2016 Deloitte Alternative Energy Seminar Setting new sights November 14-16, 2016

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1 2016 Deloitte Alternative Energy Seminar Setting new sights November 14-16, 2016

2 Teresa Thomas, Partner Brian Murrell, Partner Deloitte & Touche LLP Global perspectives

3 Agenda Introductions Global Energy Landscape Intermittent Energy Sources and their Potential Disruption Emerging Regulation and Corporate Commitment Accounting Implications Q&A Copyright 2016 Deloitte Development LLC. All rights reserved. 3

Global Trends Electric Generation and Capacity OPTION 1 While the International Energy Agency reports that renewables account for only a small portion of total

5 Global Trends Electric Generation and Capacity OPTION 1 While the International Energy Agency reports that renewables account for only a small portion of total global electricity generation (i.e., 22% in 2013), it is unlikely this will be the case for long Copyright 2016 Deloitte Development LLC. All rights reserved. 5

Global Trends Electric Generation and Capacity OPTION 2 While the International Energy Agency reports that renewables account for only a small portion of total

6 Global Trends Electric Generation and Capacity OPTION 2 While the International Energy Agency reports that renewables account for only a small portion of total global electricity generation (i.e., 22% in 2013), it is unlikely this will be the case for long Copyright 2016 Deloitte Development LLC. All rights reserved. 6

What Does The Energy Map look Like for Developing Countries While some countries are looking for ways to leverage alternative energy, there is a

7 What Does The Energy Map look Like for Developing Countries While some countries are looking for ways to leverage alternative energy, there is a large amount of the world that needs to simply get on the grid in the first place Copyright 2016 Deloitte Development LLC. All rights reserved. 7

8 Renewables are poised to seize the crucial top spot in global power supply growth, but this is hardly time for complacency IEA Executive Director Fatih Birol Copyright 2016 Deloitte Development LLC. All rights reserved. 8

12 What are Community Solar Programs? Community solar programs allow customers to invest in solar power by sharing the resource with others in their vicinity it broadens the market for solar power Benefits to project participants: Reduced investment cost when compared with individual installations Reduced solar generation cost when compared to same source generation from standard utilities Increased opportunity for individuals to support carbon reduction through renewable energy source Community solar programs have been increasing in popularity and will continue to do so As published by Solar Power Europe Almost 60 % of consumers globally especially those between 18 and 34 years show interest in investments that increase their self-sufficiency 55% of customers interested in purchasing or signing up for solar products within a period of 5 years and this trend has increased over the last two years Copyright 2016 Deloitte Development LLC. All rights reserved. 12

13 Community Solar Opportunities and Challenges Community solar programs allow utilities to Grow solar generation portfolios through direct sales Enhance grid optimization and technologies offered to consumers for efficient energy consumption Diversify product portfolio through bundled sale arrangements of renewable energy supply Grid considerations include Planning for changes in the mix of energy sources and its impact on grid reliability Devising innovative capacity and stability plans for grid stability Developing a dedicated policy framework for consumers-level renewable generation and its interaction with the grid to enhance resiliency Copyright 2016 Deloitte Development LLC. All rights reserved. 13

15 Growing supply of renewable energy sources make Grid integration a priority Reliability Stability Resiliency Challenges in the availability of energy for the grid Was widely believed that intermittent sources of electricity generation would threaten grid reliability once they surpassed 10% penetration Several countries, states and provinces have now far exceeded that threshold. Challenges in balancing energy through the grid A host of new technologies are making existing electricity grids more flexible, which is key to integrating intermittent power sources. Renewables currently deliver 28% of Germany s total grid power (and up to 40% in some regions). Challenges in recovering from grid outages While resiliency efforts used to focus on preventing outages, states and utilities are realizing that alternative energy sources can speed recovery times after an outage occurs. Copyright 2016 Deloitte Development LLC. All rights reserved. 15

What is Being Done to Address Grid Connectivity in the Future Once the nemesis for utilities, a host of new techniques and technologies are quickly making integration of intermittent power sources

16 What is Being Done to Address Grid Connectivity in the Future Once the nemesis for utilities, a host of new techniques and technologies are quickly making integration of intermittent power sources into the grid a problem of the past Enhancing forecasting and planning Advanced analytics, which enhance forecasting accuracy (e.g., predicting load on the grid as well as the output of solar and wind installations on a given day). Demand response programs, which involve paying commercial, industrial, and even residential customers to reduce electricity demand given advanced notice Adopting new technologies Grid-control gear and interconnections that link national systems, allowing power from wind and solar farms to be spread over wider Smart technologies, which allow two-way communication across the grid, between generators, storage providers, and electricity users, thus enabling more efficient transmission, distribution and load balancing Utilizing alternative sources to speed up recovery times Distributed generation Batteries, flywheels, molten salt, pumped hydro and other energy storage mechanisms for time-shifting renewable generation and enhancing frequency response Copyright 2016 Deloitte Development LLC. All rights reserved. 16

Energy storage is not a new concept it has been has been around since the inception of the power and utilities industry Electricity storage includes five broad families of applications Across these

18 Energy storage is not a new concept it has been has been around since the inception of the power and utilities industry Electricity storage includes five broad families of applications Across these diverse applications companies are able to capture excess energy produced at one time for use at a later time Electricity Supply grid scale to add reliability during peak periods Renewables Integration allows for time shifting and management of intermittent capacity Ancillary Services such as surge capacity, loadbalancing and voltage support End-User primarily associated with distributed generation Grid Support relieves congestion on grid and provides on-site power for sub-stations Copyright 2016 Deloitte Development LLC. All rights reserved. 18

