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					                                          Markets and Financing

                                   PV Power Plants 2009 - USA
                                       December 10, 2009


Global Renewable Energy Team                               Maria Cull - London                         Fred Greguras
                                                           Steve Rhyne – North Carolina               Palo Alto Office
Yujing Shu – Beijing          James Chen – Taipei          James O’Hare - Boston          fred.greguras@klgates.com
Ivan Chiang – Shanghai        Choo Lye Tan – Hong Kong     David Brown – Austin                         650.798.6708
Kevin Murphy – Singapore      Pallavi Mehta Wahi – India   Mark Fleisher - Miami
Paul de Cordova – Dubai       Owen Waft – London           Timothy Weston - Harrisburg
Christian Hullmann – Berlin   Eric Freedman – Seattle      Kevin Burnett - Portland
Dirk Michels - Palo Alto      Fred Greguras - Palo Alto    Elizabeth Thomas - Seattle


 PL31963-v2
                                       Overview
   Financing Policies in the U.S.

   Financing Structures in the U.S.

   RPS Policies in the U.S.

   China Market and Policies

   India Market and Policies

   Other Markets




                                                  1
                               U. S. Market
            Financing Polices and Sources of Project Revenue
   No single federal or state policy is sufficient; a financing tool kit of policies is needed
    that are available at the same time
   U.S. has a comprehensive set of financing policies but is not a homogeneous market
   Feed-in-tariffs (state)
   Clean Renewable Energy Bonds (CREBs)
   Federal 30% cash grant in lieu of investment tax credit or ITC
   Bonus depreciation for 2009 (not cash)
   Loan guarantee program
   Renewable Energy Certificates
   Power purchase agreement payments (project revenue)
   PBI rebate (California) – commercial sales only not sales to utilities
   Renewable Portfolio Standards (state)


                                                                                                  2
                   Clean Renewable Energy Bonds
   $2.2B in bond issuances approved in October, 2009 by U.S. Treasury for qualified
    issuers such as local utilities, electric coops, etc.

   Could help move many public sector solar projects into construction.

   Federal tax credit to the investor in lieu of payment of a portion of interest on the
    bonds.

   42% solar – about $900M in allocations. Many small installations under 1MW; largest
    solar project about 6MW

   Buy American provisions not applicable

   Press release and list of projects authorized for issuances at
    http://www.ustreas.gov/press/releases/tg333.htm and at the links in the press
    release.




                                                                                            3
          Federal Cash Grant in Lieu of Investment Tax Credit
                                   (I)

   30% cash as opposed to investment tax credit available in 2009-2010; thereafter
    reverts to ITC only unless cash grant is extended by Congress.

   The simpler ITC may be acceptable to investors with tax liability

   Investor owned utilities are eligible

   Payments by Treasury (over $1B) is starting to provide some predictability for
    financeability for project finance but not yet much pay out for solar projects

   Payment is to be made by Treasury within 60 days after the later of when a complete
    application is received or the project is placed in service. Current processing time is
    more than 60 days.




                                                                                              4
       Federal Cash Grant in Lieu of Investment Tax Credit (II)

   Applications may be submitted as soon as a facility is under construction. This should
    be done in order to receive the fastest payment.

      “Under construction” generally means that at least 5% of the total cost of the
       facility has been incurred.

   Must be “under construction” by December 2010




                                                                                             5
                     Federal Bonus Depreciation
   Bonus depreciation of 50% applies only through 12/31/2009 unless extended by
    Congress. This should be extended at least through 2010 so it has time to be a
    financing tool

   Deduction reduces taxable income; not a cash rebate

   Solar energy project property is in the Modified Accelerated Cost-Recovery System
    (MACRS) 5 year class

   85% of the basis may be depreciated

   5 MW, $25M facility will have more than $12M in depreciation in year one. Cash
    savings of about $5M in California where combined federal and state corporate tax
    rate is 40.7%.




                                                                                        6
             DOE Financial Institutions Partnership Program
                      Loan Guarantee Program

   Banks are the applicants. Lending committee of banks will evaluate whether the
    underlying loan should be approved assuming there is no guarantee

   Not all banks will participate

   Guarantees not likely implemented until 3rd quarter 2010

   Value is to reduce the cost of credit and make the financing math work better but
    cost of complicated application process may offset

   Guarantees are generally limited to 80% of project costs.

   Borrower and other principals must make a significant cash investment in the project.

