Penn State Smeal College of Business Prof. Tony Warren/Prof. Jack Kaplan

Penn State Smeal College of Business
BA 500 – Innovation & Entrepreneurship
Prof. Tony Warren/Prof. Jack Kaplan
Business Plan for
GoSolar, Inc.
GoSolar
Robert Brzozowski
Chris Flynn
Scott Gentry
May 9, 2009
Contact: 570 575 2458
RR 2 Box 2437
Cresco, PA 18326
Al l rights to the this document are reserved. Trademark pending.
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
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GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
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GoSolar, Inc.
Table of Contents
Page
1. Executive Summary ........................................................……………….…………3
2. Market Opportunity & Analysis ..............................................................................6
3. Company Description & Operational Structure .......................................................9
4. Key Milestones ......................................................................................................15
5. Business Strategy & Partnerships ..........................................................................17
6. Legal Structure & Ownership ................................................................................20
7. Management Structure & Staffing .........................................................................21
8. Capitalization Plan .................................................................................................22
9. Exit Strategies ........................................................................................................25
10. Financial Assumptions & Pro Forma Statements ..................................................26
11. Financial Sensitivity Analysis................................................................................30
12. Bibliography ..........................................................................................................33
Appendices I - VII
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 4
1. Executive Summary
GoSolar, Inc. utilizes an innovative approach to creating an electric power utility. In
essence, roof top space is rented from homeowners and businesses in order to establish a massive
array of solar photovoltaic (PV) panels. The power generated by the solar panels at each
installation site reduces the electrical load that is normally drawn from the power grid. Because
this demand reduction is treated by grid operators identically as increased electricity generation,
GoSolar is able to aggregate and sell the reduction in system load back to the utilities.
Furthermore, GoSolar can be created within the existing electrical grid without adding costly
transmission lines. In addition to participating in green energy production, homeowners and
businesses pay nothing for GoSolar’s PV systems (the cost is covered by GoSolar and
government subsidies), and they receive “rent” in the form of credits that can be applied to their
retail electricity rates.
~~~~~~~~~~~~~~~~~~
The key to the economics of this business model is that the array will be used as an offset
mechanism to reduce demand, especially during peak power usage in the summer months. First,
from the utilities’ point of view, demand reduction is equivalent to new power generation.
However, the marginal cost to the utilities to provide additional peak generating capacity is much
higher than the average retail rate the utilities charge customers. Thus utilities are willing to pay
premium rates for demand reduction rather than having to add marginal peak capacity and fire up
costly back-up generation plants. Second, utilities are faced with increasing electrical demand
over both the short- and long-term, as households require more energy and the automobile fleet
is converted to electricity. Utilities urgently require new sources of generation (or equivalently,
demand reduction) in order to meet their statutory requirement of providing sufficient energy to
their customers. According to the U.S. Energy Information Administration, demand is projected
to increase by about 30% over the next 30 years. GoSolar can help to satisfy this need using an
eco-friendly approach. The growing tide of the green movement is spurring greater use of
renewable sources in electric power generation.
Much of this shift is mandated by state
governments – thirty states currently have enacted requirements that utilities produce somewhere
between ten and twenty percent of power from renewable sources in the next twenty years. It is
also likely that during the current Congress more aggressive action, such as a cap-and-trade
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
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market to reduce CO2 emission will be enacted. Over the longer term, a more effective and
“smart” transmission grid will come on-line, making it feasible to transmit power over great
distances and at more efficient times of day. GoSolar proposes to bridge the gap between today
and the new grid, as well as be an integral part of the new energy generation system.
The key to implementation of this business model is that market mechanisms already
exist by which utilities pay for system load reduction, particularly in the mid-Atlantic markets of
the U.S. Moreover, because the wholesale electricity markets used to manage electricity in the
mid-Atlantic region are more robust than in most other parts of the country, the initial business
model will be most successful if launched in this region. GoSolar has established key contacts
with PJM Interconnection, the electrical grid operator for the mid-Atlantic region. Although the
intensity and duration of sunlight is somewhat diminished when compared to the southwestern
region of the United States, the mid-Atlantic region still is suitable for significant PV power
generation.
At current market rates, it will be necessary to seek external financing to cover GoSolar’s
capital investments and achieve positive cash flow. The key to managing cash flow in the
business model consists of the following strategies: 1) reducing net costs by using sources of
green energy rebates, and 2) using both standard and creative financing. The first strategy
involves taking advantage of government subsidies, both state and federal.
Significant
government subsidies will defray 50% or more of the cost of constructing the array. The second
consists of standard financing using guaranteed government loans, as well as more creative
financing such as partnering with suppliers for favorable credit terms. Government loans will
play a crucial role.
The current administration has increased the guaranteed portion of
government SBA loans to 95% for qualifying green energy projects. Additionally, favorable
credit terms will be sought from suppliers as well as cooperation with commercial customers.
Currently, the cost of installing panels for a typical residence can run as high as $60,000,
a significant investment barrier that requires a long breakeven period. GoSolar will pay this cost,
as well as install and maintain the system, in exchange for the rights to sell the load reduction
back to the grid. The home or business owners benefit by: 1) avoiding significant upfront
investment and ongoing system maintenance costs; 2) receiving a substantial decrease in their
annual cost of electricity; and 3) supporting environmentally-friendly energy practices.
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Penn State EMBA Program
May 9, 2009
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GoSolar’s marketing efforts will target early adopters of green energy projects, both in the
commercial and residential markets.
GoSolar will be launched in two phases over three years.
In the first phase, over
approximately a one year period, a capital base will be secured in order to achieve the level of
credit quality required by the grid operator. Also, a relatively small array totaling approximately
0.3 megawatts will be installed in order to qualify for the minimum aggregated sale of load
reduction.
Necessary legal, business, and partnership policies and practices also will be
established during this period. Reaching these phase-one targets will require the launch of the
commercial-customer side of the business first. This focus enables a more rapid establishment of
positive cash flow to the company requiring fewer customer touch points. The second phase, to
be implemented over the following two years, will consist primarily of installing PV systems that
aggregate to 8.0 Megawatts of load reduction (approximately 1,000 residences or commercial
equivalents). Once the model is proven at this level, additional partnerships and sources of
investment should become available, leading to additional size, scale, and expertise.
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
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2. Market Opportunity & Analysis (See Appendix I for a complete SWOT Analysis)
Several forces are coalescing in the energy industry to allow for the creation of GoSolar’s
array. First and foremost is the continuing and predicted growth in demand for electricity.
According to the U.S. Energy Information Administration, demand is projected to increase by
about 30% over the next 30 years.
Second is the growing tide of the green movement to spur greater use of renewable
sources in electric power generation. Much of this shift is mandated by state governments; thirty
states currently have enacted requirements that utilities produce somewhere between 10 and 20
percent of power from renewable sources in the next 20 years. It is also likely that during the
next Congress more aggressive action, such as a cap-and-trade market to reduce CO2 emission
will be enacted.
Longer term, a more effective, 21st century transmission grid will come on-line, making it
feasible to transmit power over great distances. The grid will also be modified to transmit realtime pricing information directly to consumers (e.g., appliances will signal when the cheapest
power is available). When this transition to a “smart grid” occurs, probably still a decade or
more away, alternative energy sources will supply a larger portion of the nation’s electricity
needs. GoSolar proposes to bridge the gap between today and the new grid, as well as be an
integral part of the new energy generation system.
One hour of the sun’s energy that reaches Earth provides more power than the entire
world’s yearly energy demand. However, current technology to harness this energy is relatively
inefficient, capturing less than 20% of the available energy. Also, because sunlight is inherently
unpredictable due to local weather conditions, solar power probably will never be sufficient to
provide baseload power needs for the world’s economies (at least using existing technologies).
However, solar PV technology is well positioned to provide much needed peaking power at
critical times, when demand for electricity is at its highest. During the current economic
downturn and beyond, GoSolar offers the opportunity to be an essential player in the
revitalization of the US and Global economy. Dramatic expansion of renewable power capacity
is at the core of GoSolar’s understanding of the marketplace.
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
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Total Available Market & Expected Market Share
From a pure utility perspective, the Solar Array should be the most competitive provider
of peak renewable energy in any given market area. Our goal in any given market is to capture
at least five-percent of the renewable energy requirement. Currently, in the mid-Atlantic electric
grid, less than 1% of power is generated by solar sites, thereby affording tremendous
opportunities for growth. Carnegie Mellon University estimates the technology could help
reduce electricity demand by 5 percent during the 100 most expensive hours of the year—
typically, times when the sun is most intense and temperatures the highest—which would save
Pennsylvania ratepayers $1.9 billion annually. With current carbon-based generation facilities,
electricity rates can be 15 to 30 times more during periods when demand is highest.
Our array investment could have a dramatic effect on the cost of PV cells. We will have
developed a partnership with one or more manufacturers that should create efficiencies and
reduce installation costs. Current installation costs are as follows:
Homeowner’s Installed Cost Estimate
•
Average price per kW-hr = $0.10 (range $0.07/kW-hr WV to $0.24/kW-hr HI)
•
Solar Panel Generating Capacity (conservative) = 10 watts/sq. ft. (represents about a 12%
conversion efficiency)
At 10 watts/sq. ft., 100 sq. ft. of solar panels is needed for each kW of peak generating
capacity. Therefore, an average home needs 400 to 800 sq. ft. of solar panels to generate 4 to 8
kW peak capacity. Current installed cost (at an average of $8/sq. ft.) is thus approximately
$32,000 to $64,000. With the current state and federal alternative energy government incentives,
50% or more of this cost can be offset in some states. However, a substantial initial investment
is still required. GoSolar solves this problem for the consumer by making the up-front
investment while also providing the consumer immediate utility bill savings.
