FCL Solar Leasing. ACA Presentation

Transcription

1 FCL Solar Leasing ACA Presentation

2 FCL Solar Leasing Presentation overview FCL solar program ACA & FCL success stories Solar playbook A lot of expertise in the room 8/21/2017 2

3 Proven Track Record in Solar Leasing FCL has booked over 329 solar transactions With total funding s over $508M Projects have ranged from $250,000 to $16M 2016 volume was 78 Ag Producer transactions for $105M, remaining transactions were CoBANK s Infrastructure Banking Group Coop s solar lease volume is expected to exceed $250M.

4 Why does FCL do solar? Customer demand Tax Appetite Strong Yields Barriers to entry because of FCL s investment in legal, credit, asset management, tax and partner go to market Strong Credits Confidential and Proprietary 8/21/2017 4

5 Targeted customer approach 8/21/2017 5

6 Reasons to Lease Your Solar Array 100% Financing. No out of pocket costs. No down payments. No deposits. The initial cash outlay is Zero (payments in arrears) Optimized use of Solar Tax Benefits. The 30% Federal solar tax credit and accelerated depreciation are used by Farm Credit Leasing to lower the lease payment typically resulting in a negative IRR for the customer. -2.5% Grants, Renewable Energy Credits and Carbon Credits. All applicable and available are for the customers account. Fixed Payments for the lease term. Fixed monthly lease payments are optimized for the customer and represent a significant hedge against rising utility rates (3-4%) Savings over Electricity systems often become cost neutral after 6-7 years

7 MORE Reasons to Lease your Solar Array Expensed lease payments. In most cases the lease is considered a true lease for tax purposes with the lease payments treated as an operating expense. Preserve Credit Lines. Leasing represents an alternative source of funds. Fixed Purchase Option. The lease is structured to offer a fixed purchase option of 20% of the original cost, not a "fair market value" purchase option, at the end of the lease term. Renewal Options. The Renewal option is also fixed for a two year period, other terms may be negotiated at the end of the original lease term. FMV applies at the end of the renewal term. Convenience/Simplicity Interim Funding FCL/Jordan Thomas Consultative experience Confidential and Proprietary 8/21/2017 7

8 FCL Lease Benefits Ease of Execution: Straight-forward, commonly used financing with simple documentation under Master Lease Agreement. Capital Cost: Financing is economically priced, supporting 100% of the project cost, and enables the lessee to monetize the 30% Investment Tax Credit on qualified costs into the lease payment structure. Attacks the Expense side of the P&L Asset Control: Ability for Lessee to control the solar facility; vs PPA (Purchase Power Agreement). Financing Flexibility: Construction financing available, converting to permanent financing with no out of pockets costs, or down-payments. Cash Flow: Fixed payments through lease term, with a fixed Purchase Option. Lease Structure: Renewable Energy Credits and Carbon Credits may be available to passthrough to the customer-owner / lessee. FCL Expertise: Industry Leader. Confidential and Proprietary 8

9 The Rewards 30% Federal Tax Credit with 5 year MACRS depreciation plus bonus depreciation Renewable Energy Credits and Carbon Credits provide upside to Lessee Promotes positive community image Solar system life expectancy of up to years means 30 years or more of upside potential

10 General FCL Solar Leasing Basics 100% Project Financing 30% ITC 5 year claw back (20%/year) True Lease Structure Interim Financing 7, 10, Years Residuals up to 20% First Amendment Structure (PRO) Standard FCL Credit Underwriting (PD 6 or better 7 exceptions) Shared 50/50 with Lease Partner Documentation Solar specific Tax indemnity Security interest in rebate (if any), and generally take a mortgage on property 10

11 Solar lease structure True Lease (available for transactions over $500,000): o FCL purchases and owns the equipment throughout the life of the lease. This entitles FCL, as the owner, to the ITC and depreciation benefits associated with the solar array. o FCL utilizes 30% Federal Tax Credit (currently available through 2019) and asset depreciation to pass the savings back to the lessee in the form of a lower lease payment (resulting in a negative implied interest rate). o Typical lease structure: 120 months At end of lease, Lessee has the option to purchase the system for a residual value payment or renew the lease for an additional term 20% Fixed Purchase Option (Residual Payment) PD6 or better (PD7 by exception only). Shared 50/50 with Association LeasePartner Conditional Sale Lease / Non True Lease (Such as PUT Residuals) : o Deals under $500,000; [or > $500,000 for non True Lease objective]. o Where customer will take full tax ownership.