   DOE may determine an appropriate collateral package among creditors.




                                                                                            7
                         Financing Structures (I)
   Utility financed and owned
      Rate payer base limitations
      PPA with buyout option
      Purchase and sale agreement (Turn-key ownership)
      Joint development
   Module manufacturer financed
      Financial statement limitations
      PPA with or without buyout option
      Purchase and sale agreement (Turn-key ownership)
      Joint development




                                                          8
                          Financing Structures (II)
   Project developer project finance
      Working capital limitations
      PPA with and without buyout option
      Purchase and sale agreement (Turn-key ownership)
      Joint development
   NRG Energy/First Solar take out model
      21MW solar project in Blythe, California
      “Largest utility scale PV solar generation facility” in California
      NRG’s first solar facility but others in the pipeline
      Large energy output, late stage of development; lower risk
      First Solar will operate and maintain the facility



                                                                            9
                                                                                                                        0%
                                                                                                                             5%
                                                                                                                                  10%
                                                                                                                                               15%
                                                                                                                                                             20%
                                                                                                                                                                          25%
                                                                                                                                                                                        30%
                                                                                                                                                                                              35%
                                                                                                                                                                                                     40%
                                                                                                                                                                                                                  45%
                                                                                                                                                      20
                                                                                                                  AZ                                    25
                                                                                                                                                                                              20
                                                                                                                  CA                                                                            20
                                                                                                                                                                   20
                                                                                                                  CO                                                 20
                                                                                                                                                                          20
                                                                                                                  CT                                                        20
                                                                                                                                                                   20
                                                                                                                  DC                                                 20
                                                                                                                                                                   20
                                                                                                                  DE                                                 19
                                                                                                                                                                                                           20
                                                                                                                  HI                                                                                         30
                                                                                                                                                                                 20
                                                                                                                   IL                                                              25
                                                                                                                                                      20
                                                                                                                  MA                                    20
                                                                                                                                                                   20
                                                                                                                  MD                                                 22
                                                                                                                                        20
                                                                                                                  ME                      17
                                                                                                                                        20
                                                                                                                  MI                      15
                                                                                                                                                                                 20
                                                                                                                  MN                                                               25
                                                                                                                                                      20
                                                                                                                  MO                                    21
                                                                                                                                                      20
                                                                                                                  MT                                    15
                                                                                                                                               20
                                                                                                                  NC                             21
                                                                                                                                        20
                                                                                                                  ND                      15




                                North Dakota, South Dakota, Utah, Vermont, Virginia and West Virginia are goals
                                                                                                                                                                            20
                                                                                                                  NH                                                          25
                                                                                                                                                                          20
                                                                                                                  NJ                                                        21
                                                                                                                                                                   20
                                                                                                                  NM                                                 20
                                                                                                                                                                              20
                                                                                                                  NV                                                            25
                                                                                                                                                                            20
                                                                                                                  NY                                                          13
                                                                                                                                                                              20
                                                                                                                  OH                                                            25
                                                                                                                                                                                                                        RPS Policy in the United States




                                                                                                                                                                              20
                                                                                                                  OR                                                            25
                                                                                                                                                             20
                                                                                                                  PA                                           20
                                                                                                                                                       20
                                                                                                                  RI                                     20
                                                                                                                                        20
                                                                                                                  SD                      15
                                                                                                                                                                   20
                                                                                                                  UT                                                 25
                                                                                                                                                      20
                                                                                                                  VA                                    25
                                                                                                                                                                   20
                                                                                                                  VT                                                 17
                                                                                                                                                      20
                                                                                                                  WA                                    20
                                                                                                                                        20
                                                                                                                  WI                      15
                                                                                                                                                                                 20
                                                                                                                  WV                                                               25
     Source: www.dsireusa.org

10
                   RPS Impact on Solar Project Financing

   RPS growing at the state level; national level RPS still in discussion stage

   RPS by itself will not enable financing because consequences for failure to meet
    RPS are not meaningful

   Key factors in achieving RPS targets that states can influence

      Meaningful feed-in-tariff for large projects

      More financing friendly standard PPAs – What will banks finance?