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
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Competitive Set
Distributed Solar PV installations have many advantages over competing technologies,
many of which have drawbacks from either a pollution or power distribution standpoint. When
we look at the peak power supplier market, the primary competitors are natural gas fired turbines
and, in some areas of the country, stand-by hydroelectric power. Although natural gas is far
cleaner than a coal fired plant, it is still a CO2 producer. Hydro power in the U.S. is limited,
currently producing about 8% of the country’s needs. It does have potential for growth, but:
“Only 2,400 of the 80,000 dams in the United States are used for hydroelectric power. It is
costly to construct a new hydroelectric power plant, and construction uses much water and land.
In addition, environmental concerns have been voiced against their use. According to the U.S.
Geological Survey, the likely trend for the future is toward small-scale hydroelectric power
plants that can generate electricity for single communities” [US Geological Survey].
Wind farms are growing at a steady rate, but as long as the grid continues to be limited in
its ability to handle voltage, there will be limits to this potential. Moreover, most wind farms are
not located near existing transmission lines: “The dirty secret of clean energy is that while
generating it is getting easier, moving it to market is not. The windiest sites have not been built,
because there is no way to move that electricity from there to the load centers” [Matthew L.
Wald, 8/27/2008, The Energy Challenge, The New York Times].
There are alternative approaches to building large scale use of solar power by
homeowners. The most organized example being the effort, supported by incentives and tax
breaks, to put one million solar panels on roofs in California. Our research to date has not
revealed the existence of any other business venture that is seeking to provide solar panels at no
cost to homeowners. Furthermore, there are currently no government programs that provide
100% subsidies.
Currently, electric power is purchased by the transmission utilities via continuous
auctions run primarily by 13 Regional Transmission Organizations (RTO). The RTO’s were
created by the U.S. Dept. of Energy in 1999. The goal was to create a competitive marketplace
for electricity generators, and enable independent organizations to manage the power grid for
reliability and efficiency. RTO’s purchase electricity based upon a “locational marginal pricing”
model, which takes the price of the last-in supplier at a given demand. During peaking times,
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
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this price far exceeds baseload pricing due to expensive generation capacity (primarily from gasfired turbine plants).
3. Company Description
Business:
GoSolar is a unique approach to creating an electric power utility. In essence, we rent
roof top space primarily from homeowners and businesses in order to create a massive array of
solar photovoltaic (PV) panels. Homeowners pay nothing for the PV panels and related
equipment (the cost is covered by GoSolar and government incentives), and they receive credits
that can be applied to their retail electricity rates. The reduced load on the electric grid is then
aggregated and sold at auction within the Regional Transmission Organization (RTO), otherwise
known as the local electric grid operator.
Currently, the cost of installing panels on a typical residence can run as high as $60,000.
GoSolar will pay for this cost, in exchange for the rights to sell the generated power back to the
grid. The homeowner benefits by receiving a 15% decrease in their monthly cost of electricity
(which is the average amount that current Curtailment Service Providers pay from their
earnings to the businesses that participate in load reduction.). The utility benefits by receiving
much needed capacity in the form of load reduction, which has a lower marginal cost than
building expensive new power generation plants.
Our goal is to select homeowners primarily based on locations that provide the maximum
benefit in terms of the needs of the array. This selection will be based on the estimated solar
utilization factor of each site (a calculation based upon the average amount of sunshine,
geography, local weather patterns, and site positioning). In addition to installing state-of-the-art
PV panel systems, GoSolar will install “smart” metering systems that allow consumers to
monitor their real-time power usage. This feedback system maximizes load reduction as more
power can be sold up to the grid during expensive peak times (hot and sunny summer days), and
less expensive power can be purchased from the grid by the consumer during nighttime/non-peak
hours of the day.
Significant government subsidies will defray a large part of the cost of constructing the
array. We estimate that the initial 3 year ramp-up program, consisting of installations on one
thousand homes (or equivalent-power commercial installations), will cost about $20,000,000 in
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Penn State EMBA Program
May 9, 2009
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capital funding. Once the model is proven at this level, partnerships with several utilities within
the RTO should become possible, leading to a significantly larger array of many thousands of
sites. Other secondary cash flows will likely be derived from the data we gather in the
construction of the array.
Because we have key contacts within the mid-Atlantic states power market, and because
the electric transmission infrastructure serving this area is considered to be more robust than in
most other parts of the country, we intend to launch our initial business in Pennsylvania and New
Jersey. The regional RTO, called PJM Interconnection, is a regional transmission organization
(RTO) that coordinates the movement of wholesale electricity in all or parts of Delaware,
Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio,
Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. Even though the
amount of sunlight is less than in other parts of the country, by building the array in this region,
we can take advantage of the level of sophistication that PJM shows in the nature of their
operation. We also have access to a number state regulators and power company executives
throughout the region.
The keys to GoSolar’s success will be a first-to-market presence, rapid ability to reach
scale, and strong relationships with the grid operator and local utility companies. Because the
business model does not qualify for patent protection, it may be copy-able by a competent
industry participant. Therefore, it is important to break into the market early and develop a
strong brand presence. Ramping up quickly to scale will also increase barriers to competition.
At this time, we are not aware of any other firms that are moving forward with a similar model.
Operational Structure
Operations will be developed in two stages. “Stage 1” will consist of a pilot program to
demonstrate proof of concept and provide institutional learning. It will be sized with just enough
solar installation to comfortably meet the minimum energy contribution required to participate as
a Curtailment Service Provider (system load reducer). “Stage 2” will consist of a ramp-up to
1,000 home installations (or commercial equivalents) and is sized to generate adequate revenues
to support an on-going business.
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
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Commercial Division
We have defined a goal of 300 kW of power as a needed in order to meet the minimum
requirements of the PJM marketplace. The minimum requirement to bid in is 100 kW. We feel
that a redundancy of that number will enable us to safely meet their requirement without
incurring costly nonperformance penalties. In order to ramp up the array to the minimum
requirement as quickly as possible, a marketing effort to commercial customers will be launched
first. All types of commercial and government facilities will be in the target market. The
objective however, should be to look for locations within the PJM Interconnection that will
provide maximum potential for the array. We will also be looking for “brown-field”
opportunities where state and or local incentives may be available.
In Stage One, the commercial division will be staffed primarily by the founders. One
person will be responsible for building and maintaining a relationship with our principal supplier
and the contracting and install companies that will be used to build the array.
One founder along with an as-needed corporate attorney should be primarily responsible
for contracts and developing a streamlined process for handling agreements. This person may
also be ideally suited to working with an attorney who can develop strong relationships with
government officials and understand local ordinances and the permitting process.
All founders will share in the responsibility of developing relationships with prospective
commercial sites for locating the initial array. One person along with part-time clerical back-up
should be responsible for bringing these opportunities to fruition.
In Stage Two it seems probable that one Founder will remain in this division, the main
goal being to maintain a degree of continuity to the overall vision of the business. Staffing up
this side will greatly depend on the level of success that has occurred. However, considering the
physical size of PJM as a geographic marketplace, it will make sense to look at positioning sales
and business development staff across the market. This staff expenditure will be further justified
if expected demand causes rates to rise in the energy markets.
Residential Division
In Stage One, the primary goal on the residential side will be to implement a
comprehensive marketing plan for residential customers. A clear message to government and the
public will need to be crafted about the potential that our approach of “renting rooftops” offers to
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Penn State EMBA Program
May 9, 2009
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a broad swath of homeowners. The founders will be responsible for the day-to-day aspects of
this side of the business. A viral marketing campaign focused on consumers will be developed
in conjunction with grass roots efforts using environmentally conscious groups to help spread the
message. This division will likely need to contract with a marketing firm in order assist in
branding and messaging. All Founders will assist in organizing and participating in the media
public relations campaign that will be needed to make this part of the business possible and
profitable.
In Stage Two the residential part of the business should) become the primary driver of
growth. A skilled manager will be hired to run the unit whose responsibility will be two-fold.
First, local installers will need to be contracted and trained to install GoSolar systems. It is likely
that these installers will also be a primary marketer for the GoSolar concept. Second, this
manager will be charged with developing a sophisticated and seamless customer service process.
It is likely that much of this process can be outsourced. However, it will be incumbent on this
manager to ensure quality, reliability and accountability for this service. The greatest concern in
this unit is that the demand for panels may exceed our ability to maintain profitability. The
growth of this market area will need to be monitored from a strategic standpoint, an assignment
that will likely fall to one of the Founders in the early going of Stage Two.
Administration Division
In the transitions from Stage One to Stage Two to Ongoing Business, a centralized
Administrative function will become essential. This group will interface with both revenuegenerating divisions. It will provide clerical support, as well as deal with utility and regulatory
issues. It will also be responsible for the corporate offices that are developed. The unit will also
become responsible for accounting and contract issues that relate to both revenue-generating
units. It will most likely maintain the principal HR functions and come under the responsibility
of the CFO.
Revenue Generation
Essentially, there are three primary ways that electric distribution companies (i.e.,
utilities) purchase power from generation companies in order to comply with their statutorily
mandated requirement to satisfy electricity demand.
GoSolar, Inc. Business Plan
Penn State EMBA Program
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First, they sign bilateral agreements with electric generation companies at negotiated
prices. Utilities are free to secure power at whatever level they can negotiate. Power
then flows through the transmission grid according to the contractor, and it is paid for
outside of real-time market systems. GoSolar does not plan to participate in this
market.
•
Second, utilities ensure that future generation capacity will be available by paying for
capacity several years in advance. These payments are made to generators to assure
that capacity will be available – regardless of whether that capacity is used. The
capacity payments also serve to incentivize companies to invest in new generation
when increased demand is forecast. In the PJM region, capacity auctions occur three
years in advance of when capacity is needed. GoSolar will participate in this capacity
market.
