Impact of Financial Structure on the Cost of Solar Energy

Abstract

NOTICEThis report was prepared as an account of work sponsored by an agency of the United States government. Neither the United States government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recommendation, or favoring by the United States government or any agency thereof. The views and opinions of authors expressed herein do not necessarily state or reflect those of the United States government or any agency thereof. • Mike Niver, SolarCity Executive SummaryTo stimulate investment in renewable energy generation projects, the federal government developed a series of support structures that reduce taxes for eligible investors-the investment tax credit, the production tax credit, and accelerated depreciation. The nature of these tax incentives often requires an outside investor and a complex financial arrangement to allocate risk and reward among the parties. These financial arrangements are generally categorized as "advanced financial structures." Among renewable energy technologies, advanced financial structures were first widely deployed by the wind industry and are now being explored by the solar industry to support significant scale up in project development.1 This report describes four of the most prevalent financial structures used by the renewable sector and evaluates the impact of financial structure on energy costs for utility-scale solar projects that use photovoltaic and concentrating solar power technologies.A critical aspect of the analysis is the input assumptions, including the cost to install each technology, the costs and terms of financial capital relevant to the technology and financial structure assessed, and the operating costs of each technology. To determine reasonable inputs, the authors conducted a series of interviews with industry experts, reviewed several sources in the current literature, and relied on the default values from the System Advisor Model that was employed in this analysis, which were, in turn, guided by the industry expertise of its developers.The analysis determined that financial structures that include project-level debt generally yield a lower levelized cost of energy (LCOE) compared to those that rely purely on equity capital, although in practice raising debt at the project level can be difficult, particularly for developers without sizable balance sheets and a strong history of development experience. Other insights from the analysis include:• Debt associated with the loan guarantee program can reduce LCOE by approximately 20%, and possibly more, depending on the quantity of debt the project is allowed to take on.•...

Overcoming barriers to renewable energy diffusion: business models for customer-sited solar photovoltaics in Japan, Germany and the United States

“…In particular, tax break schemes such as the federal investment tax credit (ITC) scheme and a programme for accelerated depreciation of solar equipment (Hobbs et al, 2013) were one of the main reasons that the US solar market started to grow rapidly (Witkin, 2010). Although tax breaks are not directly useful for most of the solar service firms, as they do not have enough income tax to offset, the programme is valuable to large and profitable corporations, and such corporations have provided much of the financing for solar service installations (so called "tax equity") in exchange for access to the tax breaks (Mendelsohn et al, 2012). Moreover, in states with a renewable portfolio standard (DSIRE, 2013a, 2013b), solar service firms can generate additional revenues from the sale of Renewable Energy Certificates (RECs).…”

A Through-Life Cost Analysis Model to Support Investment Decision-Making in Concentrated Solar Power Projects

“…However, the project cash flows, tax incentives, and depreciation benefits remain with the owner. This structure is generally used for renewable energy projects as it represents one of the simplest methods of owning and operating a project [21]. Other In what follows, the five modules of our tool are described and their corresponding cost functions are presented.…”

“…However, the project cash flows, tax incentives, and depreciation benefits remain with the owner. This structure is generally used for renewable energy projects as it represents one of the simplest methods of owning and operating a project [21]. Other assumptions that are taken into account when building the model are listed below: More so, the current market conditions within which the CSP plant is intended to operate are identified and the scope and boundaries of the project are defined.…”

Federal and State Structures to Support Financing Utility-Scale Solar Projects and the Business Models Designed to Utilize Them

“…The DOE and NREL are currently evaluating how projects might be financed without the ITC and gaining valuable examples in the securities and real estate industries. 22 The accompanying report, The Impact of Financial Structure on the Cost of Solar Energy (Mendelsohn et al 2012a), provides a description of and quantitative assessment on four specific structures: single owner, sale-leaseback, and two forms of partnership flip [all-equity and levered (i.e., with debt)].…”

“…If all these projects come to fruition, the amount of solar in the United States will increase approximately six-fold. The third study (Mendelsohn et al 2012a) is a quantitative analysis on the cost impact of specific financial structures and terms as they relate to utility-scale solar facilities. (Mendelsohn et al 2012a), provides a quantitative analysis of financial structure and term and insight from renewable energy financial professionals.…”