MicroFIT webinar – Update on consultation process - DRAFT

July 29, 2010

Outline

• OPA approach to FIT pricing

• Stakeholder feedback to date– What we have heard

• OPA financial assumptions

• OPA typical project assumptions

• MicroFIT application responses to date

• Next steps

2

OPA Approach to FIT Pricing

• Need to find right balance between promotion of renewable energy and impact on rate-payers

• Use standard assumptions for a typical project – Recognize that price will not work for everyone

• Use current market information and market foresight to set prices to remain stable for 1-2 years– Price of inverters, modules, installation as volumes ramp

• For solar PV in particular, stimulate a new industry and anticipate price/cost reductions– Long-term goal is price parity with conventional sources

• Introduce a price that will create opportunity, while recognizing that not all projects will/should be viable

3

4

Stakeholder Feedback

• Regarding the Proposed New Price:

– ‘We recognize the need for a new price but it is too low’

– 'Fixed ground mount systems are more expensive than roof-top‘

– ‘Ground mounts with trackers don't generate as much as you say (higher operating & maintenance costs, insurance, shade, etc.)’

– 'Your price assumptions are not in line with my experience, show us more numbers‘

Stakeholder Feedback (cont’d)

• Regarding the Process:– ‘Need greater transparency for how changes are made

and a greater level of certainty for businesses/people looking to invest’

– ‘The retroactive application of a proposed new price is detrimental to my project/business’

– ‘The program needs a longer term vision for solar targets’

– ‘Consider charging security for microFIT applications‘

5

Stakeholder Feedback (cont’d)

• Regarding Domestic Content:

– ‘Will there be relief for people who will not be able to complete a project by Dec 31 2010 because of the time it required for inspections and connection?’

– ‘Prices will go up for materials on Jan 1 due to higher domestic content regulations and the new proposed price will be too low'

6

OPA Financial Assumptions

Percentage of project cost as equity investment 30%

Percentage of project cost as debt, borrowed from bank 70%

After tax return on equity from investment 11%

Cost of debt, repaid to bank 7%

Income tax rate on profit from equity investment 30.5%

Inflation rate 2.25%

7

OPA Typical Project Cost Assumptions

Capital Cost $90,000

Debt, borrowed from bank $90,000 x 70 percent = $63,000

Equity invested from savings $90,000 x 30 percent = $27,000

8

Typical project assumptions based on a 10 kilowatt solar ground-mounted, dual-axis, tracker-based project

OPA Typical Project Cost Assumptions

9

Payments on borrowed amount are repaid to the bank at 7 percent interest. Assuming annuity payments (i.e., constant) over a 20-year period

Cost of debt $63,000 @ 7 % = $370 per month or $4,440 per year

Return on the equity investment is paid monthly at 11 percent to the contract holder, the supplier. Assuming annuity payments (i.e., constant) over a 20-year period

Payments to the equity investor

$27,000 @ 11 % = $245 per month or $2,940 per year

Annual return on equity $2,940 / $27,000 = 11 % return on equity

OPA Typical Cost Assumptions

• Please note that the return on equity calculation is much more complicated than described above, because it includes factors such as inflation, compounding interest, taxes and O&M costs. However, the example above is for illustrative purposes to explain the basic approach taken by the OPA. Again, these financial assumptions are used for all FIT and microFIT program technologies.

10

Tracking (10 kW)

Cost to install $90,000

Annual O&M costs $100

Capacity factor 19 percent

Annual production 16,600 kWh

Annual revenue $9,800

Simple payback nine years

MicroFIT Applications Responses to Date

Applications resubmitted information 1,597

New applications submitted 299

TOTAL ground-mount microFIT applications 1,896

Re-submitted ground-mount applications ready for conditional offer

30%

11

The following is the status of micro-FIT ground-mounted applications to date

Next Steps

• Consultation period closes August 3rd, 2010

• OPA will review comments, feedback and assumptions

• OPA to determine any adjustments and make final announcement in early August

• As a reminder, if an applicant decides to continue with their project, please resubmit at the earliest possible date

12