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2011 ADC WINTER FORUM | PAGE 2 Developing Renewable Energy Projects on DOD Land Anita Molino Bostonia Partners LLC

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2011 ADC WINTER FORUM | PAGE 2

Developing Renewable Energy Projects Developing Renewable Energy Projects on DOD Landon DOD LandAnita Molino

Bostonia Partners LLC

Founded in the 1990s, Bostonia Partners, LLC (“Bostonia”) is a financial services

company headquartered in Boston, MA

The firm is well recognized in the industry for structuring innovative financing solutions in structured project finance and nontraditional debt and equity placements for energy efficiency, renewable energy and real estate projects

Bostonia established its own broker/dealer, Bostonia Global Securities, LLC (“BGS”) in 2004

Bostonia’s principals have created numerous financing and investment programs and structures which were the first of their kind

Bostonia has structured approximately $7.6 billion in financings

Bostonia Partners Introduction

Capital Markets Update

Renewable Energy Market

Development

Federal Incentives

Challenges and Benefits

Electricity Market

Generation

Renewable Portfolio Standards

SRECs

REC Benefits and Challenges

Value Proposition for Renewable Energy

Financing Renewable Energy

Conclusions

Q&A

Agenda

Capital Markets UpdateCapital Markets Update

Crisis in Middle East and economic turmoil in Europe adding volatility to

global equity, debt and commodity markets

Safety and stellar credit quality continues reign supreme

Spreads have tightened into Q4 2010, but have widened through

January

Continued Positive Outlook for Investment Grade Issuers

Investors put a large amount of capital to work in 2010

Below investment grade lending has begun to reverse its decline

2011 ADC WINTER FORUM | PAGE 6

Private Placement Market 2010Private Placement Market 2010

Private Placement Market Profile: $40 billion in issuance in 2010 Represented about 10-15% of the total corporate debt market Another $40 billion expected in refinancing activity over the next

two years should lead to a large increase in issuance in 2011 and 2012

Private Placement Issuer Profile: 68% were repeat issuers 65% were unrated by national rating agency 50% were private companies

Private Placement Buyer Profile: $120 billion in demand / average deal was 3x oversubscribed 50% of buyers looking for NAIC-3 debt Increased demand has reduced the premium buyers received

for private issuance.

7

Renewable Energy—The Market

Renewables: solar, wind, biomass, landfill gas, geothermal The market:

$18.6 billion invested in 2009 Over $350 billion invested by 2035

The challenge: renewable energy costs more than traditional carbon-based energy But, utilization of renewable energy incentives, tax incentives and

renewable energy credits makes the business case work in certain circumstances

Project owners can take advantage of tax incentives (private tax payers)

Basic Ingredients for Renewable Energy Development Appropriate renewable technology type(s) must be determined based upon the

availability of natural resources

Analysis of current electricity costs must be weighed in conjunction with the cost of electricity produced from a renewable source

Siting / water requirements / permitting / and other due diligence items must be considered

Availability of state / federal offered incentives including:

RPS Standards (29 States currently have an established RPS)

Utility Rebates

ARRA Incentives

Depreciation Incentives extended to 2012 by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

Ability to enter into long term Power Purchase Agreements (“PPAs”)

Transmission & grid considerations

2011 ADC WINTER FORUM | PAGE 9

Challenges and Benefits of Renewable Energy Development

Challenges High upfront capital obligations, inflexible budgets Higher short-term cost of energy Long term cost and security benefits are not immediately realized Value proposition not readily definable Geographic and market constraints

Benefits Power Purchase Agreements (PPAs) provide for fixed long-term energy

price certainty and protection against rising energy costs – don’t require outlay of

Capital to procure Power contractually delivered with assured quality and in assured quantities Renewable Energy Credits generated from the renewable power installation can be used for compliance with federal

mandates for the DoD

Financing Renewable Energy Projects

• The ability to monetize federal tax credits/incentives is the key to financing renewable energy

projects. Employing Debt and Project Equity are also be essential ingredients.

