January 2015

A Confluence of Low Capital Costs and Cost of Capital for Utility-Scale Solar:

Implications for Developers, Lenders and Political and Regulatory Decision-Makers

John Gorman, President & CEO, Canadian Solar Industries Association

January 30, 2015

About CanSIA

Who we are:

National trade association representing the solar energy industry throughout Canada

Since 1992, worked to develop markets and create opportunities for our Members

2020 Objectives include:

Solar as mainstream energy source

Integral part of Canada's diversified electricity mix

Ensure solar industry will be sustainable with no direct subsidies

Operating in a supportive and stable policy and regulatory environment

January 2015

CanSIA’s Board of Directors

January 2015

Bob Waddell,

Centrosolar

Utilia Amaral,

SunEdison

John Rilett,

ENMAX

Thomas Timmons,

Gowlings

Nigel Etherington,

Planet & Company

Bonnie Hiltz,

GDF Suex Canada Jon Kieran,

EDF EN Canada Ivano Labricciosa,

Toronto Hydro

Robert Leah,

Recurrent Energy Greg Scallen,

SunEdison

John Gorman, CanSIA President & CEO

January 2015

Over 20 years of professional involvement in the

sustainable infrastructure sector.

Canadian Designate on the International Energy Agency's

Executive Committee (PVPS).

Served as a director on the boards of numerous

community and corporate organizations including one of

the nations largest electric utilities.

Family and Ottawa-based home are proud participants in

Ontario’s microFIT solar program.

Email: jgorman@cansia.ca

Twitter: @JohnAGorman

LinkedIn: ca.linkedin.com/in/johnarthurgorman

The “Why?” for me in Solar…

Macro:

The world would be a better place with more solar energy

The work of the solar companies makes the world a better place

Micro:

Trade associations exist to represent the collective interests of its members

The primary interest of CanSIA members is to be engaged in the deployment of as

much solar energy as possible

CanSIA… creating customer demand for solar at every level in a sustainable fashion

January 2015

Presentation Outline

Global Trends in Solar and Power Generation

Recent Trends in Utility-Scale Solar in Canada

Procurements

Capital Costs

Cost of Capital

Implications for:

Developers and Lenders

Political and Regulatory Decision-Makers.

Market Outlook for Utility-Scale Solar in Canada

January 2015

Solar energy becoming dominant source of new electricity generation

January 2015

“The sun could be the world’s

largest source of electricity by 2050,

ahead of fossil fuels, wind, hydro and nuclear”

International Energy Agency (IEA), October 2014

Globally solar commands the lion’s share of renewable energy investment

Solar over-took wind as the most invested-in renewable energy sector in 2011:

Investment in solar in Canada jumped 47% in 2014.

January 2015

0

50

100

150

200

250

300

350

2010 2011 2012 2013 2014

$bn USD

Global New Investment in Renewable Energy by Sector

Other Renewables Wind Solar

Source: Bloomberg New Energy Finance.

Capital costs for utility-scale solar to fall by 65% between 2009 and 2016

January 2015

“The most competitive utility-scale solar

projects are delivering electricity for $0.08/kWh

USD without financial support, and lower

prices are possible with low financing costs.”

International Renewable Energy Agency (IRENA), January 2015

Rates of deployment continue to surpass analyst’s predictions

Decreasing Capital Costs and Cost of Capital combined with low technology

deployment risk are starting to replace renewable energy policy as key drivers:

0

50

100

150

200

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

GWDC

Cumulative Global Installed Solar Capacity

Source: Ren21 Secretariat.

Every 3 weeks, US brings online as much solar power as they did in all of 2008

January 2015

Utility-Scale Solar in Canada & US represented 8% of all Global Solar in 2013

In 2013, over 3GW of utility-scale solar was installed in Canada and in the US:

43% of all new capacity additions in Ontario (337 MWDC) & 30% in the US (2,847 MWDC)

Ontario ranked second North American behind California for new utility-scale solar.

January 2015

Source: Compass Renewable Energy Consulting Inc.

2,400 MWDC of Utility-Scale Solar contracted and committed in Ontario

2007: Contracts awarded in North

America’s first feed-in tariff in

Ontario (RESOP, 42¢/kWh).

2010: RESOP evolved into a new

program with pricing differentiated

on project size (FIT, 44.3 ¢/kWh for

ground-mounted ≤10 MWAC).