•
Third, energy is purchased on an hourly basis for actual electricity (or equivalent load
reduction) that is delivered. In the PJM region, there are two primary energy markets,
the day-ahead market and the real-time market (which is divided into five-minute
increments). If demand and supply projections are accurate, then day-ahead market
prices align closely with the real-time market. In periods of unexpected power
shortfalls (due to a sudden increase in demand or decrease in supply), the real-time
market prices can spike as utilities scramble to purchase peak power at the most
expensive marginal cost (sometimes 15 – 30 times the average baseload market
rates). GoSolar will participate in the day-ahead energy market as a load reducer.
Capacity Market – Payments for the promised capacity begin in the target year and are made
based upon having the potential for load reduction should it be needed; that is, capacity payments
are independent of whether the load reduction is actually used. Bidders are committed to
delivering the promised level of demand reduction capacity in the target year. If for some reason
the anticipated level of demand reduction is not available as promised, bidders are legally
responsible to purchase, at market prices, whatever level of shortfall is realized. The grid
operator also assesses severe financial penalties, in order to ensure that capacity is available as
promised. This guaranteed stream of payments for available capacity accounts for about 15% of
GoSolar’s total revenues.
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Penn State EMBA Program
May 9, 2009
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* Note: Capacity prices above include blended PJM markets, and therefore reflect somewhat higher
levels than GoSolar’s expected price. The graph correctly reflects overall market trends, however.
Energy Market – The energy market enables generators (and load reducers such as GoSolar) to
bid their power into the market when it is used. The Day-Ahead Market is a forward market in
which hourly prices are calculated for the next operating day based on generation offers, demand
bids and scheduled bilateral transactions. The market uses locational marginal pricing (LMP)
that reflects the value of the energy at the specific location and time it is delivered. The rates
from the day ahead market are highest during the summer and winter as prices reflect increasing
demand, and prices are usually lowest in the fall and spring. Over the entire year of 2008, the
average auction price (i.e., load-adjusted LMP) for the energy market was approximately $70 per
megawatt-hour. This price historically has increased an average of about 13% per year since
1998 (11% on compounded basis). This sustained upward trend in energy market prices is an
important factor in the future profitability of GoSolar. Energy market revenues account for
nearly 45% of GoSolar revenues.
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Penn State EMBA Program
May 9, 2009
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Remaining revenues: Generated from government subsidies, renewable energy rebates, and tax
credits, and expected to compose about 40% of the GoSolar revenue base.
4. Key Milestones
 Macro Milestones
o Stage 1: Proof of Concept (300 kW using Commercial Division)
o Stage 2: Commercialization (building and operating an 8 mW Array)
 Milestones – Stage 1
•
May 2009: Finish Business Plan
•
March-May: Line up advisory board members
•
March-June: Line up sources of funds, partners
•
May: Set up legal framework
•
July: Finalize Marketing Plan
•
July-August: Develop legal and fiscal relationship with PJM
•
August-Jan 2010: Test & revise marketing approach
•
Sept.-April: Site locations and finalize terms for 300kW of power.
•
January 2010: Have contracts in place with installers and PV manufacturers.
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Penn State EMBA Program
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April 2010: Overall assessment of Year 1 and formulate Year 2
 Additional Investor Milestone indices for Stage 1:
The principal milestones that investors will need to track relate directly to GoSolar’s
ability to deliver the 300kW of capacity by the end of Stage One. Working
backwards from this point investors will want to track when contracts are being
completed and when construction is commencing. These dates and requirements can
be tracked as closely as the investor deems necessary.
 Milestones – Stage 2
•
May of 2010: Have agreements in hand for the construction of 300kW of power.
•
May: Commit to the 2013-2014 capacity market with a bid.
•
2010 and 2011: Main array siting and installation underway to full load reduction
of 8 mW (approximately 1,000 residences or equivalent)
 Additional Milestone indices for Stage 2
Over the course of the next two years, it will make sense to measure completion
progress towards the 8mW goal on a monthly basis. As long as the project is on
track, pushing this requirement back to a quarterly reporting basis is appropriate.
GoSolar should be on track at the beginning of Stage 2 to be installing approximately
250 kW of systems per month.
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Penn State EMBA Program
May 9, 2009
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5. Business Strategy & Partnerships
The Founders of GoSolar feel they have a unique business plan, utilizing the concept of
“renting roofs” and realizing net profits by selling the aggregating load demand reduction.
Because this concept is unique, there are several operational and regulatory hurdles, described
below, that will need to be surmounted. If it should turn out that it is not currently practical to
surmount these hurdles, an alternative business model is presented consisting of a more
conventional business model, successful examples of which currently exist.
A. Primary Business Model - Participate in Capacity and Energy Markets as a
Curtailment Service Provider: In order for GoSolar to obtain maximum revenues from the
existing power markets, we will organize within the grid as a Curtailment Service Provider
(CSP). The function of a curtailment service provider is to aggregate reduced load and sell it
back to the grid at market prices. Customers of this reduced load are the utilities (technically
referred to as “Load Serving Entities”), and they are represented collectively in the market by the
grid operator (in this case, PJM). As the market maker, PJM monitors all bids and asks, and it
processes or monitors all transactions from buyers to sellers (similarly to a stock market). It also
ensures the viability of all market participants to ensure integrity of the system.
This demand response/CSP model already has been established by PJM and the Federal
Energy Regulatory Commission, and it has the fewest regulatory hurdles. Energy payments to
CSP’s have been growing exponentially year by year (see graphic below).
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May 9, 2009
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Challenges: It should be noted that GoSolar’s primary business model includes several
assumptions that have yet to be tested or implemented:
•
A real-time tracking system needs to be developed whereby load reduction from each PV
site can be monitored and aggregated at the corporate level. The aggregated reduction
amount then must be bid into the energy market each day.
•
Currently, in the energy market, revenues for each site’s load reduction are accounted for
as savings on consumer’s monthly electricity bills (using a system called “net metering”).
For example, with a solar PV system in place, a household monthly bill will decrease,
say, from $200 to $100, reflecting decreased demand for electricity at the site due to
replacement power from PV system. However, because the PV system will be installed
and owned by GoSolar, a process needs to be developed whereby GoSolar can capture
this $100 savings, most likely through a payment from the utility. PJM recognizes that
the current system is a barrier to the formation of new CSP’s, and it is exploring payment
models that will make it easier for companies like GoSolar to capture load reduction
value.
•
Significant public funds are now available to consumers to offset the cost of renewable
energy systems. We estimate that approximately 65% of the cost of each installation can
be recovered with government rebates, grants, and tax credits. However, because most of
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Penn State EMBA Program
May 9, 2009
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these benefits are given directly to consumers, a mechanism for GoSolar to capture these
savings needs to be developed.
B. Fallback Business Model – Leasing Solar PV Systems to Consumers: Given that
it may be difficult to overcome the hurdles involved with the primary business model, GoSolar is
prepared to implement a second fallback model. However, with this plan, it will not be possible
for GoSolar to aggregate and sell load reduction in either the capacity or the energy markets. In
fact, the consumer will only gain from the energy market; the capacity market value will remain
unclaimed.
In essence, the company would provide solar PV systems to high credit-quality
consumers using a leaseback arrangement. GoSolar would retain ownership rights to the system
and continue to maintain and monitor the system over its lifetime. Consumers would make
monthly lease payments for their system and receive the full value of load reduction in reduced
monthly utility bills (using net metering). Upon sale of the property, the lease payments can be
transferred to a new homeowner or GoSolar will remove the system for free. Utility bill savings
will be greater than the lease payments, thereby creating value for the consumer. This model
currently is employed by several companies in California and Arizona (such as Solar City).
Partnerships
GoSolar will depend upon both upstream and downstream partners in order to
successfully implement its concept.
A. Marketing Partners:
•
Builders – New Homes (custom and spec)
•
Green Agencies (e.g. Delaware Valley Green Building Council) www.dvgbc.org
•
Solar PV System Installers
B. Supplier Partners:
•
PV System Manufacturers: This partner stands to greatly expand their market reach by
providing GoSolar with either direct funding or no-cost panels until the venture becomes
profitable. It will behoove them to also supply GoSolar with access to installation
expertise and the manufacturers of other pieces required to complete an installation.
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 21
C. Implementation Partners
•
Installers – Our relationship with installers will need to be holistic. If done properly a
few key relationships will be developed here based on expertise in both residential and
commercial installs. The commercial side will be critical considering the dynamic
concerns (snow load, drainage, electrical hook-ups) of installing a large array on a
commercial roof-space. These installs will likely be unique in each case and require a
high degree of sophistication on the part of the install contractor. On the residential side
it should be feasible to work with existing installers to help market GoSolar. Once again
the venture will be providing installers with a ready source of business to dive their own
concerns.
6. Legal Structure & Ownership
Legal Structure
The company will be set up as a C-Corporation for the following reasons.
 The ability to attract capital will be critical. The C-Corporation provides limited
liability for investors. It also provides a much needed mechanism necessary for
GoSolar to raise significant funds in order to launch. It is likely that grant money and
government loans will be a significant percentage of early funding, but the company
should be in a position to offer shares to prospective outside investors. Ownership
opportunities will also be critical to bringing on needed talent and expertise.
 Second, all investors in this project will be better served by the greater transparency
offered in this structure. From a money-saving perspective, the company may be
inclined to incorporate in Delaware.
However, if another state were willing to
provide substantial assistance in the launch, that opportunity would be considered as
well. In evaluating an IPO as an exit strategy, the C-Corporation becomes the logical
choice for valuing shares and designing fair compensation for the founders.