12 Price example Cost $1,000,000 Structure 10 year term, 20% residual Residual $200,000 Payment $5,564 / month Total Lease Cost $867,628 o Includes Residual Value ITC available to Lessor Tax credit "True Lease" Conditional sale lease Cost $1,000,000 Structure 10 year term, $1 buyout Residual $1 Payment $9,906 / month Total Lease Cost $1,188,693 ITC available to Lessee Confidential and Proprietary 12

13 Key questions from the field What are the solar tax laws? 30% ITC in % ITC in % ITC in % ITC in 2022 Eligible vs. not ineligible assets Can the customer get a REAP grant with a solar lease? REAP s not always guaranteed vs. ITC which is guaranteed 8/21/

14 Airosa Dairy Farm Credit West, Lease Partner Customer Background: Family-owned dairy milking 2,900 mature cows with fully cycled heifer program. Farms in excess of 1,200 acres to feed, silage and tree nuts. Transaction Amount: $2,350,000 Asset: 1.1 MW solar system Structure: 120 monthly payments 20% FPO/PRO Association Benefits: Member since CoBank s tax appetite allows for full utilization of tax credit and depreciation benefit via leasing product. Partnership with FCL keeps member from looking outside the Farm Credit System for financing alternatives. Customer Benefits: 100% financing. Tax benefit and depreciation monetized into lease, resulting in negative interest rate. Payment structure to match offsetting expense item. Fixed electric expense going forward. Risk Mitigants: Deed of Trust 2 nd position behind FCW. 14

15 Laurel Brook Farm FC East Total Transactions: $ 2.2M Equipment: Solar for $1M, Milking Parlor, General Field and Barn Equipment Structure: Various: 120 months and 20% residual on the solar transaction. 60 months & 20% residual on balance of assets Dairy and Crop operation: Multi generational and FCL since 1992 Customer Benefits: Single point for banking relationship (insurance for future); Low upfront costs; Use of PLB to Free up Capital for Land purchase; Blended tax strategy in c/o Sec 179; Upcoming Solar project has flexibility in collateral and helps cash flow in down Dairy economy. 15

16 FCL Solar Playbook appendix 8/21/

17 Solar Next Steps Solar customer selects a Photovoltaic(PV) vendor (integrator) Customer receives estimated incentives and electrical energy savings typically listing in EPC (Engineering, Procurement & Construction) System cost Annual energy production Integrator/Vendor name & contact Energy provider Estimated incentive amount Supply information to FCL Relationship Manager FCL RM or AM can work with you through the process Confidential and Proprietary 8/21/

18 How we Go-to-Market Association Lease Partner Direct through FCL RM CoBank customers Select solar finance arranger Jordan Thomas Inc. Been in business since 1984 Been in the solar arena for over 10 years Was involved in the first FCL solar lease transaction Relationships with 14 solar integrators Understands the Farm Credit System Communicates opportunities Will provide services silently if needed Association & FCL RM control how communication is handled with customer Confidential and Proprietary 8/21/

19 Jordan Thomas, Inc. Strategic relationships with many Solar Integrators and Manufacturers The Solar Integrators will provide all the necessary support and technical experience needed for a successful solar installation and integration Only select Integrators are offered Jordan Thomas financing support and must demonstrate successfully having designed and installed over 2mWatts of photovoltaic solar systems Each Integrator must know the needs and requirements of each unique solar installation The Integrator must show it has the proper licensing in each state as a general and electrical contractor

20 Lease process Lessee Negotiates The Construction Contract o Lessee decides on a solar developer/consultant or contractor o Lessee negotiates the construction contract o Farm Credit Leasing (FCL) reviews the construction contract to review ITC compliance o Construction contract is assigned to FCL prior to being placed in service Construction Process o FCL provides the construction financing o FCL provides the progress payments as requested by the Lessee o The construction financing converts to perm financing when the project is put into service Operations And Maintenance Of The Solar Facility o Lessee provides the operation and maintenance of the solar array throughout the lease. Vs a PPA End Of Lease Options o At the end of the True Lease the lessee has two options. Purchase the solar installation for the stated residual amount or renew the lease for up to an additional two years

21 Comparison of Loan vs. Lease LOAN LEASE System Owner: Customer Lessor Federal Energy Tax Credit: Customer s Account Lessor s Account Federal Depreciation: Customer s Account Lessor s Account State Depreciation: Customer s Account Lessor s Account Renewable Energy Credit: Customer s Account Lessee s Account Carbon Credits: Customer s Account Lessee s account Expenses: Customer s Account Customer s Account Insurance: Liability: Customer s Account Customer s Account Casualty: Customer s Account Customer s Account Operation & Maintenance: Customer s Account Customer s Account

22 The Risks Electrical Production Risk low Energy production values are based upon proven energy generation data provided by the manufacturers and 30 years of historical data Long-term year warranties already available from most solar panel manufactures Additional warranties provided by the Inverter manufacturer are for years Operations and Maintenance agreements entered into for the full term of the lease