• Tax Equity monetizes:

• Investment Tax Credit (ITC) or 1603 Cash Grant in lieu of ITC

• Production Tax Credit (PTC)

• Bonus Depreciation

• MACRS Depreciation

• Project Equity:

• Necessary for developers to have “skin in the game”

• Debt can serve to enhance the returns of the Equity

Renewable Energy Federal Incentives

Menu of Federal tax incentives: Projects can claim one of the following:

Production Tax Credits (PTCs): 10-year inflation adjusted credit per MWh produced (does not apply to solar).

Currently, $21/MWh

Investment Tax Credit: credit on the depreciable installed cost when the project becomes operational – does not depend on ongoing generation of electricity

30% for solar, fuel cell and small wind; 10% for others

Section 1603 Grant Program: allows renewable energy developers to qualify for a 30% Federal grant for qualified capital costs (the same value as the ITC)

Program was extended, now set to expire on December 31, 2011

5-year (MACRS ) accelerated depreciation for most capital items 100% Bonus Depreciation election available in lieu of

MACRS depreciation

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Renewable Energy on DoD Land

Benefits to development, power user (installation) and project financing

Development: Utilizes idle and under-utilized land Provides jobs for the community Provides Energy Security for the United States Progress towards Renewable Energy Mandates and Goals

Power User (installation): Clean, secure source of power to installation at a fixed, predictable cost Utilize Renewable Energy Credits to meet mandate

Financing: Contracts with Federal Entity provide strong foundation for lowest-cost of capital Ability to secure low-cost capital equates to lower PPA rates for DoD

2011 ADC WINTER FORUM | PAGE 13

On-Base Development Considerations in Texas

Texas has largest renewable energy potential in the nation and with abundant and multiple resources: wind, solar, biomass

Address the problem of inadequate power transmission infrastructure in Texas by having an opportunity to sell power “inside the fence”

Sufficient and cost-effective land resources for siting renewable generation projects Provide energy security and mitigate against threats to the utility grid by reducing reliance on

energy resources from off the base Potentially Purchase energy at the same cost or at a lower cost through a PPA.

(~$.09/kWh Average Retail Price of Electricity as of Oct 2010)

Electricity Market in Context of RE

Electricity prices vary state-to-state, and are variable month-to-month

Pricing of electricity on the commercial market is non-negotiable

Price of Renewable Energy varies state-to-state, but is negotiated

Deregulated states experience higher average prices

Areas with higher rates more easily suited for RE development

Low-rate areas demand innovative approaches

Average Retail Price of Electricity by State (2008)

Generation Market

Map of Regulated and Unregulated States

Deregulated states experience higher average prices Areas with higher rates more easily suited for RE development

Source: EIA

Generation Market

The cost of traditional energy sources is based on the price of oil, hydrocarbons The cost of renewable energy sources is based on the price of technology Incentives are necessary in low-rate areas: Renewable Portfolio Standards incentivize utilities to purchase RE, broadening market; Federal tax incentives lower development costs; Power Purchase Agreements incentivize developers and financiers

Effects of State and Federal Incentives on Levelized Cost

Federal and state tax incentives can make energy projects affordableDevelopers and financiers must utilize incentives, lowering the levelized cost

Source: Lazard, Ltd.

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Renewable Portfolio Standards

Many states have adopted Renewable Portfolio Standards (RPS) – vary from state to state.

RPS requires utilities to obtain a minimum percentage of their power from renewable sources by a mandatory date.

A utility can also satisfy the requirement by purchasing renewable energy credits (RECs).

A REC represents the right to claim attributes and benefits of renewable power – 1 REC = 1 MWh

Bought and sold through contractual arrangements. Debate continues over a Federal RPS – until then, the action is at the state

level Renewable Energy Credits can be utilized to meet DoD mandates

Renewable Portfolio Standards

SREC Markets

Solar Renewable Energy Credits (SRECs) necessary for enabling feasibility of Solar projects

In SREC states, the Renewable Portfolio Standard (RPS) requireselectricity suppliers to secure a portion of their electricity from solar generators

1 SREC = 1,000 kWh of solar electricity = 1 MWh of solar electricity 10 kW solar capacity = ~12 SRECs per year

SRECS are priced via supply and demand and sold in spot market auctions or else through long term (3,5,10 year) contracts

The demand is determined by individual state RPS solar requirements and the Solar

Alternative Compliance Penalty (SACP) set by the state

SRECs in states with higher SACPs, like New Jersey, are worth more than states with lower SACPs

