Utility Scale Solar Update March 5, 2019 Andrew C. Hanson Perkins - PowerPoint PPT Presentation

Wisconsin Public Utility Institute Utility Scale Solar Update March 5, 2019 Andrew C. Hanson Perkins Coie LLP

Overview • Status of Utility-Scale Solar in the Midwest • Transmission • Project Development and Construction • Regulatory Considerations • Recent Tariffs 2 Perkins Coie LLP | PerkinsCoie.com

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S trategic Energy Assessment: 2016 4

S trategic Energy Assessment: 2018 5

Transmission Perkins Coie LLP 6

https://api.misoenergy.org/PublicGiQueueMap/index.html 7 Perkins Coie LLP | PerkinsCoie.com

https://api.misoenergy.org/PublicGiQueueMap/index.html 8 Perkins Coie LLP | PerkinsCoie.com

https://api.misoenergy.org/PublicGiQueueMap/index.html 9 Perkins Coie LLP | PerkinsCoie.com

S trategic Energy Assessment: 2018 10

Transmission and Interconnection  Interconnection Studies  Deposits/Refunds  Costs  Network upgrades  Timing  Network upgrades  E&P, FCA and MFCA Perkins Coie LLP | PerkinsCoie.com

MISO Interconnection Study Process • DPP1 ~ 140 days • DPP2 ~ 80 days • DPP3 ~ 135 days • GIA ~ 150 days • Total process ~ 505 days 12 Perkins Coie LLP | PerkinsCoie.com

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MISO DPP Schedule – East (ATC) • Reflects all generation (not just solar) • 2,200 MW - DPP2 – mostly solar • 3,725 MW - DPP start on April 2, 2019 – mostly solar Source: https://cdn.misoenergy.org/Definitive%20Planning%20Phase%20Estimated%20Schedule106547.pdf 14 Perkins Coie LLP | PerkinsCoie.com

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Project Development and Construction Perkins Coie LLP 1 6

What is the Target Project? 17 Perkins Coie LLP | PerkinsCoie.com

Solar Projects – Ideal Characteristics • Significant amounts of cleared land; • Flat topography to reduce construction cost and risk; • Geology sufficient to support mounting systems (e.g., embedment depth for driven piles); • Near transmission with an existing substation suitable for interconnection, with no or minimal network upgrades needed, or where the cost of upgrades is largely known; • Local landowner and community support; • No or minimal sensitive environmental resources in or near the project (e.g., parks, wetlands, waters, habitats). 18 Perkins Coie LLP | PerkinsCoie.com

What is the Deal Structure?  Power Purchase Agreement  Creditworthiness of off-taker  Minimum output guarantee and replacement costs for curtailments  Conditions precedent – fully developed interconnected project with milestones and completion date  Develop-Transfer  Asset Purchase - transfer of identified Project assets  Assume only identified Project liabilities  Consider contract assignability  Purchase of Project Company (Equity Purchase) - acquire all assets of Project company  Assume all liabilities of Project company  Dissolution of entity post-closing  Build-Transfer  Developer develops, constructs, and transfers project to new owner 19 Perkins Coie LLP | PerkinsCoie.com

Federal Investment Tax Credit (ITC)  ITC is a tax credit based on a % of the project tangible asset cost.  The project owner claims the ITC in the year the project is placed into service.  The ITC vests linearly over a 5 year period. If the project owner sells the project before the end of its 5th year of operation, the unvested portion of the credit will be recaptured by the IRS.  Solar Energy Project – IRC Section 48(a)(3)(A)(1)  To qualify for ITC at a level greater than 10%, project construction commences before 1/1/2022 and is placed in service by 12/31/2024.  ITC % is based on the year the project construction commences: 2019 – 30%; 2020 – 26%; 2021 - 22%; and 2022 or later - 10%.  Two methods to determine "commence-construction" date: (1) start physical work of a significant nature or (2) meet "5% safe harbor test" by incurring 5% or more of the total cost of the facility. 20 Perkins Coie LLP | PerkinsCoie.com

Project Development  What does a “developed” project look like?  Land Rights  Permits  Studies and Reports  Contracts (Generator Interconnection Agreement, etc.)  Site Plan  Interconnection and Transmission  Solar Data  Environmental Attributes  Intellectual Property (project name, data, reports) 21 Perkins Coie LLP | PerkinsCoie.com