19 Energy storage technology is advancing and making renewable energy more viable by eliminating the issue of intermittency Past misconceptions about energy storage Not viable Recent Corporate Projects Not affordable Particularly for utility-scale, large commercial applications Key advantages of energy storage Tool to manages intermittent energy sources Reduces costs Connects isolated areas Decreases reliance and stress on the grid Aids in disaster recovery plans NISSAN Announced a pilot project in the UK that will plug 100 of its Leaf cars into the electricity grid, using their batteries as extra storage TOTAL French oil giant, Total, recently announced a USD 1.1 billion scheme to buy battery group Saft TESLA Created the Tesla Powerwall, a home battery designed to charge using electricity generated from solar panels, or when utility rates are low Enhances corporate citizenship Copyright 2016 Deloitte Development LLC. All rights reserved. 19

21 Far-reaching regulations at global, national and local levels are driving increased adoption of renewable energy US Environmental Protection Agency s Clean Power Plan UN Paris Climate Change Agreement Calls for reducing greenhouse gas emissions in the US electricity sector from their 2005 level by 32% by 2030 Expanding renewables is one of the Plan s three key pillars The US Energy Information Administration estimates that under the Plan renewables will account for as much as 400 GW of generation by 2040 The Plan requires states to develop their own plans to curb carbon pollution Ultimate impact will be in the hand of the States and the Courts More than 175 countries endorsed the Agreement at the climate change conference, formally known as COP 21, held in 2015 All-time high for signing an international treaty on climate change; a historic meeting of the minds Collective goal: Keeping global warming below 2*C compared to pre-industrial time, and to pursue efforts to limit the temperature rise to 1.5*C Requires participating countries to submit plans and update every 5 years Positive momentum for renewables Copyright 2016 Deloitte Development LLC. All rights reserved. 21

22 What Else Is Being Done Globally to Mandate the Use of Alternative Energy? Canada Provincial leaders have agreed to a framework for clean growth and climate change. The framework addresses clean technology, innovation and jobs, carbon pricing and mitigation, and it encompasses all Canadian provinces. Actions, such as working to supplant usage of diesel generation with renewable, clean energy in indigenous and remote communities, and doubling its investments in clean energy, research and development over five years. Rooftop requirements March 2015, France decreed all new rooftops in commercial zones must be covered in plants or solar panels. Green roofs are already popular in Germany and Australia, and Toronto Canada, mandated them in new industrial and commercial buildings larger than 2000 sq. meters Copyright 2016 Deloitte Development LLC. All rights reserved. 22

23 What Are Corporations Doing Outside of the Regulations? As the business case grows, global companies are launching voluntary movements to generate all of their energy from renewables in the next two decades. US market over the last 5. The business case grows can lead to cost savings and improved resiliency to major weather events can be appealing for operators in remote locales Are consumer demanded! As Millennials increasingly become an economic force to be reckoned with, they could drive exponential growth in alternative energy RE100 Sustainability Program RE100 is a collaborative, global initiative of influential businesses committed to 100% renewable electricity, working to increase corporate demand for renewable energy As of 2015, 58 multinational corporations, which hail from all over the world, made the commitment to go 100% renewable through the Program Companies are embracing alternative energy options 39% reported installing solar panels or other electricity-generating assets at their facilities 26% said they had installed batteries to store electricity as a hedge against peak demand times, when electricity prices are higher As of 2015, corporations had signed power purchase agreements for large-scale, off-site renewables covering 2 GW of power, up from 1.2 GW for all of Copyright 2016 Deloitte Development LLC. All rights reserved. 23

Innovative financing vehicles for renewable energy consumptions have lowered the cost of capital and improved access to it YieldCos Introduced into sector in 2013 Publicly traded companies formed to

24 Innovative financing vehicles for renewable energy consumptions have lowered the cost of capital and improved access to it YieldCos Introduced into sector in 2013 Publicly traded companies formed to own operating assets that produce cash flows, which are then distributed to investors as dividends Offer public equity investors an attractive total return proposition of growth plus yield Green Bonds Corporate bonds with proceeds ring-fenced for clean energy investments International Finance Corporation was one of the earliest issuers of green bonds; as of 2015 it has issued USD 4.3 billion in green bonds Other Extension to US Investment Tax Credit Crowd sourcing Copyright 2016 Deloitte Development LLC. All rights reserved. 24

26 What are the potential impacts of these trends? Asset Impairment and Useful Life Uncertainty of future costs associated with coal-fired units due to pending regulation and continued depression in low natural gas prices may impact assert value of convention generating assets Future capital expenditure requirements may lead to expedited decisions for conventional generating asset retirements and mothballing Industry Transactions Long-term Contracts: accounting implications of unique structures Lease Revenue Derivative YieldCos: proper SEC and GAAP considerations during the development of and changes in Yield Co organizational structures and asset portfolio Development Activities: start-up v. development costs and timing of capitalization Revenue and Lease Considerations Innovative sales structures of emerging alternative energy technologies, such as solar panels and energy storage units may blur the line between a sale or a lease Is there continuing involvement with the sold good? Is there a buy-back option included in the contract Does the seller assume certain risks or costs due to external factors (such a weather)? Copyright 2016 Deloitte Development LLC. All rights reserved. 26

28 This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. Please see for a detailed description of DTTL and its member firms. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. Copyright 2016 Deloitte Development LLC. All rights reserved.