 Finally, PJM Interconnection prefers interacting with this type of legal corporation.
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 22
Proposed Division of Equity Shares
At the outset the founders will be the owners of 60% of the available shares. The
additional 40% will be held primarily for outside investors and advisory board members. The
founders agree to split their ownership percentage evenly among them. The distribution of
ownership may vary depending on the possible demands of outside investors and the equity they
would put at risk.
Board of Directors (up to nine members)
•
Founders
•
External Investors
Advisory Board (members added as expertise is required)
•
Utility industry insider: Preferably retired C-level executive who is familiar with the
regulatory requirements of PJM Interconnection (our downstream customer)
•
Commercial Market Expert: Rob Boehning, Industrial and Commercial Real Estate
Consultant and Supervising Director of the Lehigh Valley branch Delaware Valley Green
Building Council [email protected]
•
Residential Market Expert: Upper management executive with large regional contractor
(100-plus homes a year) with strong knowledge of industry costs and permit process.
•
Finance and Funding Expert: Familiar with government grants and guaranteed lending as
well as venture capital (ideally connected with government funding knowledge)
•
Real Estate Counsel: Practicing real estate lawyer with significant contract experience
•
Utilities/Regulatory Counsel: Practicing utilities lawyer with significant experience
7. Management Structure & Staffing
Key Management Positions
Stage 1
•
CEO/CMO: Christopher Flynn
•
CFO: Scott Gentry
•
CTO: Robert Brzozowski
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 23
The following functions will to the extent possible be performed by the Founders in Stage
1, except perhaps for contracting needed legal services:
1. General Counsel (utilities/contracts)
2. PJM-Grid Integration Manager
3. Commercial Market Manager
4. Residential Market Manager
5. Operations Manager
Stage 2
Specialized positions will be filled with external expertise as needed.
•
Founders (positions unspecified until skill sets are established)
•
CEO
•
CFO
•
CTO
•
CIO
•
CMO
•
PJM – Grid Integration Manager
•
Commercial Market Manager
•
Residential Market Manager
•
Operations Manager
•
General Counsel
•
Utilities Counsel
•
Real Estate Counsel
8. Capitalization Plan
The bulk of Stage 1 funding will be focused on developing the administrative functions
of the business, securing sites for the initial 300kW of array, and completing all requirements to
participate in the May, 2010, PJM capacity market. Depending upon how agreements are
completed, a significant percentage of this early funding will come from principal suppliers and
government grants. The estimated cost of this stage is about $2 million.
In Stage 2 the financial commitment required will be balanced between venture capital
(firms with renewable energy focus and understanding of longer timelines), government grants,
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 24
and supplier agreements. The estimated cost of this stage is $22 million. The bulk of these
funds will be expended in the construction of the array. The monthly goal during Stage 2 will be
to bring on 300 kW of power per month.
Capital Budget
There is some uncertainty regarding where and how the company can secure initial
funding. In the initial phase of the company, loan funds will not be available from the SBA due
to limited cash flow to pay debt service. There is, however, some indication that venture capital
funding is exploring benefits of investing in an energy project of this sort. Also, GoSolar may
have access to federal stimulus funding for the construction aspects of the business. A
partnership with a PV panel manufacturer may also be advisable in order to obtain supplier
financing. Such suppliers would likely fund a substantial part of the operation as a way to
improve and increase their marketing reach. An ideal combination would be to have partnership
funds provide the bulk of upfront capital. This arrangement would likely entice some degree of
venture or angel funding into the mix. Government funding would make up the difference.
As the business progresses into profitability in the fourth year, the partners may either
want to take a larger stake or, having now proved the concept, other venture capital firms may be
enticed to take the business further. In addition, a combination of grants, tax credits and loans
are available through federal and state programs. The grants and tax credits can offset
approximately two-thirds of the total installed cost of a solar PV system, while the guaranteed
loans provide additional financing assistance. Federal sources of capital are described below,
and two examples are given (Pennsylvania and New Jersey) that illustrate how the combined
federal and state programs can offset 65% of the installed system cost.
1) Federal
•
Grant or Tax Credit: Grant for Development of Renewable Energy (grants available
as part of the Recovery Act starting March 1, 2009 through the U.S. Dept. of Energy,
Office of Electricity Delivery and Energy Reliability) and can fund 30% of cost to
build. Businesses eligible for the Business Energy Investment Tax Credit may take
either the tax credit or a grant. Individual homeowners eligible for the Residential
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 25
Renewable Energy Tax Credit must take the tax credit and not a grant (U.S. Dept of
Treasury - Renewable Energy Grants, 2009)(For more details, see Appendix VII).
•
Loans: Additional DOE money will be available in the form of a credit subsidy,
providing “no-cost federal loan guarantees to finance commercial renewable energy
projects” (Bastiere, 2009). The total guaranteed loans for renewable energy projects
are $60 billion (Federal Stimulus Money for Renewable Energy Projects and
Manufacturing, 2009).
2) Pennsylvania (estimated net installed savings (federal plus state programs): 65%.
•
Grant: $100 million of federal grant money is available through the Pennsylvania
Sunshine Solar Program. Funding is provided for renewable energy deployment and
is part of the $3.4 billion of Recovery Act funds being provided to the states. The
$100 million is to be used to provide reimbursement grants that cover up to 35% of
the costs that residential consumers and small businesses incur for installing for solar
energy technology. “Funding will be deployed in the form of reimbursement grants
for residential and small business projects. Grants will be awarded on a first-comefirst-served basis to approved applicants. Households may receive one solar PV grant
for up to 10 kilowatts (kW) of installed PV generating capacity…” (Alternative
Energy Investment Fund Programs, 2009)(For a more complete program description,
see Appendix VI).
3) New Jersey (estimated net installed savings (federal plus state programs): 65%
•
Upfront Incentives: “The Renewable Energy Incentive Program offers upfront
incentives to customers of utilities regulated by the BPU [NJ Board of Public
Utilities] who invest in eligible electricity-producing equipment for use in offsetting
onsite electric consumption.” (See Appendix III for a rate schedule).
•
“SREC: Solar Renewable Energy Certificates are tradable certificates that represent,
“all the clean energy benefits of electricity generated from a solar electric system.
Each time a solar electric system generates 1000kW-h (1MW-h) of electricity, an
SREC is issued that can then be sold or traded separately from the power. This makes
it easy for individuals and businesses to finance and invest in clean, emission free
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 26
solar power” (New Jersey Solar Renewable Energy Certificate Program)(See
Appendix IV for further details on how these certificates are traded).
Example:
Initial estimated installed cost @ $6.70/watt
$53,600
State
REIP - State [email protected]$2.00/watt
SREC - Expected NJ Renewable Energy Credit:
-$16,000
-$2,864
Federal
Federal tax credit (30%):
-$16,080
Net
Estimated NET cost (net saving is 65%)
$18,656
9. Exit Strategies
The founders are in agreement to operate the business so that returns are maximized to
investors (including themselves). They do not intend to manage GoSolar as a lifestyle business,
although they remain open to remaining with the company if their expertise permits. The longer
timeline to profitability for the business makes an IPO unlikely within the first few years of
operations. Market conditions would need to change dramatically (mainly, power prices would
need to rise significantly) in order for the business to be able to show a rapid enough return on
investment needed to justify a public offering. As that option seems unlikely, the best probable
alternative will be to sell the business off to one of two other types of businesses.
Option One: A larger Curtailment Service Provider or an existing Utility that is looking
to improve its competitive position in the energy marketplace. This currently is a rapidly
growing market and the major players are bound to be looking for ways to improve their green
image in the arena.
Option Two: This option may result from a partnership with a PV panel manufacturer. It
seems probable that GoSolar has found a new opening to create a much larger market for PV
cells and panels. If we are viewed purely as a new way to market both panels and Curtailment
service, we can create an entirely new channel for the sale and distribution of solar panels. A
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 27
panel manufacturer that is looking to secure a level of dominance in the market may well see us
as a valuable addition to its business as a means to secure a broader level of distribution.
The first window to sell the business off will probably occur in Year +1 or +2. Earlier
sell-off would only be likely if Carbon Cap-and-Trade occurs somewhere during the build up to
our 8 mW goal. A continued rise in both utility rates in demand is critical to reaching an
agreeable sell-off price.
10. Financial Assumptions & Pro Forma Statements
Assumptions: In order to project the viability of the firm, a number of assumptions are
made regarding the array growth rate, solar hardware and installation costs, energy and capacity
market pricing, government incentives and other factors. Because of the long lead time required
to install and launch the full 8-MW array, a five-year projection is provided. The first three
years (Years -3, -2, and -1) include both Stage 1 and Stage 2 plans when the company is ramping
up to full capacity in 2012. The final two years (Years +1 and +2) reflect company operations as
a going concern in 2012 and 2013.
Assumptions for Calculations
No. of Initial Installations
No. of New Installations
Year -3
Year -2
0
36
Year -1
516
484
36
480
Year +1
1000
24
Year +2
1024
24
All installations are denominated in Solar Residential Equivalents (i.e. SRE = 8 kW of
maximum power generation = approx. 800 s.f. of solar panels). The intent is to first market to
commercial customers so that larger arrays can be installed at fewer sites. By the end of Year -3,
thirty-six SRE’s are installed, thereby satisfying the minimum required power output for a
Curtailment Service Provider. In Years -2 and -1, a large number of installations are completed
in order to reach 1000 SRE’s and a load reduction of 8,000 kW (or 8 mW).
