Author James King · Structured Finance New York

The US Renewables Market A Bankers Perspective 11. May 2011

Contents • Partners of BayernLB supported by Project Finance New York • Market Overview • Market Trends • Federal / State Support Overview in the US • Wind Energy Generation: US Portfolio - Actual Performance • Project Finance Bank Risks • Opportunities • Financing Example

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German Partners of BayernLB supported by Project Finance New York

• Significant German involvement with foreign renewable

companies

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Market Overview

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Market Overview - Generation Mix USA 2010

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Market Overview - Generation Mix Germany 2010

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US Market Overview - Wind • FYE 2010: 40,200 MW cumulative installed capacity in the US • 5,116 MW installed in 2010 vs. 10,000 MW in 2009 • 5,600 MW under construction • Average turbine output of 1.77 MW in 2010 vs. 1.75 MW in

2009 • 400 wind related manufacturing facilities • 50% domestic content in 2010 vs. 20-25% in 2005

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US Market Overview – Solar Photovoltaic • FYE 2010: 17,000 MW of Photovoltaic (PV) capacity installed

globally • 2010 connected PV = 878 MW, up from 435 MW in 2009 • 2010 utility scale PV = 242 MW, up from 70MW in 2009 • US only 5% of global PV demand • US among the most valuable growth markets: A doubling of

2010 installed MW by FYE 2011 expected

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US Market Overview – Solar Thermal • FYE 2010: 508 MW of Solar Thermal capacity cumulative installed in

the US (1,300 MW globally) • Solar Energy Generating Systems (SEGS) largest solar energy generating facility in the world • Consists of 9 solar power plants • Installed capacity of 354 MW • Nevada Solar One • Installed capacity of 70 MW • Project costs $309 mm • Solar Millenium new project: Blythe 1 and 2 • Installed capacity of 484 MW • Project costs $2,825 mm ($2,105 mm Guaranteed Loan Amount)

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US Wind Market relative to others • FYE 2010 global wind capacity ~ 194,500 MW • 35,800 MW added globally in 2010 (5,116 MW in the US) • Almost 50 % of new capacity additions were in China (US: 14 %)

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Market Trends

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Market Trends Installed costs Wind: • 2011 ~ ??? • 2010 ~ $2,025 / kW • 2009 ~ $2,120 / kW • 2008 ~ $1,950 / kW • 2001-2004 ~ $1,300 / kW • Installed costs Solar PV: • 2011 ~ ??? (10 % decline in 1Q 2011 → future price declines ?) • 2010 ~ $4,050 / kWdc • 2009 ~ $4,800 / kWdc • Wind PPA prices • 1Q 2011 ~ ??? • Avg. 2010 ~ ??? • 2009 ~ $61 / MW • 2008 ~ $51 / MW • 2002-2003 ~ $32 / MW •

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Market Trends •

•

• • •

• •

Project Finance Debt • 2010 ~ $8.4 bn (excl. corporate debt) • 2009 ~ $6 bn Tax Equity • 2010 ~ $2.7 bn • 2009 ~ $1 bn • 2008 ~ $2.5 bn Return of Project Finance debt underwritings PV production from China has caused considerable pressure on manufacturers from Europe, US and Japan – this is expected to continue Dramatic rise of Chinese wind turbine suppliers (2004 6 turbine makers vs. 2009 70 turbine makers, over-capacity in Non-Chinese market and 90 % market share by Chinese turbine makers in their domestic market) Fierce competition to sell turbines – are turbine suppliers now equity investors? Power prices: Impact of low gas prices, sluggish economy

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Federal / State Support Overview

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Federal / State Support Overview • Renewable Portfolio Standard (“RPS”): • Obligation to supply specified fraction of electricity from renewable energy

sources typically on state and utility level • 38 states already participate, 16 with specifics tied to solar • Corporate Tax Credits: • Production Tax Credits (“PTC”): 10-year tax credit for wind projects placed in service before FYE 2012 • Investment Tax Credit (“ITC”): • Wind projects placed in service before FYE 2012 • Solar projects placed in service before FYE 2016 • Bonus Depreciation : • Economic benefits through tax depreciation bonus • 100% if in service before FYE 2011/2012, 50% if in service in FYE 2012/2013

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Federal / State Support Overview • Federal Cash Grant Program (Section 1603 of the ARRA) • Start Date: January 2009 • Funding Source: US Treasury (American Recovery and

