Hot off the Presses: Standardized Solar Contracts from ...eo2.commpartners.com/users/seia/downloads/FINAL... · Paul Schwabe, National Renewable Energy Laboratory . Nick Mack, Clean

Paul Schwabe, National Renewable Energy Laboratory Nick Mack, Clean Power Finance Seth Weissman, SolarCity Dirk Michels, K&L Gates

Hot off the Presses: Standardized Solar Contracts from NREL-Organized Working Group

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November 20, 2013 © 2013 Solar Energy Industries Association® 2

http://www.seia.org/

NREL is a national laboratory of the U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

Standard Solar Contract Templates: From NREL’s Solar Access to Public Capital (SAPC) Working Group

Solar Energy Industries Association (SEIA) Webinar November 19th, 2013

Nicholas Mack, Clean Power Finance Dirk Michels, K&L Gates Paul Schwabe, NREL Seth Weissman, SolarCity

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Speaker Lineup Paul Schwabe, Energy Analyst, NREL. Paul Schwabe is a Energy and Financing Analyst at the National Renewable Energy Laboratory. He has more than 11 years of experience within various sectors of the energy and finance industry covering renewables, efficiency and natural gas. He has served in a policy and technical advisory role to the U.S. Department of Energy, the U.S. Army, the California Public Utilities Commission, and the city of Golden, Colorado. Paul has authored multiple renewable energy policy reports to the International Energy Agency, the Clean Energy Ministerial, and the International Sustainable Energy Review among others. Paul holds a master’s in applied economics and finance, and a bachelor’s in economics from the University of California, Santa Cruz. Seth Weissman, Executive Vice President, General Counsel & Secretary, SolarCity. Seth Weissman is responsible for all aspects of SolarCity's legal affairs including transactional, governance, intellectual property, real estate and employment matters. Seth brings 15 years of experience representing Silicon Valley companies of all sizes and types during their maturation. Prior to joining SolarCity Seth was Vice President, General Counsel and Chief Privacy officer at Coremetrics, the leading digital marketing company. Prior to joining Coremetrics, Seth was an attorney practicing in both the employment and corporate departments at Wilson Sonsini Goodrich and Rosati in Palo Alto, CA, the leading law firm representing technology companies at all stages of their growth, and the investment banks and venture capital firms that finance them. Seth earned his undergraduate degree in political science at Pennsylvania State University and earned his law degree, with honors, at Boston University School of Law. Nicholas Mack, General Counsel, CleanPowerFinance. Before joining Clean Power Finance, Nick was the General Counsel and Corporate Secretary for Sungevity, a residential solar finance provider. Prior to Sungevity he was the General Counsel for Mainstream Energy, the parent of REC Solar and AEE Solar, the leading solar integration and distribution companies in the United States. Before entering the solar industry, Nick was the Deputy General Counsel at Yodlee, Assistant General Counsel in the Products Law Group at Sun Microsystems, and an Associate at Heller, Ehrman, White, & McAuliffe LLP. Nick has a JD from the University of California, Hastings College of Law and a BA from Georgetown University. Dirk Michels, Partner, K&L Gates. Dirk Michels is a partner with the international law firm of K&L Gates LLP, resident in its Los Angeles and San Francisco offices, where he is one of four global leaders of the firm’s Cleantech and Renewable Energy Practice. Mr. Michels advises renewable energy and cleantech companies in project development and corporate and project financing matters. His work on behalf of cleantech companies, particularly those focused in solar, includes the full range of corporate and strategic advice, as well as assistance with all aspects of project development and financing, complex debt and equity financing, and securing of public grants. In his more than 15 years of practicing law in Germany and California, Mr. Michels has developed and negotiated corporate and project agreements for many companies engaged in centralized and distributed renewable energy projects – from power purchase agreements and interconnection agreements, to construction contracts, debt and equity financing agreements, and agreements related to renewable energy and carbon credits.

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SAPC Working Group Goal Expand availability and lower the cost of solar through improved access to public capital

How By standardizing the project development process:

– Lower risk perception and due diligence requirements – Pool projects across the market & enable scale economies

130+ Member Organizations Developers, Legal, Investors, Advisory and others

Support Three year Department of Energy Award in FY13

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SAPC Activities: What are we doing? • Standard Contracts – now available!

– Residential Lease (aggregated, disaggregated) – Commercial Power Purchase Agreement

• Develop best practices

• Develop mock filing to rating agencies

• Build Performance Dataset: oSPARC

• Convert to Industry-Led Group: Solar Energy Finance Association (SEFA)

Webinar Focus

More SAPC Information: https://financere.nrel.gov

https://financere.nrel.gov/

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SAPC Contract Development Process

• More than 20 firms collaborated in development of SAPC contract templates

• Multiple source documents compared and synthesized to produce the SAPC contract templates

• Flexible templates allow for limited customization

Residential Commercial

SolarCity – Zero-down lease Altus Power Management PPA

Sunrun – Lease agreement K&L Gates Distributed PPA (and lease)

Sungevity – Lease agreement SolarCity Commercial PPA

Clean Power Finance – Lease Solar Tech PPA (and lease)