2015 & 2016: Ontario’s “Large

Renewable Procurement” (LRP)

program will contract a total of 280

MWAC of utility-scale solar by RFP.

January 2015

LRP is the first procurement of utility-scale solar in Canada since 2011 and it is the first ever

competitive procurement for utility-scale solar in Canada.

LRP price discovery will reveal a game-changer for the electricity sector in Canada.

0

500

1,000

1,500

2,000

2,500

3,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

MWDC

Utility-Scale Solar Under Development and Completed in Ontario

LRP-UD KC-COD KC-UD

FIT 1 COD FIT 1-UD RESOP COD

RESOP-UD

Capital Costs for Utility-Scale Solar have dropped 65% from RESOP to LRP

Modules responsible for more

than half of the total decline.

Looking forward:

Market impacts of potential

trade tariffs on modules are

not yet known.

CAD/USD exchange will also

have a material impact for

projects in Canada.

January 2015

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Q4 2

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2013 $ USD

per W DC

Utility-Scale Solar Equipment Costs

BOS Inverter Module

Capital costs are expected to have decreased from >$4/W to $1.4/W USD between

2009 and 2016.

Source: NREL & CanSIA Analysis

Estimated

Cost of Capital will be a critical factor in supporting a successful LRP bid

January 2015

Revenue certainty from PPAs

from bankable off-taker

Low interest rate environment

Validation of low risk profile

by several recent Canadian

bond financings

Introduction of Yield Co’s

CanSIA has been working to

ensure that the LRP contract

can be efficiently financed.

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Inte

rest

Rate

(%

)

Historical Borrowing Costs for Renewable Assets

Bank of Canada 10 Year Bond Approximate Institutional Debt

With lower Capital Costs than ever before, Cost of Capital is being driven by:

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0.10

0.15

0.20

0.25

0.30

0.35

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0.45

0.50

RESOP(2007)

FIT(2011)

LRP I, Low (2015) LRP I, Medium (2015) LRP I, High (2015)

$/kWh

Utility-Scale Procurement Pricing in Ontario

Globally solar has been contracted as low as $0.08/kWh USD, what price will

LRP I discover?

January 2015

Could LRP I projects be contracted for as low as $0.14/kWh to $0.18/kWh CAD?

Forward-pricing (construction in 2017), 30 participants and diversity of project sizes,

types and locations and other market forces

Modeled

Source: CanSIA Analysis

Political & Regulatory Decision-Makers are now faced with a new paradigm

In Ontario, the province’s Long Term Energy Plan:

Was developed at a time when the cost of solar was much higher

Supply-mix planning should now consider solar’s future cost trajectory

How will future supply-mix development account for this?

Decision-makers throughout Canada only now realizing Ontario’s solar success:

Confluence of low capital costs and cost of capital makes utility-scale solar close to

competitive with day-time electricity prices in most Canadian markets today

Forthcoming new emissions legislation and carbon pricing could be next major driver

Will other provinces follow where Ontario has led?

January 2015

What factors would most affect Alberta’s ability to achieve $0.16 / kWh CAD?

January 2015

Alberta’s solar energy resource

is equivalent to the province’s

remaining conventional

established oil reserves,

estimated at 1.5 billion barrels:

Edmonton is on the same

latitude as Manchester (UK) but

its annual solar energy resource

is over 20% greater.

Okotoks is over 25° of latitude

North of Miami (US) but has a

greater solar energy resource

between July and October.

What factors would most affect Alberta’s ability to achieve $0.16 / kWh CAD?

Capital Costs in Alberta could be expected to be similar to Ontario:

The aggregate impact of factors such as labour and land acquisition may differ more

significantly site-to-site than province-to-province.

Cost of Capital would become the greatest differentiator:

January 2015

Alberta Ontario

Solar Resource 15 - 20% more than ON 15 to 20% less then AB

Revenue Model Market Price Long Term PPA

Capital Costs Similar to ON Similar to AB

Investor Profile Merchant generator Institutional Investors

Access to Debt Financing Low to none up to 80% of costs

Cost of Debt Financing High Low

Term of Debt Financing Short Long

Equity Return Expectations High Low

Weighted Average Cost of Capital High Low

Conclusion

Despite a better resource and similar capital cost profile, solar energy

costs more to build and own in AB then in ON due to higher cost of

capital associated with the risks inherent in a merchant electricity

market.

Questions?

January 2015

I hope to see you at one of CanSIA’s many upcoming events in 2015

January 2015