Current SREC Markets

REC Benefits and Challenges

Benefits:

Renewable Energy Credits are critical for enabling the feasibility of RE projects

RECs can be sold through various exchanges or directly to customers under long term contracts

RECs can be utilized by the DoD to meet RE mandates

Challenges:

RECs sold on the spot market are not “financeable”

RECs negotiated for sale under long term contracts are “financeable,” but must not be overly discounted. This will jeopardize the economic feasibility of the project

RECs are usually sold “unbundled” from PPAs under separate contracts, adding difficultly to financing of the project

PPAs provide protection against the rising cost of electricity Savings are realized in the long run PPAs are an efficient way for developers and financiers to raise capital for RE

Extracting the Value Proposition for Renewable Energy

Source: EIA

Procuring energy through a PPA grants energy price certainty Based on current projected electricity prices, paying a premium today can translate to savings over the term of the contract Potential for greater savings if energy prices rise at a faster rate Investment incentives and technological advancements are driving costs down, closing

the gap and increasing affordability

Installation Demanding 5MW / Year for 20 Years With a Fixed Price Power Purchase Agreement (PPA) vs. Status Quo

     

 Present Value of

Electricity CostAverage Cost

Difference

Status Quo (No PPA) $7,615,921.97

-

PPA with 10% Premium $7,237,742.87 -5%

PPA with 15% Premium $7,566,731.19 -1%

PPA with 20% Premium $7,895,719.50 4%

Extracting the Value Proposition for Renewable Energy

Renewable Energy ProjectRenewable Energy ProjectYear 1 Year 2 Year 3 Year 4 Year 5

KwH/Yr

5,000,000

4,975,000 4,950,125

4,925,374

4,900,748

PPA Rate / KwH

0.1000

0.1000 0.1000 0.1000 0.1000

PPA Revenue

500,000 497,500

495,013

492,537

490,075

REC Price/ kwh

0.3000

0.3000

0.3000

0.3000

0.3000

REC Revenue

1,500,000

1,492,500 1,485,038

1,477,612

1,470,224

Bundled PPA+REC Price

0.4000

0.4000

0.4000

0.4000

0.4000

Total Revenue

2,000,000

1,990,000 1,980,050

1,970,150

1,960,299

The REC price is the main driver of a Renewable Installation’s performance Power and RECs fixed for a certain number of years will benefit DoD by eliminating

long-term risk of rising power prices Attaining price certainty for RECs is essential for developers for financing needs Bundling RECs with PPA contracts is an effective tool for ensuring project

development,strategy eliminates REC risk from developer (no longer has to sell RECs forward or on spot market). DoD utilizes RECs for meeting mandates.

Cost of Capital: A Few ScenariosCost of Capital: A Few Scenarios

Tax Equity + Project

Equity12.00%

100%

Cost of Capital12.00%

Tax Equity + Project Equity 12.00%

Project Debt5.50%

Cost of Capital10.375%

25%

75%

Cost of Capital9.00%

Project Debt6.00%

Tax Equity + Project

Equity12.00%

50%

50%

RA

TE

RE Financing—Key Takeaways

Bring the financing in early Build a business plan with conservative assumptions yielding market –

based returns Understand your market – RECs, incentives, etc

Bundle PPA with REC Contract DoD should utilize RECs to meet Federal Mandates

Enhances financeability of project Documentation and structure are key drivers

Developer’s and customer’s ability to execute – complex transactions with steep learning curves

Every project needs a champion Only sound projects with quality participants and strong cash flow will get

done Work with public/private mentality and remain adaptive and flexible

Conclusions

RE development can be successful under Private development or through EUL authority

Leverage existing underutilized assets strategically for best results

Long term PPAs and REC contracts with creditworthy off-take essential for financing

The time is right to take advantage of stimulus benefits

EUL is ideal opportunity for installations to meet their energy goals and achieve energy security

Developer advantages:

Existing infrastructure and transmission lines

Inside-fence development provides additional security for the infrastructure

Single-source off-take for RECs and Power (DoD)

Contracts with Federal Entity provide strong foundation for lowest-cost of capital

Questions & Answers

THANK YOU

Anita MolinoBostonia Partners LLC699 Boylston Street, 7A

One Exeter Plaza Boston, MA 02116

[email protected]