kim is Managing Partner of Tierra Global Advisors, LLC, a full‐service financialadvisory firm specializing in renewable energy project financing and venture capitalinvestments for innovative technologies. Ms. Kim also serves Stern Brothers & Co. asManaging Director in the Project Facilities and Municipal Finance Group in the firm’s LosAngeles office. Ms. Kim provides investment banking and financial advisory services tomunicipalities throughout California. Ms. Kim’s current representative matters include but notlimited to utility scale solar energy projects, distributed solar energy generation facilities,advanced vehicle technologies, state‐of‐the art security system integration programs for majorUS airports and ports, and tribal energy programs with New Markets Tax Credit. In May 2011,Ms. Kim co‐founded Wemagin Technology, Inc., an emerging company in the USB flash drivermarket with the first Operating System (OS) to the USB flash drives consisting of powerful newcapabilities and innovative features (i.e., privacy projection, email, independent search engine,social network, etc).

Prior to joining the Firm and Tierra Global Advisors, Ms. Kim was Senior Counsel at a law firm,

Allen Matkins Leck Gamble Mallory & Natsis, where she specialized in renewable energy, landuse, and real estate and finance laws. Ms. Kim’s accomplishments are not limited to lawpractice and business, she was appointed to the Los Angeles Board of Harbor Commissionersby Mayor Antonio Villaraigosa and confirmed by Los Angeles City Council on September 9,2005. Ms. Kim resigned from the Board of Harbor Commissioners on June 30, 2011.

Ms. Kim and her fellow Los Angeles Harbor Commissioners partnered with the Long BeachBoard of Harbor Commissioners and took unprecedented action by approving the landmarkSan Pedro Bay Ports Clean Air Action Plan in November 2006. The Clean Air Action Planprovides a comprehensive strategy for reducing air emissions from port operations by nearly50 percent over a period of five years. Their efforts yielded the first joint meeting of theleaders of the two ports since the 1920s and the first‐ever public meeting of the two Boardson November 20, 2006, the day the Plan was approved. During her six‐year tenure as a Port of Los Angeles Commissioner, she served many prestigious committees including IntermodalTerminal Facility Committee, Electrification of the Port Committee, Business Development &Leasing Committee, and International Trade Committee. In the later years of her public life,Ms. Kim served a prestigious 15‐member advisory board, The California Climate ChangeAdaptation Advisory Panel, appointed by Governor Arnold Schwarzenegger in 2009. The panelcompleted its tasks by completing State’s policy guidelines which was published in January2011.



Tierra/Stern Brothers’ National Business Scope

Locations

AtlantaChicagoClevelandDallasDenver DetroitKansas CityLos AngelesRenoSan FranciscoSt. LouisSeattleTampa



◦ Tierra Global Advisor • Full Service Energy Financing Advisory and Investment Banking Services firm focusing on

the structuring and placement of tax equity, private equity and debt for RenewableEnergy projects.

◦ Stern Brothers’ Services The Firm specializes in the use of tax-exempt and taxable bonds to optimize the debt

structure and equity returns of developers seeking non-recourse project financings.

Stern Brothers & Co. has pioneered the use of tax-exempt bonds as an alternative tobank debt in the biofuels and landfill gas areas. The Firm is expanding its practice toinclude projects in biomass, wind, solar, waste to energy and clean coal. A currentinitiative is the making of a market in taxable bonds as a source of leverage for developers in all of these markets.

Investment banking since 1917

Trading bonds at our firm’s trading desks in St Louis.

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Blue Earth—energy efficiency audit, retrofit of retail/gas stations, HVAC/co-gen systems

Bio Star- Biofeul/

Envirowater —1.2GW in California

Solar Park Ranch—100 MW on an Indian tribal land in California

Grid Partners---Distributed Generation (rooftops/parking canopies)

GSC-Waste to Energy Project in California

UTS-Hydroplant, Biofuel/Co-gen facilities in San Jose, Ontario and NYC

Xnergy-DG/Ground Mount Solar/Geothermal projects

Past Representative Matters

Enerkem, Inc., INEOS, Terrabon, ZeaChem, Chemtex International, Inc., Fuel Cell Energy, CasellaWaste Systems, ClearDevelopment Biogas, GEVO Development, Stormfisher, Element Markets,Sterling Planet, Greenstar, Schmack Bioenergy, Syngest, Iowa Energy Corridor, Solar Power Products, Summit Power, CH4 Biogas, Integral Power, Global Ampersand, SCC Americas, UnitedPower, Novi Energy, Illinois Finance Authority, Finance Authority of Maine, Ohio Air QualityDevelopment Authority

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THANK YOU

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2. Solar Energy Finance_Stern Brothers