1. LEVELIZED COST OF ENERGY

2. Summary Levelized costs are calculated as a proxy for the PPA price between a third-party developer and a utility LCOEs amortize all capital and operating costs incurred over the plant’s economic lifetime, accounting for tax impacts and tax credits RPS Calculator Valuation Framework Levelized Cost of Energy Transmission Cost Capacity Value Energy Value Net Resource Cost Integration Cost* − = − + + + *Not currently quantified in RPS Calculator

3. Levelized Cost of Energy  Calculation of LCOEs has been adjusted to incorporate plausible changes over time for projects that come online in the future Version 6.0  Renewable LCOEs calculated for each year to incorporated changes over time:  Capital costs  Financing costs  Tax credits and benefits Version 6.0  Renewable LCOEs calculated for each year to incorporated changes over time:  Capital costs  Financing costs  Tax credits and benefits Versions 2.0 – 5.0  Renewable LCOEs calculated based on cost and performance of present-day technology Versions 2.0 – 5.0  Renewable LCOEs calculated based on cost and performance of present-day technology

4. Goals for New Methodology 4 Model FunctionalityVersions 2-5Version 6 Differentiate costs of renewable PPAs by technology  Account for future capital cost reductions  Account for sunsets of federal and state tax credits and incentives  Account differences in near-term and long- term costs of project finance 

5. Translating Resource Cost & Performance to LCOEs Resource Cost & Performance Capital Cost Fixed O&M Variable O&M Fuel Cost Capacity Factor Degradation Financing & Tax Inputs Cost of Capital Capital Structure Tax Credits MACRS Pro-Forma Cash Flow Model Levelized Resource Costs (cost-based PPA prices) Financing Life RPS Calculator  RPS Calculator pairs cost & performance assumptions modeled by B&V with a simple pro-forma financing model to calculate the levelized cost of energy for each generating technology

6. Pro Forma Parameters  Pro-forma cash flow model accounts for:  Capital investment cost and the availability of debt and equity financing  Operating and maintenance costs  Federal and state income taxes  Tax benefits of accelerated depreciation  Federal tax credits for renewable resources  The price calculated is sufficient to cover operating costs, provide sufficient debt service coverage, and ensure an adequate return of and on equity to investors  Minimum debt service coverage ratio of 1.40

7. Key Inputs  The table below summarizes the key technology-specific input assumptions for resources installed in 2013:  Assumes all resources must meet a minimum DSCR of 1.40  Federal and state income tax rates are 35% and 7%, respectively Technology Financing Lifetime (yrs) Debt Tenor (yrs) WACC (%) Debt Cost (%) MACRS (yrs) PTC ($/MWh) ITC (%) Biogas20187.10%5.15%10$11 Biomass20187.10%5.15%10$23 Geothermal20187.10%5.15%5$23 Hydro20187.10%5.15%20$11 Solar Thermal20187.10%5.15%530% Solar PV*25207.25%5.45%530% Wind20187.10%5.15%5$23 * Higher cost of capital for solar PV is assumed due to the longer financing lifetime

8. Modeling Future Changes in LCOEs  Estimating future costs of renewable resources is a challenging exercise, as many of the factors that will affect prices are surrounded by large uncertainty  Most significant levers to our estimates:  Capital cost reductions: technological improvement over the coming decades may drive renewable resource costs down  Long run financing: projects financed in the future will not benefit from the low-cost financing available in today’s low interest rate environment, which is inconsistent with long- run macroeconomic projections of inflation  Bonus depreciation: the eligibility of projects to claim bonus MACRS depreciation ends after 2013  Property tax exemption: the exemption of solar facilities from California property tax is not available to facilities installed after 2016  Federal tax credit sunsets: in 2017, the ITC reverts from its current level (30%) back to 10%; the PTC for renewable resources is currently scheduled to expire at the end of 2013  Assumption: credits and subsidies will expire as currently stated by law  One exception: Assumes PTC applies to all projects constructed by 2017 (same lifetime as ITC)

9. Capital Costs Over Time  LCOE calculations integrate projected capital cost trends developed by Black & Veatch  Relatively stable for more mature renewable technologies  Cost reductions shown for emerging technologies

10. Trajectories of Resource Costs  Long-term trajectories of PPA prices reflect input assumptions:  Near-term price increases are driven by expiration of tax benefits and credits, increase in financing costs  Over a longer period, reductions in capital costs continue to translate to declining PPA prices for emerging technologies

11. Drivers of Cost Changes Over Time  Based on assumed capital cost reductions and the proposition that tax credits will not be renewed, future renewable costs will be higher than today

12. Summary of LCOEs Over Time Future increases in costs are driven by expiration of tax credits & benefits, which are partially offset for some technologies by capital cost reductions Technology 2013 ($/MWh) 2020 ($/MWh) 2030 ($/MWh) Biogas – Distributed $ 116 $ 164 Biomass – Distributed $ 182 $ 226 Biomass – Large $ 121 $ 165 Geothermal $ 98 $ 135 Hydro – Small $ 301 $ 445 Solar Thermal - No Storage $ 181 $ 270 $ 249 Solar Thermal - Storage $ 173 $ 259 $ 236 Solar PV - Distributed $ 132 $ 200 $ 183 Solar PV - Fixed Tilt - 1MW $ 108 $ 165 $ 150 Solar PV - Fixed Tilt - 5MW $ 101 $ 153 $ 140 Solar PV - Fixed Tilt - 10MW $ 92 $ 141 $ 128 Solar PV - Fixed Tilt - 20MW+ $ 88 $ 135 $ 123 Solar PV - Tracking - 1MW $ 97 $ 150 $ 140 Solar PV - Tracking - 5MW $ 91 $ 140 $ 130 Solar PV - Tracking - 10MW $ 84 $ 130 $ 121 Solar PV - Tracking - 20MW+ $ 81 $ 126 $ 117 Wind $ 81 $ 120 $ 119 Wind - Distributed $ 116 $ 162 $ 159 All costs expressed in 2013 dollars LCOEs presented represent a plant with ‘average’ cost and performance attributes for each technology

13. RPS Calculator Guide The parameters that affect resource LCOEs can be found on the following tabs: –Resource_Char: cost and performance input assumptions for each major category of renewable technology –Pro_Forma: financial model of a cost-based PPA between utility and third-party developer used to calculate LCOEs used in RPS Calculator –Resource_Cost: results of LCOE calculations for each technology and each installation vintage (2013-203), expressed by component Results hard-coded by macro