60 seconds with Michael Mendelssohn, NREL


Source: FCBI Energy

Ahead of the eagerly anticipated Solar Energy Investment & Finance Summit (May 5-6 in San Francisco), New Solar Today catches up with Michael Mendelssohn from NREL, a speaker at the event who will be sharing his expertise on the session ‘Post-Recession Solar - Markets and Opportunities’. For more information please see www.newsolartoday.com/usafinance New Solar Today: Hi Michael! To kick off, can you tell me a little about the impact the stimulus money has had on the industry so far and what additional impact will this money have on the industry in the next 12 months? Michael Mendelssohn: I would say results to date have been mixed. The Treasury Grant program has been fairly successful in priming the pump and increasing renewable energy deployment. However, large scale solar developments have been reliant on the DOE Loan Guarantee program which has been mired in red tape. Simply, it’s very difficult for DOE to get past all the required due diligence tasks in order to get the loans approved and money out to the markets. The CREB and QECB bond programs have also been utilized only modestly. Going forward, over the next 12 months, I think the Treasury Grant program is going to continue to provide direct support to the industry and allow capital to be redeployed quickly, which is the critical aspect of the program. I believe Congress will extend the Grant program for at least a year, and this will be a cornerstone for the industry’s success. I’m less confident about the Loan Guarantee program, although recent conditional approval of BrightSource’s Ivanpah project is a positive sign. DOE understands the importance of rapid program delivery – these are just very complicated arrangements with dozens of contracts to review. Things will pick up, but not enough to move the array of announced CSP projects forward within their original construction schedules. For the bond programs, President Obama just recently signed the HIRE act which allows CREBs and QECBs to be issued in the form of Build America Bonds which provides a Federal subsidy instead of a tax credit. I think this change could significantly open up this market, but it will take some time to educate municipalities and public entities of the benefits of this option. New Solar Today: What are the main stumbling blocks that you see solar companies facing over the next few months in project finance? Michael Mendelssohn: As I mentioned, large scale CSP projects are still reliant on the Loan Guarantee program, and getting through that program will remain a difficult process. I don’t see the credit markets backstopping a $1+ billion CSP project without government support any time in the near future. On smaller projects, the treasury grant is helpful but you still have to find a partner to monetize the MACRS depreciation benefits. Technology risk is still a primary concern – lenders and equity investors have minimal tolerance for assuming any technology risk – they want to know the cell or module design has been utilized in multiple commercial installations already. Also, financiers want to see development success and management’s ability to bring projects to the finish line. They’re not interested in large, complicated projects with multiple technologies. My advice to developers is to keep it simple, hit a single, and move on to the next project. New Solar Today: Where do you see solar being most investable in the near future? How do regional incentives and bank involvement affect the prospect of business development in these areas? Michael Mendelssohn: I think state Renewable Portfolio Standards (RPS) will continue to drive the market. Utilities in these states are willing to sign a long-term PPA, and that is a critical requirement to project development. Colorado just increased their RPS target to 30% so Xcel will likely keep payments for RECs high to maintain that market. California utilities are way behind on meeting their RPS goals, so they will continue to sign long-term PPAs with a wide array of developers and technologies and hope that the attrition rate starts to relax on some of these projects. We see some regional banks providing tax equity as part of their overall marketing effort. The National Bank of Arizona recently invested in the Solar Phoenix program run by SolarCity and supported by Arizona Public Service. I think we’ll see more regional bank financing as its a great way to reconnect with the customer base and possibly offer additional financial products. What will delegates at the 3rd Solar Energy Investment & Finance Summit expect to learn from your contribution at the event? Michael Mendelssohn: I follow trends and barriers in project finance and hope to convey that information to the audience. I will draw on my research experience along with analysis of NREL’s REFTI process – which polls the industry on financing terms and usefulness of government stimuli – to explain current best practices and insight into project financial structure. The 3rd Solar Energy Investment & Finance Summit is taking place on May 5-6 in San Francisco, and is co-located with the Solar Legislation, Regulation & Policies Conference (May 3-4) For more information on these events please contact the Event Director, Sara Lloyd-Jones on sara@newsolartoday.com or +44 207 375 7153

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