Land Rights  Leased Land  Preliminary Title Commitment  Lease Terms and Conditions  Survey  Duration/Termination Rights  Title Insurance – Endorsements  Prior Encumbrances (SNDA)  Recording  Estoppel Certificates  Owned (“Fee Simple”) Land  Substation and O&M facility  Rights of Way; Easements; Shared Rights  Public and Private 22 Perkins Coie LLP | PerkinsCoie.com

Project Assets: Permits, Contracts, Studies and Reports  Permits  Studies and Reports  Conditional Use Permit  Avian, Wildlife Assessment  Environmental (e.g. stormwater)  Congestion and Curtailment Assessment  Others  Cultural Resource Study   Non-appealable status Decommissioning Cost Analysis and Plan  Interconnection Studies  Phase I Environmental Site Assessment  Contracts  Preliminary Geotech Report  Generator Interconnection Agreement  Reactive Power Study  Other interconnection related agreements  Stability Analysis  Consultant agreements for reports and  Wetlands Assessment/Field Delineation studies  Solar Analysis/Capacity/Net Capacity Factor  Assignability Report  Depreciable Life Studies and Degradation Analysis 23 Perkins Coie LLP | PerkinsCoie.com

Project Construction  Responsible Party - Buyer vs. Developer  EPC vs. BOP - selection of contractor and price  Solar Panel/Equipment supply  Schedule: mechanical completion, substantial completion and final completion  ITC Requirements  Warranty Period 24 Perkins Coie LLP | PerkinsCoie.com

Regulatory Considerations Certificate of Public Convenience and Necessity (CPCN) (Wis. Stat. 196.491(3) and PSC Ch. 111 • Required for large electric generating facilities > 100 MW • Application submitted at least six mos. prior to stating construction • Engineering Plan submitted at least 60 days prior to application • Application Filing Requirements • Not all requirements apply to wholesale merchant generators, but • Design and location must be in public interest • No undue adverse impact on environmental values • No interference with orderly land use and development plans • No adverse impact on competition in the relevant wholesale market 25 Perkins Coie LLP | PerkinsCoie.com

Regulatory Considerations • Certificate of Authority (CA) - Wis. Stat. 196.49(3) and PSCW Ch. 112 • Applies to public utilities • PSCW can decline to issue if the project will: • Substantially impair the efficiency of the service of the public utility. • Provide facilities unreasonably in excess of the probable future requirements. • When placed in operation, add to the cost of service without proportionately increasing the value or available quantity of service. 26 Perkins Coie LLP | PerkinsCoie.com

Recent Utility Tariffs Perkins Coie LLP 2 7

Recent Utility Tariffs  WEPCO – Solar Now  Designed for commercial and industrial customers who want to host a solar PV system on their property  2.25 MW nameplate capacity limit on each hosted solar PV system installation;  Total participation cap of 35 MW, with 10 MW reserved for nonprofit or government entities; Monthly lease payment based on the value of capacity from the resource, in turn based on MISO’s  CONE for the relevant Resource Adequacy Planning Year;  WEC to retain ownership and responsibility for operation of each resource;  All energy generated will be delivered to the distribution system;  One of the purposes is to “[ i]dentify characteristics of optimal sites that can utilize distributed generating assets to avoid or defer future investments in the Company’s distribution system…” 28 Perkins Coie LLP | PerkinsCoie.com

Recent Utility Tariffs • WEPCO - Dedicated Renewable Energy Resource Pilot • Designed for customers wishing to purchase a portion of a large-scale renewable energy project located in Wisconsin; • 150 MW nameplate capacity limit of total customer participation; • WEC will retain responsibility for operation of the resource • Participating customer will pay all costs associated with the new resource subject to a service agreement, including depreciation, return on invested capital and O&M • Participating customers will receive: • Monthly market value of energy • Monthly capacity credit based on CONE or MISO zone 2 PRA auction, depending on WEC’s capacity position during the MISO Resource Adequacy Planning Year at the time the agreement is executed • Rights to all renewable energy attributes 29 Perkins Coie LLP | PerkinsCoie.com