Reinvestment Act) • Amount: 30% of “eligible costs” following Commercial Operation Date (“COD”) • Qualification extended: • Construction must start by FYE 2011 or 5 % of construction costs must be incurred, and • COD achieved by FYE 2012 for wind and 2016 for solar • Grants paid through FYE 2010: $ 5.8 billion

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Federal / State Support Overview • US Department of Energy Loan Guarantee Program • US Gov’t covers Borrower’s debt obligation in Event of Default • Section 1705: Commercial Technology • Construction start and financial close required by September

2011 • Market disappointment • Section 1703: Innovative Technology • No legislative sunset date, but Congress must authorize new guarantees prior to DOE inviting new applications • Applicants must pay credit subsidy cost – cost established by government shortly before closing • Currently no renewable energy deals under 1703 • Transfer from 1705 to 1703 possible following the 1705 sunset • NEPA issues

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Federal / State Support Overview Current 1705 Loan Guarantee amount: • Solar: $3.1 bn closed and $4.3 bn committed

(incl. Abengoa Solar, Agua Caliente, BrightSource Energy, Solar Trust of America (Solar Millenium) and SunPower Corporation) • Wind: $1.4 bn closed and $0.1 bn committed

(incl. Caithness Shepherds Flat, Kahuku Wind Power, Record Hill Wind)

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Federal / State Support Overview ? •

Renewable Electricity Standard

•

January 2011: President Obama’s State of the Union - CES proposal requiring 80% from “clean” energy by 2035

•

March 2011: “White Paper” circulated by Jeff Bingaman (D-NM) and Lisa Murkowski ( R-AK) 1.

Definition of “clean” ?

2.

Generation mix/buckets ?

3.

Cost containment ?

4.

Transmission cost/allocation ?

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Clean Energy Standard

Federal / State Support Overview • 2010 Clean Energy Figures: • 30% if “clean” includes nuclear and renewables • 40% if “clean” includes combined cycle natural gas (with

“half credits”) • Coal with CCS is likely • March 30, 2011: AWEA (American Wind Energy Association) response includes notable position: account for water usage • Future of Cash Grant Program uncertain with Republican

House and more Republicans in the Senate

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Wind Energy Generation: US Portfolio - Actual Performance

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Wind Energy Generation: US Portfolio – Actual Performance • Over $4.5 bn invested in the US Wind Business • The renewable portfolio includes 31 operating wind projects in 16 project finance transactions with a total capacity of more than 4,100 MW • The debt-sizing of the transactions is typically P99 1-year with a DSCR of 1.0x • From 2005-2010, the Wind Resource generated is equal to P75 1-year (high = P50 (2008), low = P95 (2009)) • Other factors impacting generation are • Curtailment (2005-2010 average annual loss of 3.4% vs.

base case with peak of 8% in 2009) • Availability (2005-2010 average annual loss of 1.1% vs.

base case with a peak of 5% in 2007) James King · Structured Finance New York · 11 May 2011 · Page 22

Project Finance Bank Risks

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Project Finance Bank Risks • Transmission • Curtailment • 275,000MW in queue vs. 29,000MW near term

transmission • Environmental and Avian • Wind/Solar resource • O&M expenses, equipment performance, ???

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Opportunities

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Opportunities • Underwriting • Maturity of US solar financing market vs. US wind financing

market • Increased Solar Activity (PV and Solar Thermal) • Good deal flow in wind & solar expected to continue • Transmission • Rush to 1603 • Project falling away from DoE Program • Canada and Mexico

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Financing Example

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Financing Example Criteria

Wind

Solar

15 - 18 years postterm COD vs. mini perm) •Term Wind & Solar (underwriting, long Debt Sizing - Construction and Term Loan - Grant Bridge Loan

- P50 DSCR 1.45 x P99 DSCR 1.0 x - 95 % of expected proceeds

- P50 DSCR 1.3 x P99 DSCR 1.0 x - 95 % of expected proceeds

Other

- Min. Equity - 12 - month Distribution Covenants

Off-Take

- 20 - 25 Year regulated investment-grade utility

Construction Contracts

Fixed-Price BoP Fixed-Price TSA

Fixed-Price BoS Fixed-Price PSA

Warranties

2 - 10 Year Turbine 1 Year BoP

Long-term degradation 5 Year panel defects 5 - 10 Years BoS

Economics

- 250 bps Upfront Fee - 250 bps Starting Margin

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Thank you.

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