Grid responsive solar PV. Movement toward utility-owned generation. Price difference in a rate-based project vs a non-rate-based utility solar project is the difference between a $30 PPA and a $35 PPA. "It's all about the cost of capital."
13% solar PV panels installed in the US in 2016 were US made. Forecast solar PV penetration currently 2% to become 5.5% by 2022. Market value $87BN/year 2017 to $250BN/year by installing 3,000GW or investing $2.8TN. DOE proposes (i) reduce panel costs to below $0.30/W, (ii) reduce BOP costs by $0.30/W, (iii) 50-year lifetime and (iv) 0.2%/year degradation. Goal 17% solar penetration by 2035.
Solar stocks down 40% since the beginning of 2016. Historical context for decline, oversupply of panels and softening demand.
Japan implements FIT for solar PV. Tightens FIT certification processes and timeframe for developing solar projects. Will impact economics of large scale solar PV projects. Likely lead to consolidation of solar projects.
20-year PPA $0.045/kWh for 100MW solar PV + 30MW 120MWh storage. Solar PV portion $0.03/kWh. 30% federal ITC for both the solar and storage facilities. Dispatchable renewables can challenge peakers on price. 4 hours storage, 1 cycle/day.
Recent solar PV + storage PPAs: (1) Hawaii $0.11/kWh in January 2017. Kauai Island Utility Cooperative. 28MW solar PV + 100MWh of batteries will displace current oil-fired baseload generation, (2) Hawaii $0.145/kWh in 2015. Compete with conventional peakers at $0.20/kWh.
Southern Company takeover of $20BN Vogtle nuclear project management. $8BN government subsidy. Not expected to be completed before 2020.
Oil & Gas
Kinder Morgan $5.9BN IPO to finance pipeline largest in Canadian history. The pipeline is capable of shipping 590,000 BPD from Alberta’s oil sands to Canada’s Pacific Coast, where it could be shipped to the western U.S.
Energy majors exiting traditional O&G businesses. Dong sells O&G to Ineos for $1.3BN, Maersk likely list its $7BN O&G business, Shell and OMV sells O&G to Chrysaor and Siccar Point, Engie sells $3.9BN E&P business to Neptune, Linde and Praxair merge.
Returns for North American infrastructure funds roughly 9%. Median time to exit for venture-backed companies is now 5 years for acquisitions 8.2 years for an IPO, the highest level in a decade. Global VC contributions 2012-15 were the highest of any 4-year period since 2002 with $175BN paid in. VCs still owe $12.8BN to their investors just to break even. 58 funds in 1Q17, $7.9BN + $121BN in dry powder. "Trend of staying private longer will only continue...LPs and GPs are already thinking seriously about addressing more permanent capital structures." US IOU industry in 2016 invested $112.5BN, index 17.4%, beat DJ index 16.5%, S&P 500 12.0%, Nasdaq 7.5%. First state ITC for energy storage. Lessor of $75k and 30% installed cost. $750k aggregate cap. MD RPS 25% by 2020. Federal ITC only applies to storage if its at least 75% charged by an ITC eligible power generation project (e.g. solar, biomass). Behind-the-meter energy storage market by 2021 expected to account for 50% of the annual US market. Today is small accounting for 15% of installed capacity. Driven by (i) system economics, (ii) net-energy metering reform, (iii) changes to utility rate structures, (iv) increasing viability of demand-charge management for non-residential customers, and (v) increased interest in reliability and resiliency. As load growth has decreased in recent years, profit margins from demand response programs have dwindled. Wholesale capacity markets represent a massive untapped opportunity for energy storage. Rules surrounding these markets are not designed to make use of advanced energy storage. Beijing wants China to produce more batteries. Nissan selling to Chinese investor $1BN for a 51% stake in Automotive Energy Supply JV with NEC. Recent SPAC examples include:
Solar PV business model for residential solar PV. Commoditized hardware and finance. Customer acquisition cost stubbornly high. US goal is installed cost $2/W. In 2016, UE cost was $2/W, US $3-3.50/W.
Solar PV on landfills. Altus Power equity from GS and Blackstone. 10MW solar PV located on NJ landfill and 1.5MW solar PV located on VT landfill. 25-year net- metering contract, where energy sold to utility, city receives credits.
Residential solar $255MM private placement of asset-backed notes. CS provided 2 credit facilities totaling $360MM. $80MM asset-backed note securitization. $2BN financing in the last 4 years. Companies that try to sell solar and efficiency together can’t get profitable, and the better play is to have focus. Battery systems are designed primarily for rate arbitrage, and not for backup power. Sunnova is able to deliver 19c/kWh solar+storage, where customers are currently paying the utility around 27c/kWh.
Covanta Rockery South IE Report identifies comparable EfW projects that use gasification. Project moving through financing in the UK.