Tioga Energy Sure Path PPA

Starting Documents:

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Standard Contracts: Benefits of Adoption

Speed

• Reduce customer acquisition costs • Accelerate solar deployment

Scale

• Facilitate the pooling of cash flows to access larger capital market investment

Savings

• Lower transactional costs • Reduce due diligence requirements

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SAPC Standard Contract Templates

Residential Lease (2 Versions) Commercial PPA

Available at: https://financere.nrel.gov

BLUE HIGHLIGHTED TEXT = VARIABLE TEXT LANGUAGE



SEFA/SAPC Residential Lease Contract Overview

SEIA Webinar November 19, 2013

Our Vision Create the most compelling energy company of the 21st century by delivering cleaner, more affordable power through distributed generation

SolarCity Confidential Slide 12

Strong Contractual Foundation 20-year, fixed price agreement

− SolarLease – Customers lease solar equipment from SolarCity; includes SolarCity production guarantee

SolarCity installs and maintains a solar system on customer site

− Customers simply “host” system

Pricing targeted below retail rates

− New lower utility bill + SolarCity payment is less than old utility bill

Customers can assign contract to new homeowners in a home sale

SolarCity uses the “aggregated” version of the lease, we are a one stop shop.


Some Key SAPC Points-Overview ‒ Description of property (the System).

‒ Amount due at lease signing, installation, building inspection, delivery of materials etc. Each component must be itemized by type and amount.

‒ Payment schedule and total amount of periodic payments. The number, amount, and due dates or periods of payments scheduled under the lease, and the total amount of the periodic payments. This schedule is adapted where a lease is pre-paid.

‒ Other charges. The total amount of other charges payable to SolarCity, itemized by type and amount, that are not included in the periodic payments. ‒ Total of payments. The total of payments, with a description such as “the amount you will have paid by the end of the lease.” It should indicate that it

includes estimated taxes. ‒ Early termination. A statement of the conditions under which the lessee or lessor may terminate the lease prior to the end of the lease term; and the

amount or a description of the method for determining the amount of any penalty or other charge for early termination, which must be reasonable. ‒ Maintenance responsibilities. A statement specifying whether the lessor or the lessee is responsible for maintaining or servicing the System and a

description of duties. ‒ Statement referencing non-segregated disclosures. A statement that the lessee should refer to the lease documents for additional information on

early termination, purchase options and maintenance responsibilities, warranties, late and default charges, insurance, and any security interests, if applicable.

‒ Liability between residual and realized values. A statement of the lessee's liability, if any, at early termination or at the end of the lease term, for the difference between the residual value of the leased property and its realized value. Any such potential difference must be excluded from the “Other Charges” required to be disclosed as described in paragraph (d), above.

‒ Fees and taxes. The total dollar amount for all official and license fees, registration, title, or taxes required to be paid in connection with the lease. ‒ Insurance. A brief identification of insurance in connection with the lease. ‒ Warranties or guarantees. A statement identifying all express warranties and guarantees from the manufacturer or lessor. ‒ Penalties and other charges for delinquency. ‒ A statement of whether or not the lessee has the option to purchase the leased property and the purchase price. If the lease were to provide

that option prior to the end of the lease term, this disclosure must include the purchase price or the method for determining the price and when the lessee may exercise this option. It is not permissible to use an “FMV” purchase price at the end of a lease until such time as a reliable third party mechanism exists to provide the system value in the future (e.g. NADA used auto purchase guide).

‒ REG M Box. ‒ Some states have additional rules too


Some Key SAPC Points (1): Avoid Roof Ambiguity

Length of Roof Warranty. Extent of Roof Warranty. Removing the System. Restoring the Roof. Plain English. Removing to repair the roof—set fee of $499 @ SCTY


Some Key SAPC Points (2): Anticipate Changes in System Size Whether selling power or leasing equipment, all of the facts are

unlikely to be known at the time of sale. The contract needs to contain a clear process for the customer to

affirm or revoke the contract when these changes happen.


Some Key SAPC Points (3): Mandatory Arbitration and Class Action Bar ATT Mobility v. Concepcion. Landmark Class Action Case Bars class actions Very careful application of the law required


Some Key SAPC Points (4): Mandatory Arbitration and Class Action Bar ATT Mobility v. Concepcion. Landmark Class Action Case Bars class actions Very careful application of the law required


Some Key SAPC Points (5): Licensing Failures

Not being licensed as a contractor when you enter into contracts with consumers is risky. License numbers are usually required on all printed

materials, including contracts. CA Business and Professions Code 7026 et. Seq. ‒Remedies to consumer include recovery of all

compensation paid under the contract at any time. ‒Criminal liability possible to unlicensed contractor


Thank You

888.SOL.CITY | 888.765.2489 | SOLARCITY.COM

SAPC Disaggregated Lease

Nicholas Mack SVP, General Counsel & Secretary, Clean Power Finance Board member – Solar Energy Finance Association

November 2013

21 PROPRIETARY CLEAN POWER FINANCE © 2013 |

CPF Helps Investors Build and Manage Solar Portfolios

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for the Solar Industry

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Compelling Solar Finance Products to Homeowners

Investors Ability to Efficiently Manage Risk and Invest in A Residential Solar

Portfolio

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Source: Clean Power Finance


Major Fund Investors

CPF Is A Recognized Industry Leader

80% Of Major U.S. Solar Installers

Use CPF’s Marketplace

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WINNER 3 GRANTS AWARDED

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Significant Awards Top Investors


Disaggregation = Flexibility When System Owner and Originator/Installer Are Different Entities

Origination • Sale originated by a third party (e.g. Installer) • Consumer signs the Lease with Lessor Fund and an Installation Agreement

with Installer (attached to the Lease as an exhibit) • Salesperson typically a representative of the Installer

• Consumer’s questions addressed by salesperson during sales process

During the Lease Term • Lessor Fund owns System, bills Consumer, arranges system repair,

maintenance, removal, etc., • CPF as service provider to Lessor Fund • Original Installer or other licensed contractor on site

Installation • Installer installs System per Installation Agreement, responsible for job & site • Lessor Fund purchases installed System from Installer at substantial completion

(before PTO)


Disaggregated Lease Otherwise the Same as the Aggregated Lease

Monitoring • Defaults to broadband Internet connection requirement • Alternate option would be cellular-based monitoring service

End of Lease Term - Purchase and Renewal • Customizable by Lessor – e.g. can offer Consumer an option to

purchase at end of Lease term for listed purchase price

Payment Schedule • Customizable by Lessor Fund based on when First Monthly Payment

is due (e.g. after PTO) and then remaining Monthly Payments (e.g. specific day of the month)

Options on Selling Home • Transfer monthly payments (subject to credit) • Prepay and transfer use of the system • Transfer the system to new home


Highlighted Terms Comparison

Standard Legal Terms SAPC standard SAPC standard (same as Aggregated Lease)

Installation Responsibility Lessor pursuant to Lease

3rd Party Installer pursuant to Installation Agreement (Exhibit 3 to

Lease)

Warranty / Performance Guarantee

Can be assigned separate to Lease Can be assigned separate to Lease

System Ownership / Title

Lessor (as Developer) owns from beginning of Installation

Lessor purchases system from Installer after Installation

Payment Schedule Monthly Payments / customizable based on business model

Monthly Payments / customizable based on business model

O&M Lessor responsible for performing under Warranty

Lessor responsible for arranging service provider to perform under

Warranty

Aggregate Lease Disaggregated Lease


Primary Users: Disaggregated Business Model

Funds and their affiliates/service providers in the business of owning assets but not installing solar systems

Use third party installers to install systems and service providers to perform system O&M

Examples:

SAPC Disaggregated Lease

Nicholas Mack SVP, General Counsel & Secretary - CPF Member – SEFA Board [email protected]

mailto:[email protected]

© Copyright 2013 by K&L Gates LLP. All rights reserved.

Dirk Michels, Partner, K&L Gates LLP SEFA General Counsel

NREL-Organized Working Group Standardized Solar Contracts

Commercial and Industrial Distributed Solar PPAs

klgates.com 30

Experience with laws affecting Asset backed securities Security-based swaps Fixed income securities

SOLAR SECURITIZATION

ENERGY STORAGE

TRANSMISSION & INTERCONNECTION

UTILITY SCALE & DISTRIBUTED SOLAR

PROJECT & CONSTRUCTION FINANCE

TECHNOLOGY & INTELLECTUAL PROPERTY

TAX EQUITY INVESTMENT

SALE OF ENERGY TO END-USER

CONNECTING THE DOTS

US MILITARY RENEWABLES

klgates.com 31

Utility scale solar projects

Distributed solar projects

Distributed solar finance

Inverted lease structures

Securitization of solar receivables

Solar and energy storage

CONNECTING THE DOTS SOLAR SECURITIZATION

ENERGY STORAGE








klgates.com 32

Conventional project finance (developers, sponsors, and commercial banks)

Institutional investments

Tax credit financing and grants

Tax increment financing

Taxable and tax-advantaged debt

Project and municipal bonds

Securitizations

Restructurings

CONNECTING THE DOTS SOLAR SECURITIZATION

ENERGY STORAGE








CONNECTING ON DOTS

klgates.com 33

Power purchase agreements with end users

Laws and regulations governing energy sales to end users

Energy storage

SOLAR SECURITIZATION

ENERGY STORAGE








C+I DG SOLAR PPA KEY PROVISIONS

Output Contract (No Warranties) Commercial Operation Date Conditions to Seller’s Obligations Non-Disturbance by Lien Holders Access Rights (Owner / Tenant) Relocation of Business

klgates.com 34

C+I DG SOLAR PPA KEY PROVISIONS (CONTINUED) Default (Loss of Premises) Termination Payments System Ownership Purchase Option System Purchase Price Assignment Financing Parties (Amendments / Consent)

klgates.com 35

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More SAPC Information

[email protected] https://financere.nrel.gov

QUESTIONS ?

November 20, 2013 © 2013 Solar Energy Industries Association® 37