Average Installation Cost
Avg. KW per Installation (SRE)
Hardware Cost ($/KW)
Avg. Roof Improvements ($/KW)
Installation Labor ($/KW)
Permitting Cost ($/KW)
Year -3
$
$
$
$
Cost/KW $
Total Cost per SRE $
8
5,200
350
2,000
50
7,600
60,800
Year -2
$
$
$
$
$
$
8
4,900
350
2,000
50
7,300
58,400
Year -1
$
$
$
$
$
$
8
4,600
350
2,000
50
7,000
56,000
Year +1
$
$
$
$
$
$
8
4,300
350
2,000
50
6,700
53,600
Year +2
$
$
$
$
$
$
8
4,000
350
2,000
50
6,400
51,200
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 28
As discussed, for ease of analysis, each SRE is sized for 8 kW. Hardware installation
averages about $7,600 per kW (according to a recent study by Lawrence Livermore
Laboratories), and it is projected to decline over time by about $300/kW per year. This decrease
reflects manufacturing efficiencies, increased competition among suppliers, and technology
improvements. Therefore, over the five-year pro forma period, installation costs to GoSolar are
projected to fall by a total of about 15% (sensitivity tests around this figure are included in
Section 11 of this plan).
Capacity Market
Year -3
Capacity Market Rate ($/MW-Day)
Year -2
0
Year -1
0
0 $
Year +1
110.00
$
Year +2
110.00
Energy Market
Avg. Energy Market Rate ($/MW-Hour) $
Energy Market Annual Inflation Rate
Summer/Peak Rate Multiplier
Fall Rate Multiplier
Winter Rate Multiplier
Spring Rate Multiplier
70.00
1.25
0.80
1.10
0.85
$
77.00 $
10%
1.25
0.80
1.10
0.85
84.70 $
10%
1.25
0.80
1.10
0.85
93.17 $
10%
1.25
0.80
1.10
0.85
102.49
10%
1.25
0.80
1.10
0.85
The primary revenue streams to GoSolar are derived from the sale of load reduction in
both the capacity and energy markets. Capacity market sales account for approximately 20% of
GoSolar revenues. Rates for the capacity market are set three years in advance at an auction held
each May. GoSolar will be a price-taker as only one of many market bidders. The current
capacity rate is fixed at $110/mW-day, a price set in 2008. Forward rates for the 2009 auction
are not yet announced, and thus, the 2008 rates are used in the pro forma. Because historical
rates range widely, a sensitivity analysis is included in the following section.
Energy market rates are set in real-time auctions when load reduction is needed, and the
average rate (i.e., Locational Marginal Price) for 2008 was $71.13. This rate has increased by
about 13% per year since 1998, reflecting increased energy demand and higher fuel costs.
Therefore, projections begin conservatively in Year -3 with a rate of $70.00 and are increased
annually by a factor of 10%. Again, sensitivity analyses in the following section demonstrate the
variable effects on profits. Because rates are seasonal in order to account for peak demand in the
summer and winter months, a seasonal multiplier is used to better estimate cash flow timing.
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 29
Miscellaneous
PJM Membership Fee (per MW) $
Corporate Tax Rate
Government Rebate & Tax Credit Factor
Customer Electric Buydown Factor
0.31
40%
65% of avg. cost of installation
15% of electricity bill
First, in order to participate in the capacity and energy auctions, GoSolar must become a
member of PJM. Membership fees are based upon load reduction amounts. Second, a traditional
corporate tax rate of 40% is used. Third, about 65% of solar hardware and installation costs can
be covered through government subsidies and tax credits. Finally, the business model includes
“rental” payments to consumers of a 15% buydown of their monthly electricity bills. A
sensitivity analysis of this rate is included in the following section.
Solar Utilization Factor
Avg. Solar Utilization Factor (for PA)
Summer/Peak Utilization Multiplier
Fall Utilization Multiplier
Winter Utilization Multiplier
Spring Utilization Multiplier
14.0%
1.15
0.95
0.78
1.12
In order to project the amount of load reduction available, a Solar Utilization Factor is
necessary to gauge the intensity and duration of sunlight. This factor is dependent upon
geography, weather, and nightfall. In Pennsylvania, the factor is calculated by industry groups to
be an average of 14%, and this figure rises and falls according to the seasons (see Appendix for
calculation). Therefore, a multiplier is also incorporated in the projections to account for the
seasonal variations.
First Year Expenses: Expenses projected for Stage 1 development are given in the
spreadsheet. Because revenues from load reduction are not yet available, these figures are highly
dependent upon the levels of external start-up funding received.
2009-2010 ($ Thousands)
Operating Expenses
PJM Membership Fees
Marketing & Selling Costs - Residential
Marketing & Selling Costs - Commercial
Salaries, Benefits, Payroll Taxes
Legal
Insurances
Other General & Administrative
Depreciation (25-yr. straight line)
Total Operating Costs
Jun
$0.0
$0.5
$10.0
$17.0
$5.0
$2.5
$10.0
$0.6
$45.6
Jul
$0.0
$0.5
$10.0
$17.0
$5.0
$2.5
$10.0
$0.6
$45.6
Aug
$0.0
$0.5
$10.0
$17.0
$5.0
$2.5
$10.0
$0.6
$45.6
Sep
$0.0
$0.5
$10.0
$17.0
$5.0
$2.5
$10.0
$0.6
$45.6
Oct
$0.0
$0.5
$10.0
$17.0
$5.0
$2.5
$10.0
$0.6
$45.6
Nov
$0.0
$0.5
$10.0
$17.0
$5.0
$2.5
$10.0
$0.6
$45.6
Dec
$0.0
$0.5
$10.0
$17.0
$5.0
$2.5
$10.0
$0.6
$45.7
Jan
$0.1
$0.5
$10.0
$17.0
$5.0
$2.5
$10.0
$0.6
$45.7
Feb
$0.1
$0.5
$10.0
$17.0
$5.0
$2.5
$10.0
$0.6
$45.7
Mar
$0.1
$0.5
$10.0
$17.0
$5.0
$2.5
$10.0
$0.6
$45.7
Apr
$0.1
$0.5
$10.0
$17.0
$5.0
$2.5
$10.0
$0.6
$45.7
May
$0.1
$0.5
$10.0
$17.0
$5.0
$2.5
$10.0
$0.6
$45.7
TOTALS
$0.5
$6.0
$120.0
$204.0
$60.0
$30.0
$120.0
$7.3
$547.8
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 30
Ongoing Expenses: Operating expenses are estimated in Year +1 to demonstrate the financial
performance as a going concern. Expenses are held level in Year +2.
Summary of Year +1:
2012-2013
INCOME STMT. SUMMARY ($ Thousands)
Total Revenues
Total Cost of Goods Sold
Gross Profits
Gross Profit Margin
Total Operating Costs
Operating Profits (EBITDA)
Operating Profits (EBIT)
Op. Profit Margin
Taxes
Interest Expense
Net Profits
Net Profit Margin
Jun
$
$
$
$
$
$
$
$
$
204.1
123.4
80.7
39.5%
45.8
35.2
34.8
17.1%
13.9
20.9
10.2%
Jul
$
$
$
$
$
$
$
$
$
208.8
124.0
84.9
40.6%
45.8
39.4
39.0
18.7%
15.6
23.4
11.2%
Aug
$
$
$
$
$
$
$
$
$
209.1
124.0
85.1
40.7%
45.8
39.6
39.3
18.8%
15.7
23.6
11.3%
Sep
$
$
$
$
$
$
$
$
$
153.7
115.8
37.9
24.6%
45.9
(7.6)
(8.0)
-5.2%
(3.2)
(4.8)
-3.1%
Oct
$
$
$
$
$
$
$
$
$
156.7
116.1
40.5
25.9%
45.9
(5.0)
(5.3)
-3.4%
(2.1)
(3.2)
-2.0%
Nov
$
$
$
$
$
$
$
$
$
154.0
115.9
38.2
24.8%
45.9
(7.3)
(7.7)
-5.0%
(3.1)
(4.6)
-3.0%
Dec
$
$
$
$
$
$
$
$
$
164.7
117.3
47.4
28.8%
45.9
1.9
1.5
0.9%
0.6
0.9
0.6%
Jan
$
$
$
$
$
$
$
$
$
164.9
117.3
47.6
28.8%
45.9
2.0
1.7
1.0%
0.7
1.0
0.6%
Feb
$
$
$
$
$
$
$
$
$
155.8
116.4
39.5
25.3%
45.9
(6.0)
(6.4)
-4.1%
(2.6)
(3.8)
-2.5%
Mar
$
$
$
$
$
$
$
$
$
172.7
118.5
54.2
31.4%
45.9
8.7
8.3
4.8%
3.3
5.0
2.9%
Apr
$
$
$
$
$
$
$
$
$
169.6
118.1
51.4
30.3%
45.9
5.9
5.5
3.3%
2.2
3.3
2.0%
May
$
$
$
$
$
$
$
$
$
173.1
118.5
54.6
31.5%
45.9
9.0
8.7
5.0%
3.5
5.2
3.0%
TOTALS
$ 2,087.2
$ 1,425.3
$
661.8
31.7%
$
550.4
$
115.7
$
111.5
5.3%
$
44.6
$
$
66.9
3.2%
Summary of Year +2 (assumes level operating expenses):
2013-2014
INCOME STMT. SUMMARY ($ Thousands)
Total Revenues
Total Cost of Goods Sold
Gross Profits
Gross Profit Margin
Total Operating Costs
Operating Profits (EBITDA)
Operating Profits (EBIT)
Op. Profit Margin
Taxes
Interest Expense
Net Profits
Net Profit Margin
Jun
$
$
$
$
$
$
$
$
$
215.2
120.6
94.6
43.9%
45.9
49.1
48.7
22.6%
19.5
29.2
13.6%
Jul
$
$
$
$
$
$
$
$
$
220.5
121.3
99.2
45.0%
45.9
53.7
53.3
24.2%
21.3
32.0
14.5%
Aug
$
$
$
$
$
$
$
$
$
220.8
121.3
99.5
45.1%
45.9
53.9
53.6
24.3%
21.4
32.2
14.6%
Sep
$
$
$
$
$
$
$
$
$
158.4
112.1
46.3
29.2%
45.9
0.8
0.4
0.3%
0.2
0.3
0.2%
Oct
$
$
$
$
$
$
$
$
$
161.7
112.4
49.2
30.5%
45.9
3.7
3.3
2.1%
1.3
2.0
1.2%
Nov
$
$
$
$
$
$
$
$
$
158.8
112.1
46.7
29.4%
45.9
1.1
0.8
0.5%
0.3
0.5
0.3%
Dec
$
$
$
$
$
$
$
$
$
170.7
113.8
56.9
33.4%
45.9
11.4
11.0
6.5%
4.4
6.6
3.9%
Jan
$
$
$
$
$
$
$
$
$
170.9
113.8
57.1
33.4%
45.9
11.6
11.2
6.6%
4.5
6.7
3.9%
Feb
$
$
$
$
$
$
$
$
$
161.0
112.7
48.3
30.0%
45.9
2.7
2.4
1.5%
0.9
1.4
0.9%
Mar
$
$
$
$
$
$
$
$
$
179.7
115.1
64.6
35.9%
45.9
19.0
18.7
10.4%
7.5
11.2
6.2%
Apr
$
$
$
$
$
$
$
$
$
176.3
114.7
61.5
34.9%
45.9
16.0
15.6
8.9%
6.2
9.4
5.3%
May
$
$
$
$
$
$
$
$
$
180.1
115.2
65.0
36.1%
45.9
19.4
19.0
10.6%
7.6
11.4
6.3%
TOTALS
$ 2,174.3
$ 1,385.3
$
789.0
36.3%
$
550.9
$
242.2
$
238.1
11.0%
$
95.2
$
$
142.9
6.6%
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 31
11. Financial Sensitivity Analysis
Complete tables with various sensitivity analyses are given in the Appendix. These
tables include a net profits analysis which shows the combinations of capacity market and energy
market rates needed to break even in Year +1. Below we highlight some of the main
observations gleaned from an analysis of full table contained in the Appendix. Using the
projected energy and capacity rates for Year +1 (2012-2013), the table below shows a gross
profit margin of 31.7% and a net profit margin 3.2% for the period.
2012-2013
Gross Profit
Margin
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
TOTAL
S
39.5%
40.6%
40.7%
24.6%
25.9%
24.8%
28.8%
28.8%
25.3%
31.4%
30.3%
31.5%
31.7%
Op. Profit Margin
17.1%
18.7%
18.8%
-5.2%
-3.4%
-5.0%
0.9%
1.0%
-4.1%
4.8%
3.3%
5.0%
5.3%
Net Profit Margin
10.2%
11.2%
11.3%
-3.1%
-2.0%
-3.0%
0.6%
0.6%
-2.5%
2.9%
2.0%
3.0%
3.2%
By examining a range of possible rates for the energy and capacity markets, we can
observe the effect on gross profits. Figure 1 below shows that increases in the energy rate
(legend) have a much greater effect on gross profits than an increase in capacity market rates (x
axis).
Figure 1
Thus, while the 3-year ahead capacity market rate (x –axis) provides a known baseline
revenue stream, it is the level of the day-ahead energy market rates (legend) which will have the
largest effect of profitability.
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 32
The installed cost of solar PV systems is of course another significant factor in profitability. In
2009 (Year -3), the estimated installed cost is approximately $7,600 per kW. Our analysis
employs a projected yearly decrease of $300 per installed kW based on the average yearly
decrease from 1998 through 2007 (Tracking the Sun, 2009). Thus Figure 3 shows that as the
current energy market rate of $70 per Mw-Hr moves to just over $100 Mw-Hr over 3 years and
installed cost drops from $7,600 to $6,700/MwHr, gross profits will increase by about 75%
(~$400K to ~$700K).
Figure 3
We have also examined the sensitivity of gross revenues to two additional factors. The
first is the solar utilization factor, which is a measure of the average power available over a day
and throughout the year expressed as a percentage of the solar PV installation peak power rating.
It takes into account the number of hours the sun is above the horizon each day, latitude,
orientation of the panels, cloudiness, etc. (see Appendix V). Thus, the utilization factor for
Philadelphia is calculated to be 14% of peak power. Table I below shows the effect of different
utilization factors on gross profits (see Appendix II for a US map showing relative solar
intensities). For example, with an increase in the solar utilization factor from 14% (Philadelphia)
to 20% % (Phoenix, Arizona), we see a 50% increase in gross profits from $719K to $1081K:
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 33
Solar Utilization Factor (%)
Table I
$661.8
8%
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
40
67.6
115.9
164.2
212.5
260.8
309.1
357.4
405.7
454.0
502.2
550.5
50
115.9
176.3
236.7
297.0
357.4
417.7
478.1
538.5
598.8
659.2
719.5
Gross Profits (Solar Utilization vs. Energy Mkt. Rates)
Avg. Energy Market Rates ($/MW-hour)
60
70
80
90
100
110
120
164.2
212.5
260.8
309.1
357.4
405.7
454.0
236.7
297.0
357.4
417.7
478.1
538.5
598.8
309.1
381.5
454.0
526.4
598.8
671.3
743.7
381.5
466.0
550.5
635.0
719.5
804.1
888.6
454.0
550.5
647.1
743.7
840.3
936.8 1033.4
526.4
635.0
743.7
852.3
961.0 1069.6 1178.3
598.8
719.5
840.3
961.0 1081.7 1202.4 1323.2
671.3
804.1
936.8 1069.6 1202.4 1335.2 1468.0
743.7
888.6 1033.4 1178.3 1323.2 1468.0 1612.9
816.1
973.1 1130.0 1286.9 1443.9 1600.8 1757.8
888.6 1057.6 1226.6 1395.6 1564.6 1733.6 1902.6
130
502.2
659.2
816.1
973.1
1130.0
1286.9
1443.9
1600.8
1757.8
1914.7
2071.6
Another variable we examined is the Consumer Electric Buydown Factor (i.e. the percent
of the solar power saving we offer to pass along to the homeowner as rent for allowing GoSolar
to install solar panels on the homeowner’s roof). Our sensitivity analysis shows that there is
considerable room to increase the currently proposed 15% payment to the homeowner (to 25%
for example) without unduly decreasing profits (Table II):
Consumer Electric Buydown Factor
(%)
Table II
$661.8
0%
3%
6%
9%
12%
15%
18%
21%
24%
27%
30%
33%
36%
30%
350.5
322.7
295.0
267.2
239.4
211.6
183.8
156.0
128.2
100.4
72.6
44.9
17.1
Gross Profits (Gov't Rebates/Credits vs. Consumer Buydown Factor)
Government Rebate & Tax Credits Factor
35%
40%
45%
50%
55%
60%
65%
70%
75%
414.9 479.2 543.5 607.8 672.1 736.5 800.8 865.1 929.4
387.1 451.4 515.7 580.0 644.3 708.7 773.0 837.3 901.6
359.3 423.6 487.9 552.2 616.6 680.9 745.2 809.5 873.8
331.5 395.8 460.1 524.4 588.8 653.1 717.4 781.7 846.0
303.7 368.0 432.3 496.7 561.0 625.3 689.6 753.9 818.3
275.9 340.2 404.6 468.9 533.2 597.5 661.8 726.2 790.5
248.1 312.4 376.8 441.1 505.4 569.7 634.0 698.4 762.7
220.3 284.7 349.0 413.3 477.6 541.9 606.3 670.6 734.9
192.5 256.9 321.2 385.5 449.8 514.1 578.5 642.8 707.1
164.8 229.1 293.4 357.7 422.0 486.4 550.7 615.0 679.3
137.0 201.3 265.6 329.9 394.2 458.6 522.9 587.2 651.5
109.2 173.5 237.8 302.1 366.5 430.8 495.1 559.4 623.7
81.4 145.7 210.0 274.4 338.7 403.0 467.3 531.6 596.0
80%
993.7
965.9
938.2
910.4
882.6
854.8
827.0
799.2
771.4
743.6
715.8
688.1
660.3
140
550.5
719.5
888.6
1057.6
1226.6
1395.6
1564.6
1733.6
1902.6
2071.6
2240.7
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 34
12. Bibliography
Alternative Energy Investment Fund Programs. (2009). Retrieved May 5, 2009, from
Pennsylvania's Energy Independence:
http://www.depweb.state.pa.us/energindependent/cwp/view.asp?a=3&Q=543707&energindepen
dentNav=|
American Recovery and Reinvestment Act. (2009). Retrieved May 4, 2009, from U.S.
Department of Treasury: http://www.treas.gov/recovery/
Bastiere, E. L. (2009, March 17). Environmental & Energy. Retrieved May 5, 2009, from
Mondaq: http://www.mondaq.com/article.asp?articleid=75440
Federal Stimulus Money for Rewable Energy Projects and Manaufacturing. (2009, March 25).
Retrieved May 5, 2009, from Home Roperts and Owens LLP:
http://www.hro.com/files/file/publications/ALERT-ARRAFunding.pdf
New Jersey Solar Renewable Energy Certificate Program. (2009). Retrieved April 12, 2009,
from New Jersey's Clean Energy Program: http://www.njcleanenergy.com/renewableenergy/programs/solar-renewable-energy-certificates-srec/new-jersey-solar-renewable-energy
Renewable Energy Incentive Guidebook, v. 1.0. (2009, January). Retrieved April 12, 2009, from
New Jersey's Clean Energy Program:
http://www.njcleanenergy.com/files/file/Renewable_Programs/CORE/REIPGuidebookfinal0202
mq.pdf
Renewable Energy Incentive Program. (2009). Retrieved May 4, 2009, from New Jersey's Clean
Engergy Program: http://njcleanenergy.com/renewable-energy/programs/renewable-energyincentive-program
U.S. Dept of Treasury - Renewable Energy Grants. (2009, February 19). Retrieved May 5, 2009,
from Federal Incentive for Renewable and Efficiency:
http://www.dsireusa.org/library/includes/incentive2.cfm?Incentive_Code=US53F&State=federal
&currentpageid=1&ee=1&re=1
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 35
Appendix I
SWOT Analysis
Strengths
•
Solar power is unlimited and free; one hour’s worth provides more energy than world
needs in a year.
•
Because a large surface area is required to collect solar energy at a useful rate, our
company assembles massive area by aggregating many rooftops.
•
Consumers benefit by “renting” PV (photovoltaic) panels and receiving reduced retail
electricity rates.
•
Utilities benefit by purchasing peaking power when it’s most needed – during daylight
hours (thereby reducing brownouts).
•
Business model is scalable and potentially can be replicated worldwide.
•
PV panel installation costs are being reduced through manufacturing efficiencies and
technological advancements. A continuation of this trend will make solar PV systems
highly competitive with carbon-based generation options.
•
Company gains capacity market surplus by bundling large numbers of consumers to sell
load reduction capacity to RTO’s.
•
Unlike wind farms, no new transmission capacity is required (designed to work with
existing grid).
•
Storage potential for baseload power needs, possibly using future storage technologies
(e.g. MIT battery project).
•
Regulations – satisfies government-mandated green power requirements.
Weaknesses
•
The amount of sunlight that arrives at the earth's surface is not constant (depends on
geography, latitude, time of day, time of year, and weather conditions).
•
Current PV panel technology is only 10-12% efficient (but expected to grow to 20%
within decade).
GoSolar, Inc. Business Plan
Penn State EMBA Program
•
May 9, 2009
Page 36
Company can only generate power during sunny periods; baseload generation may be too
unreliable.
•
Numerous regulatory and legal hurdles – 50 states, each with different regulations (no
consistent federal standards).
•
Liability issues for homeowners – home damage due to improper panel installation or
malfunction.
•
Technical knowledge requirement is significant, both about PV technology and attributes
of electricity industry/market.
•
Large-scale financing (of $20 million or more) may be difficult, especially under current
market conditions.
•
Value proposition to homeowners depends upon PV panels remaining relatively cost
prohibitive, even after applying government incentives.
•
Perhaps difficult to protect business differentiation, model can be copied by those with
industry expertise.
Opportunities
•
Confluence at this point in time of 1) substantial market interest (“green revolution”),
combined with 2) significant governmental incentives promoting alternative energy
sources.
•
High public awareness about energy policy and growing momentum for creating more
alternative energy sources.
•
Growing interest in alternative energy generation at the household level (rather than on
large utility scale), including use of solar, wind, and biofuels.
•
In spite of economic downturn, governmental price supports and tax incentives are
continuing (ex., 30 states offer tax incentives for solar installation, such as California’s
“Million Solar Roof Campaign”).
•
U.S. electricity demand is expected to increase by 30% over next 30 years.
•
Global warming concerns are nearly universally accepted, thus putting intense pressure
on reducing carbon emissions and carbon-fueled generation.
GoSolar, Inc. Business Plan
Penn State EMBA Program
•
May 9, 2009
Page 37
Technology improvements will create a “smart grid,” which allows real-time pricing at
household level (ex. home appliances will indicate when power is cheapest).
•
Primary energy source for vehicles will be electric grid, not internal-combustion engines.
•
Utilities have unmet peaking power requirements – currently suffer peak brown-outs.
•
National and state requirements for increased green power generation (ex. PA requires
18% alternative energy by 2020 (Act 213)).
•
Increased use of carbon cap-and-trade offsets requires alternative energy sources.
•
Tremendous solar power growth potential as PV technology improves and prices become
more competitive with traditional generation.
•
Solar power industry is projected to provide significant job growth, bolstered by Obama
Administration policies to create new economic fundamentals.
•
Threats
•
Customers could substitute other alternative energy or “green” sources, such as wind,
biofuels, hydroelectric, geothermal, and ocean waves
•
“Green” improvements for traditional generation sources, such as “clean” coal, reusable
nuclear fission, or natural gas, could prevent mainstreaming of solar generation.
•
Emergence of new or currently unproven power generation technologies (ex. space solar,
nuclear fusion) could make current solar technology obsolete.
•
If PV technology becomes affordable for average homeowner, consumers could bypass
need for our upfront financing.
•
If utilities perceive a threat to their investments in large-scale generation plants, they
could encourage unsurpassable regulatory barriers or fund unsustainable market
competition.
GoSolar, Inc. Business Plan
Penn State EMBA Program
Appendix II
May 9, 2009
Page 38
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 39
Appendix III
New Jersey Renewable Energy Incentive Program (REIP) Rate Schedule
The Board approved the following rebate levels in their January 9, 2009
Board Order to be effective for all applications received on or after February 2, 2009.
Renewable Energy Program: Customer Sited*
Solar Electric Systems
Capacities
Column A:
Residential
Solar
PV
Applications
Column B:
NonResidential
Solar PV
Application
0 to 10,000
watts
with an energy
audit
$1.75/watt
does not
apply
0 to 10,000
watts without
an energy audit
$1.55/watt
does not
apply
0 to 50,000
watts
does not
apply
$1.00/watt
greater than
50,000 watts
does not
apply
does not
apply
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 40
Appendix IV
Earning and Trading Renewable Energy Credits (Renewable Energy Incentive
Guidebook, v. 1.0, 2009)
From page 8:
Owners of eligible generating units, installers, REC aggregators/brokers, and Load Serving Entities may
establish renewable energy credit (REC or SREC) accounts. These accounts are currently hosted and
managed by two entities: the Generation Attribute Tracking System (GATS) managed by PJMEnvironmental Information Systems (PJM-EIS); and Clean Power Markets (CPM), which is the current
SREC administrator.
In 2009, there will be a transition of SREC trading platforms, from Clean Power Markets to PJM-EISGATS. More information about this transition will be made available as the transition takes place, and all
account holders will be provided with support and training in making the transition.
Until the transition, owners of generating systems less than 10 kW can obtain and access REC accounts
via http://www.NJCleanEnergy.com/srec, while owners of generating systems greater than 10 kW can
obtain and access REC accounts via https://gats.pjm-eis.com/mymodule/mypage.asp. After the
transition, expected to be complete by June 1, 2009, all systems will be required to register with the
PJM-EIS-GATS platform.
To establish a REC account for a generating unit, participants must register for an electronic account on
the REC Administrator’s website. Registration and account activation cannot be completed until the
system has been referred to the GATS Administrator by the Market Manager, and the Market Manager’s
referral is contingent upon verification that the system is installed and has been determined to have met
all the requirements of the NJCEP, including passing all required program, utility and local government
code inspections.
Once registered, generation data is entered on a monthly basis, and RECs are issued by the GATS
Administrator and deposited in the participant’s account in increments of 1 mWh (megawatt-hour).
Account holders can list RECs for sale and contact potential buyers on the REC program website’s
electronic bulletin board or through other means.
SREC Pricing http://njcleanenergy.com/renewable-energy/programs/solarrenewable-energy-certificates-srec/pricing/pricing
SREC Trading Statistics
The tables below contain monthly New Jersey SREC pricing data based on prices
reported by registered behind the meter SREC account holders. As of December 2008,
the Weighted Average Price per mWh is based upon trades reported on the
Clean Power Markets and PJM GATS trading platforms.
Current SREC Trading Statistics Reporting Year 2009
For SRECs from electricity produced June 1, 2008 - May 31, 2009.
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 41
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 42
Appendix V
NREL’s PVWatts Calculator
http://www.nrel.gov/rredc/pvwatts/
NREL's PVWattsTM calculator determines the energy production and cost savings of gridconnected photovoltaic (PV) energy systems throughout the world. It allows homeowners,
installers, manufacturers, and researchers to easily develop estimates of the performance of
hypothetical PV installations.
The PVWatts calculator works by creating hour-by-hour performance simulations that provide
estimated monthly and annual energy production in kilowatts and energy value. Users can select
a location and choose to use default values or their own system parameters for size, electric
cost, array type, tilt angle, and azimuth angle. In addition, the PVWatts calculator can provide
hourly performance data for the selected location.
Using typical meteorological year weather data for the selected location, the PVWatts calculator
determines the solar radiation incident of the PV array and the PV cell temperature for each hour
of the year. The DC energy for each hour is calculated from the PV system DC rating and the
incident solar radiation and then corrected for the PV cell temperature. The AC energy for each
hour is calculated by multiplying the DC energy by the overall DC-to-AC derate factor and
adjusting for inverter efficiency as a function of load. Hourly values of AC energy are then
summed to calculate monthly and annual AC energy production.
The PVWatts calculator is available in two versions. Version 1 allows users to select a location
from a map or text list of pre-determined locations throughout the world. Version 2 allows users
to select any location in the United States.
The PVWatts calculator was developed by NREL's Electricity, Resources, and Building Systems
Integration Center.
The default PV system size is 4 kW. This corresponds to a PV array area of approximately 35 m (377 ft ).
