Demeter Power commits to form a broad coalition that will launch the world's first 'Feed-Out' Tariff Program for funding distributed energy. The Feed-Out Program will work like a FiT except the energy will not be sold to a utility, but instead to a property owner (or tenant) and used on a distributed basis 'out'-side of the grid.
To satisfy customer credit, the Feed-Out funding structure will employ a relatively new financing tool called property assessed clean energy (PACE). This model internalizes PACE cost of capital and markets a total cost solution to a building owner as a fixed price for energy (much like a FiT).
The primary advantage of this program is that it will more effectively reconcile the needs of the development finance community (which will arrange capital and secure projects at a fixed price) and the IPP community (which will enable program participants to identify or arrange projects that meet the Program's proscribed criteria).
Demeter will commit to work with governmental PACE programs to establish and host 'open market' Feed-Out Programs. 'Open Market' means that participation would be open to any property owner, solar provider or capital provider. Demeter will contribute its proprietary financial structure, its software and funding origination platform. Like in a FiT, standard pricing offers will be made quarterly; however the offer may be structured alternatively as an Install Price ($EPC) paid per watt to solar providers given a set PPA contract rate (10% discount to current rate), rather than simply a price paid per kilowatt hour (kWh) of production.
During the first six months (August 2014 to January 2015), Demeter will identify the primary target market for initial launch of the first Feed-Out Program marketplace. Demeter will collaborate with a PACE Program administrative team in that local market to form the Program (develop program rules of participation, leverage support of Program stakeholders like capital providers, the solar and EV charging infrastructure participants, the local utilities, local government).
The Program will be modeled in material aspects off the Los Angeles Division of Water & Power (LADWP) FiT, except as described above. Like the LADWP FiT, the initial year will target 100 MW of solar installations in four quarterly tranches. The first tranche of 25 MW will have an application deadline of February 1 and, if applications exceed available allotments, a lottery will be conducted from applicants. After due diligence is conducted, projects that meet eligibility requirements will close on financing within one month and be eligible to start construction.
Additional tranches will be structured quarterly (3 months after the initial February 1, 2015 deadline). Demeter will seek to fund 100 MW in the first target market in each of the first and second years and also seek to expand into a second target market in 2016. Upon closing, projects should take generally less than 5 months to construct. Thus, Demeter's goal is to close on financing of 300 MW total during 2015 to 2016.
Investment of $36 trillion, $1 trillion a year for the next 36 years, is needed for sustainable energy infrastructure to reduce greenhouse gas emissions by 50% by 2050. The challenge with project finance of this infrastructure, as discussed by Michael Eckhart (Citigroup) in a 2013 article, is marrying needs and expectations of the development finance community with the independent power producer (IPP) industry. Lenders take a top-down approach, first arranging a pool of capital, then going out to bid and selecting a contractor. The IPP industry takes a bottoms-up approach, pooling a portfolio of projects and then seeking financing. In either approach, a creditworthy counterparty is a fundamental prerequisite.
The most successful public policy for scaling solar PV to date has been the feed-in tariff (FiT) program, contributing 75% of global solar installations. Germany's FiT has enabled development of 36 gigawatts (GW) despite relatively low levels of solar irradiation. Los Angeles Department of Water and Power (LADWP) launched the largest FiT in the U.S. and received over 100 MW of applications in response to just the first 20 MW tranche offering, demonstrating significant demand for solar at the right price.
FiTs fulfill two necessary requirements: 1) price certainty to project participants and 2) credit support (because it is a utility's promise to purchase 100% of the generation output of a solar installation at a standard offer price that is the source of customer credit).
Aside from certain markets like L.A., however, FiTs have not emerged as a scalable policy solution in the U.S. because their implementation is typically counter to a utility's business or regulatory model. What is needed is a project finance model that brings credit uniformity of a FiT and is capable of unlocking low cost capital for implementation in a free and open energy marketplace.
Demeter first requires a partnership with a local PACE administrative team. The project team identified two preferred alternatives: 1) California Statewide Community Development Authority (CSCDA), which offers the CA FIRST PACE Program administered by Renewable Funding and serves over 17 counties in Northern California; and 2) LA County, which serves a large population and within which market LADWP launched a successful FiT. Additionally, Demeter requires a commitment from financial partners (both debt and equity, including tax equity); the sustainable energy infrastructure industry participants (defined broadly as solar companies, EV charging station companies, etc.); utilities (PGE, SCE); and prospective commercial property owners or their tenants (retailers, office, or corporate headquarter properties; health-care properties and multi-family properties). Lastly, the project would benefit from participation by non-governmental organizations, including policy-driven non-profits like PACENow, Environmental Defense Fund and Ceres as well as trade associations.
Demeter Power is offering a mix of financial resources (direct and raised through Demeter's funding platform), in-kind implementation services (Demeter will serve as chief design architect of the program) and licensed use of its intellectual property (its project origination platform for project participants to easily assess and origination projects).