Green Bond 2017 $150-200BN, 2016 $90BN, a 67% to 120% increase. Green bond issuances in 2017 to set new record volume
Shared savings business model applied to energy storage. Sharp offers to C&I customers a 10-Year Asset Management Service Agreement and Demand Reduction Performance Guarantee. Sharp offers financing for its technology.
Green Charge Networks owned 80% by Engie focused on NY and CA where utility demand charges are high and incentive programs are on offer. 48MWh of battery storage projects at 150 sites. Cut the cost of customer electric bills by up to 30%.
US proposes deep cuts to clean energy funding in 2019. Largely unchanged or increased for energy efficiency 2017 and 2018.
Energy management analytics launched 2016 to propagate energy efficiency. 10- 20% energy savings possible in a single building. Average portfolio savings of 8%. US commercial sector could save over $4BN.
Technology to convert waste heat after combustion to energy using rankin cycle. Annual energy storage capacity will surge to 655 MW in 2018, 2GW in 2021. Energy developers moving into storage. 8MinuteEnergy 1GW energy storage pipeline. Battery revenues expected to exceed $6BN by 2020, 6x increase over 2013. Expect a 25x increase in sales by 2020.
US BEA economic forecast. PWC quarterly economic forecast. SMBC 1Q17 #1 lead arranger. PwC and JLL 1Q17 leading financial advisers. Emission reduction at 190 Fortune 500 companies reported saving $3.7BN. 63% of Fortune 100 companies have clean energy targets. Growing number of companies are setting 100% renewable energy goals. 66% of respondents say organizations will not survive without innovation, only 24% are confident they have what’s needed to be innovative. 37% say their organization has made no, or only minimal, changes to its innovation approach. Coal not expected to make a comeback. 50 gas-fired power projects planned to use Mercellus Shale gas. 60% start-ups fail to become viable companies. Most of the exit opportunities come early, as do the primary causes of startup failure. Customer demand and utility response to increased DER. Utilities offering customers solar+thermal and solar+storage. Since 2008, LCOE of wind has fallen 41%, solar PV 54% and battery storage 73%. In 2015, solar PV average prices are well below ¢5/kWh, with a number of future projects already planned to deliver electricity below ¢3.5/kWh. Cleantech VC investment is biased towards late-stage deals and a few technology areas, with energy efficiency, solar, and transportation attracting more than half of the funding. Battery market in the UK robust. 224 battery projects proposed by 36 bidders resulted in 8 contacts. Distributed energy storage market to reach $8BN in 2026. Energy storage industry has grown to become a $100BN market, projected to reach $250BN by 2040. MA proposes 600MW energy storage by 2025 and will announce energy storage plans. CT supports energy storage but no executed PPAs in recent RFP. Lithium-ion systems sell for an average of $350/kWh. By 2020, expected to cost $217/kWh. Eos volume price of $160/kWh for delivery in 2017 and $95/kWh in 2022. Needs an inverter (DC to AC). Siemens offers inverters. Eos raised $23MM to scale its technology, $23MM in 2015 and $27MM in 2 previous funding rounds. Energy storage software M&A. Technology agnostic:
Tax equity investors “pushing back” in preparation for tax reforms.
Duke Energy supports 10-year PPA, cap 400MW/year. 3GW solar PV installed and 3.5GW planned, 1.5GW more than cap.
Duke Energy reported 1Q17 earnings loss in utilities and commercial businesses.
Cypress Creek Build Transfer model. Sells 79MW solar PV power project located in NC to Dominion that has 535MW of solar PV in development or in operation.
Development cost wind > solar PV, estimated < 1% project cost.
Solar PV sale processes delayed. Global glut of solar panels.
NRG Energy considering sale of clean energy business. Demand by both financial investors and strategic investors is at an all-time high. Other sales include First Solar sale of 8Point3 Energy Partners LP yieldco and Abengoa sale of Atlantica yieldco.
Solar PV development is strong. Utility-scale solar plants now make up 2% of electricity generating capacity, not 2% of utility-scale electricity generation.
Utility-scale solar has grown rapidly over the past five years
South Korea not expected to be a target market for long-term purchase agreements.
Batteries create spinning reserve revenues. TX and Northeast attractive markets. GMP added batteries in Rutland, VT and generated $1.4MM in revenues/year.
ISO-NE proposed changes for capacity market.
Nominal Discount Rate (After Tax) = 8.3%. CPI 2.4% to 2.6%. Increase in rates June 2017 highly likely. Investment grade rated Green Bond priced +40bps. 5x oversubscribed. Could open demand from investors too who were previously not looking at Green Bonds. Calpine considers recap and sale options. Kleiner Perkins spin-off $1BN Green Growth Fund. G2VP I target $275MM. Green Growth has $1BN AUM. Sale of NRG energy company (not NRG Energy) and SolBright developer. Skadden energy conference key takeaways: