Energy Risk Solutions, LLC ("ERS")                                     

Despite the growing emphasis on wind and solar energy as necessary components to our national mandate for renewable energy independence, alternative energy project developers are still encountering significant challenges in securing the necessary financing for their projects. Business enterprises engaging in the alternative energy market face complex risks, creating a growing misalignment between existing products designed to address risks and the risk solutions needs of organizers

The consequence of this misalignment is an inability to attract capital while narrowing the universe of potential transaction participants (e.g. debt and equity providers), thus driving the cost of capital higher and limiting its availability. Without viable mitigation alternatives, covering risks such as electricity price volatility and irradiation volatility, projects have been primarily relegated to utilizing 100% equity, or forgo the project entirely. ERS and its affiliated firms can assist clients in alternative energy risk related areas by providing hedges (e.g. insurance) that protects against:

• Unpredictability of the amount of:
  •  solar irradiance at a particular location (Insolation Volatility);
    
  •  wind variability at a particular location (Wind Speed); and
    
• Fluctuations in the future price of electricity and renewable energy credits. 
  

Complex Risk and Hedge Example:  

                                                                                                                                                                                                                                                                                                                                                                                                                   Electricity to Sell (Price Volatility Hedge) 

                                                                                                                                              /

 Sun Shines                +          Functional Solar Panels = Electricity Generated   =

       |                                                                                                                                      \

(Insolation Volatility Hedge)                                                                                          SRECS to Sell (Price Volatility Hedge) 

These hedges can be used to protect a project's other stakeholders such as counterparties entering into forward electricity purchase contracts as well as investors. The benefits of this risk solution include stakeholder concerns regarding shortfalls in projected energy output and disruptions in projected cash flows due to uncertain energy inputs (such as sun shine). Such solutions can result in:  

• Improved financial leverage/increased loan to value ratios;  
• Reduced debt service coverage ratios;  
• Lower overall project capital costs;   
• Improved forward sell agreements; and  
• More predictable investor returns.  

• The claim payments were structured quarterly;
• The duration of the transaction was 5 years;
• The price of the electricity was locked for the duration of the transaction; and
• The risk‐taking counterparty was an A rated insurance carrier.

Among the many other ways that ERS can assist clients in alternative energy risk related areas are:

Outsourced risk management

Many mid-size and smaller alternative energy project developers do not have sufficient in house risk management resources. ERS can function as the client’s risk management team by identifying and evaluating risks and interfacing with debt providers and other stakeholders to explain risks and the associated risk solutions.  ERS can also work with traditional insurance brokers and assist the client in procuring well-tailored and cost-efficient insurance coverage.

Obtaining explicit economic capital benefit

The benefits associated with a customized risk program can result in increasing the pool of possible lenders and investors interested in providing capital to solar projects (and potentially reducing the cost of capital). ERS is able to explain the financial benefits associated with risk solutions utilized by a project and potentially help clients to locate and negotiate lower cost capital.  

Enabling projects to be financed and lowering the cost of capital associated with their financing

The use of a renewable energy hedges and other potential risk solutions enables a loan to be viewed in a more main stream context; e.g., a lender (or other investor) does not need to have in-house energy expertise in order to be able to get sufficiently comfortable making a loan or an investment. They only need to invest the time to understand the financial consequence of the hedge(s).

ERS is constantly seeking a number of alliances with project finance parties.  While ERS is aware of entities that will finance larger projects (i.e. requiring a minimum $50 million), it has recently been cultivating relationships with entities that have interest in financing smaller projects.  ERS is currently in discussions with smaller banks and other finance related entities that have indicated that they possess the ability to provide project financing (assuming sufficient risk hedging is utilized) at a cost of 6.5% to 13%.