      Transmission line improvements

      Faster and lower cost interconnect process

      Expedited permitting approvals




                                                                                       11
                 PG&E’s New “Hybrid” PV Program
   5-Year program starting in January 2010

   500 MW of 1 to 20MW photovoltaic distributed generation installations in northern
    and central California

      Up to 250MW utility-owned generation, with an anticipated capital cost of $1.45B

      Up to 250MW of PPAs with renewable resource developers

   Projects developed and owned by PG&E would be built on land already owned by
    the utility or near its substations to minimize the cost and delays of interconnecting
    them to the power grid

   The terms and pricing of the PPAs will be pre-approved by the CPUC

      Developer will execute the form contract with streamlined regulatory review,
       avoiding the need for negotiations, and immediately commence development

                                                                         Source: PG&E

                                                                                             12
    Challenges to Meeting Current and Future California RPS Goals
Project-level Issues                        Portfolio-level Issues
    Financial crisis                          Large-scale transmission lines need to
                                                reach remote areas
       Project financing difficulties
                                               System integration of intermittent
       Lack of appetite for tax credits        resources
    Technology risk                           Competition for renewable projects
                                                from other utilities/states/countries
    Developer performance
    Transmission upgrades
       Need upgrades that can be
        identified, approved and
        developed by PPA operations
        date
    Project permitting
       Need expedited permitting
        approvals for contracted projects
                                                                     Source: PG&E

                                                                                         13
                            Feed-in-Tariff Basics
   Payment per kWh

   Impact on ratepayer price

   Project limit

   Aggregate limit under the program

   Length of guaranteed payment

   Application process – simplicity, timing

   kWh price itself under FIT can make a project financeable by PPA revenue but FIT
    is not sufficient in the U.S.




                                                                                       14
                 Feed-in Tariffs in the United States
   Limited impact on utility scale projects to date
   Examples
      California               $0.15 – .17 per kWh (project limit 3MW)
      Florida                  $0.26-.32 Gainesville RU; aggregate annual limit of
                                4MW
      Wisconsin                Several utilities with aggregate limit of up to 1MW
      Vermont                  Green Mountain IOU project limit of 250kWh
      Washington               Project payout limited to $2K per year
      Oregon                   $0.12 Eugene WEB; no project limit




                                                                                      15
                 China, India, Other Markets
China          * RPS: Likely target of 20GW by 2020
               * FIT: US $0.16 – 0.22KWh (projected). Utility scale projects permitted
               * Participation by joint venture – Duke Energy (technology
                 development), First Solar (2GW MOU with Ordos City)
               * Government subsidized financing up to 50% in some cases
India          * RPS: 20GW by 2020
               * Titan Energy “first utility scale solar power plant” of 1MW
               * No government subsidized financing yet; FIT under discussion
Japan          * RPS: 14GW PV by 2020
               * FIT: only for surplus from homes or businesses
Canada         * RPS: Phase out coal generated electricity by 2014
(Ontario PA)   * FIT: $CG.443 to 0.539 (project size up to 10MW)
               * Domestic content requirement
Brazil         * Yingli Solar – MPX joint venture model



                                                                                         16
                                       Summary
   No single U.S government policy is sufficient; a financing tool kit of policies is needed
    that can be applied at the same time
   The federal 30% cash grant is the single most important policy incentive in the U.S.
    but is not sufficient by itself
   Utility scale project FITs in the U.S. will develop cautiously because of the concern
    over the pricing impact on ratepayers
   There will be more utility financed and owned projects as well as projects financed by
    module manufacturers but ratepayer and financial statement impacts will require
    other financing structures
   Solar projects need to be larger in order for RPS requirements to be met and to
    attract a buyer like NRG Energy
   Independent project developers need some equity investment in order to make the
    project math work
   Consequences of failing to meet RPS need to be more severe in order to have a
    meaningful impact on financing


                                                                                                17
                                      Sources
   Database of State Incentives for Renewables and Efficiency (www.dsireusa.org)

   DB Climate Change Advisors, Global Climate Change Policy Tracker: An Investors
    Assessment (October 2009)

   Ontario Power Authority web site (fit.powerauthority.on.ca)

   Volume 2, Renewable Power, A Blueprint for Green Energy in the Americas, 2009
    (prepared by Garten Rothkopf) gartenrothkopf.com/publications,asp

   Couture and Cary, State Renewable Energy Policies, Analysis Project: An Analysis
    of Renewable Energy Tariffs in the U.S. (June 2009) (sti.gov/bridge)

   Doris, McLaren, Healey and Hockett, State of the States 2009: Renewable Energy
    Development and the Role of Policy, NREL Technical Report, October 2009
    (nrel.gov/features/20091120_states.html)




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