2
2
“AC Energy” is total monthly & yearly array output in kWh
“Energy Value” is total monthly & yearly $ using default average energy rate for PA
AC Energy
***
&
Cost Savings
Station Identification
City:
State:
Results
Philadelphia
Pennsylvania
Month
Solar
Radiation
AC
Energy
Energy
Value
(kWh/m2/day)
(kWh)
($)
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 43
Latitude:
39.88° N
1
3.30
324
31.10
Longitude:
75.25° W
2
4.16
369
35.42
Elevation:
9m
3
4.74
444
42.62
4
5.06
445
42.72
PV System Specifications
DC Rating:
4.0 kW
5
5.20
456
43.78
DC to AC Derate Factor:
0.770
6
5.43
446
42.82
AC Rating:
3.1 kW
7
5.51
462
44.35
Array Type:
Fixed Tilt
8
5.67
479
45.98
Array Tilt:
39.9°
9
5.07
425
40.80
Array Azimuth:
180.0°
10
4.59
415
39.84
11
3.37
305
29.28
12
2.67
253
24.29
Year
4.57
4824
463.10
Energy Specifications
Cost of Electricity:
9.6 ¢/kWh
Output Hourly Performance Data
About the Hourly Performance Data
*
Run PVWATTS v.1 for another US location or an International location
Run PVWATTS v.2 (US only)
Output Results as Text
Saving Text from a Browser
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 44
Pennsylvania % Solar Utilization by Season
AC Energy
(kWh)
444
445
456
446
462
479
425
415
305
253
324
369
Spring
448.3333
Utilization Seasonal
Factor
Utilization
1.12
15.6%
0.97
Summer
462.3333
1.00
1.15
16.1%
Fall
381.6667
0.83
0.95
13.3%
Winter
315.3333
0.68
0.78
11.0%
Seasonal
Ratio
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
0.869322278
14% yearly avg. utilization
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 45
Appendix VI
PA Sunshine Solar Program
Pennsylvania Sunshine Solar Program (Opening Soon) - The Pennsylvania Sunshine Solar Program
will provide $100 million in grant funding to help fund solar electric (referred to as solar photovoltaic, or PV) and
solar hot water (solar thermal) projects for homeowners and small businesses in Pennsylvania. Funding will be
deployed in the form of reimbursement grants for residential and small business projects. Grants will be awarded on
a first-come-first-served basis to approved applicants. Households may receive one solar PV grant for up to
10 kilowatts (kW) of installed PV generating capacity plus one solar thermal grant not to exceed $2,000. A small
business may only submit one PV and one solar thermal application at a time and must complete the project and
grant process prior to submitting another application.
http://www.depweb.state.pa.us/energindependent/cwp/view.asp?a=3&Q=543707&energindepen
dentNav=|
Thanks to the Alternative Energy Portfolio Standard Act of 2004, 18 percent of electricity
sold at retail in the Commonwealth of Pennsylvania in 2021 will be required to be generated
by alternative energy sources. This includes 800 MW from solar energy, known as the "Solar
Share." See this Solar Share Fact Sheet (.pdf file) for more information.
http://www.newpa.com/find-and-apply-for-funding/alternative-energy-funding/index.aspx
Pennsylvania's Energy Independence is further enhanced by Act 129, which requires utilities to
adopt and implement cost-effective plans to cut electricity use 1 percent by 2011 and 3 percent
by 2013. Utilities must also implement plans to cut energy use 4.5 percent during peak demand
periods when prices are highest — typically the hottest days of summer and the coldest days of
winter — by 2013.
Act 129 also requires that utilities must provide their customers with smart meters within 15
years. Smart meters and time-sensitive price plans for electricity effectively use market forces to
reduce consumption, shift some uses to cheaper times of day, save consumers money, and
provide system-wide benefits to all consumers.
http://www.depweb.state.pa.us/energindependent/cwp/view.asp?a=3&Q=518171&energind
ependentNav= |
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 46
Appendix VII
Federal Renewable Energy Grants
http://www.dsireusa.org/library/includes/printincentive.cfm?ince
ntive_code=US53F
Federal
U.S. Department of Treasury - Renewable Energy Grants
Incentive Type: Federal Grant Program
Eligible Solar Water Heat, Solar Space Heat, Solar Thermal Electric, Solar Thermal Process
Renewable/Other Heat, Photovoltaics, Landfill Gas, Wind, Biomass, Hydroelectric, Geothermal Electric,
Technologies: Fuel Cells, Geothermal Heat Pumps, Municipal Solid Waste, CHP/Cogeneration, Solar
Hybrid Lighting, Hydrokinetic, Tidal Energy, Wave Energy, Ocean Thermal,
Microturbines
Applicable Sectors: Commercial, Industrial, Agricultural
Amount: 30% of property that is part of a qualified facility, qualified fuel cell
property, solar property, or qualified small wind property
10% of all other property
Max. Limit: $1,500 per 0.5 kW for qualified fuel cell property
$200 per kW for qualified microturbine property
50 MW for CHP property, with limitations for large systems
Terms: Grant applications must be submitted by 10/1/2011. Payment of grant
will be made within 60 days of the grant application date or the date
property is placed in service, whichever is later.
Authority 1: H.R. 1: Div. B, Sec. 1104 & 1603 (The American Recovery and
Reinvestment Act of 2009)
Date Enacted: 2/17/2009
Effective Date: 1/1/2009
Website: http://www.treas.gov/recovery
Summary:
Note: The American Recovery and Reinvestment Act of 2009 (H.R. 1) allows taxpayers eligible for
the federal business energy investment tax credit (ITC) to take this credit or to receive a grant
from the U.S. Treasury Department instead of taking the business ITC for new installations. The
new law also allows taxpayers eligible for the renewable electricity production tax credit (PTC) to
receive a grant from the U.S. Treasury Department instead of taking the PTC for new installations.
(It does not allow taxpayers eligible for the residential renewable energy tax credit to receive a
grant instead of taking this credit.) Taxpayers may not use more than one of these incentives. If an
entity receives a grant and has previously received the business ITC or the PTC, the credit will be
recaptured through an increase in taxes during the year in which the grant is awarded by the
amount of the credit taken in previous years. Receiving a credit in the past does not reduce the
amount of the grant. The grant is not included in the gross income of the taxpayer.
The American Recovery and Reinvestment Act of 2009 (H.R. 1), enacted in February 2009, created a
renewable energy grant program that will be administered by the U.S. Department of Treasury. This cash grant
may be taken in lieu of the federal business energy investment tax credit (ITC).
Grants are available to eligible property* placed in service in 2009 or 2010, or placed in service by the
specified credit termination date,** if construction began in 2009 or 2010:
•
Solar. The grant is equal to 30% of the basis of the property for solar energy. Eligible solar-energy
property includes equipment that uses solar energy to generate electricity, to heat or cool (or provide
hot water for use in) a structure, or to provide solar process heat. Passive solar systems and solar
pool-heating systems are not eligible. Hybrid solar-lighting systems, which use solar energy to
illuminate the inside of a structure using fiber-optic distributed sunlight, are eligible.
GoSolar, Inc. Business Plan
Penn State EMBA Program
May 9, 2009
Page 47
•
Fuel Cells. The grant is equal to 30% of the basis of the property for fuel cells. The grant for fuel cells
is capped at $1,500 per 0.5 kilowatt (kW) in capacity. Eligible property includes fuel cells with a
minimum capacity of 0.5 kW that have an electricity-only generation efficiency of 30% or higher.
•
Small Wind Turbines. The grant is equal to 30% of the basis of the property for small wind turbines.
Eligible small wind property includes wind turbines up to 100 kW in capacity.
•
Qualified Facilities. The grant is equal to 30% of the basis of the property for qualified facilities.
Qualified facilities include wind energy facilities, closed-loop biomass facilities, open-loop biomass
facilities, geothermal energy facilities, landfill gas facilities, trash facilities, qualified hydropower
facilities, and marine and hydrokinetic renewable energy facilities.
•
Geothermal Heat Pumps. The grant is equal to 10% of the basis of the property for geothermal
heat pumps.
•
Microturbines. The grant is equal to 10% of the basis of the property for microturbines. The grant
for microturbines is capped at $200 per kW of capacity. Eligible property includes microturbines up to
two megawatts (MW) in capacity that have an electricity-only generation efficiency of 26% or higher.
•
Combined Heat and Power (CHP). The grant is equal to 10% of the basis of the property for CHP.
Eligible CHP property generally includes systems up to 50 MW in capacity that exceed 60% energy
efficiency, subject to certain limitations and reductions for large systems. The efficiency requirement
does not apply to CHP systems that use biomass for at least 90% of the system's energy source, but
the grant may be reduced for less-efficient systems.
It is important to note that only tax-paying entities are eligible for this grant. Federal, state and local
government bodies, non-profits, qualified energy tax credit bond lenders, and cooperative electric companies
are not eligible to receive this grant. Partners or pass-thru entities for the organizations described above are
also not eligible to receive this grant. Grant applications must be submitted by October 1, 2011. The U.S.
Treasury Department will make payment of the grant within 60 days of the grant application date or the date
the property is placed in service, whichever is later.
The U.S. Department of Treasury has not yet released guidelines and is not accepting applications currently for
this grant. It is expected that guidelines will be released by July 2009.
*Definitions of eligible property types and renewable technologies can be found in the U.S. Code, Title 26, § 45
and § 48.
**Credit termination date of January 1, 2013 for wind; January 1, 2014 for closed-loop biomass, open-loop
biomass, landfill gas, trash, qualified hydropower, marine and hydrokinetic; January 1, 2017 for fuel cells,
small wind, solar, geothermal, microturbines, CHP and geothermal heat pumps.
Contact:
Grant Information
U.S. Department of Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Phone: (202) 622-2000
Fax: (202) 622-6415
E-Mail: [email protected]
Web site: http://ww.treasury.gov