Profiting from Connecticut’s C-PACE Financing Program - PowerPoint Presentation

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Profiting from Connecticut’s C-PACE Financing ProgramPresented by:Brian McCarterCEOMarch 19, 2013

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Connecticut Commercial Property Assessed Clean Energy (C-PACE) Program Background Power of C-PACE in Commercial Real Estate (CRE) Benefits to ESCOs, Energy Auditors, Project Developers, Contractors Underwriting Energy Efficiency Financing Financial Technical Conclusion

Overview

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July 2011 – CT passed statewide enabling C-PACE legislationClean Energy Finance & Investment Authority (CEFIA) directed to establish & administer the programMunicipalities that “opt-in” are authorized to place a benefit assessment on a property whose owner has secured financing through C-PACE

Program Background

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Nov 2012 – CEFIA selected 3rd party program administration team tosupport technical underwriting processBuonicore Partners (BP): energy & CRE advisory firm provides C-PACE project management & technical oversight for CEFIACeltic Energy: energy engineering consultancy provides BP team’s 3rd party technical reviews Sustainable Real Estate Solutions (SRS): software firm powers CEFIA Data Management Platform providing all stakeholders transparent access to technical & financial underwriting data

Program Background

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C-PACE provides an innovative financing structure enabling commercial, industrial, & multi-family property owners to access financing for qualified energy upgrades and repay through a benefit assessment on their property. Program Background

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Taxes, to repay assessment, collected in normal course by municipalityProcess is entirely consistent with other benefit assessments The PACE assessment has priority over existing mortgagesThe owner must secure written consent from the mortgage holder prior to project approval

Program Background

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The goal: Attract private capital to fund EE & RE initiatives Owners may recruit their own capital providers 8 capital providers have been pre-approved to fund projects

Program Background

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Anything that saves from baselineHigh efficiency lightingHVAC upgrades New automated building and HVAC controlsVariable speed drives (VSDs) on motors fans and pumps High efficiency chillers, boilers

, and

furnacesHigh efficiency hot water heating systems

ECM Upgrades: What’s Eligible?

…

as long as it isn’t going

anywhere

Combustion and

burner upgrades

Fuel switching

(e.g., oil to gas)

Water conservation

Heat

recovery

and steam traps

Building

enclosure/envelope

improvements

BMS

Renewable energy systems

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Appliances, e.g., refrigerators, dishwashers, etc.Plug load devicesVending machine controlsAny package of measures with a weighted average effective useful life (EUL) that does not meet or exceed life of the loanAny package of measures that does not achieve an energy savings to investment ratio > 1ECM Upgrades: What’s Not Eligible?

Any measure that is

easily removed/not permanently installed

Any measure that does

not result in improved energy efficiency

Extending natural gas lines to a property line

to enable a PACE-eligible gas conversion project.

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Capital improvements without capital expense100% of project cost covered Engineering and construction costsEnergy auditsRenewable energy feasibility studiesPost-construction measurement & verification of energy savings PACE assessment is an obligation of the property, not the ownerRepayment made through property tax bill

The Power of C-PACE Financing

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Property tax payments may qualify as an operating expenseObligation not accelerated at the time of sale Tax payments may be passed through to tenants who enjoy the benefits Long-term financingEnergy savings will exceed investment costWell-developed projects can achieve positive cash flow from day oneIncreases building valueEnhances building’s competitive position in the marketplace

The Power of C-PACE Financing

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CEFIA:Acts as a conduit for private investmentEncourages CRE owners to arrange their own financingCan connect owners to capital providersCRE owners:Negotiate rate, terms, conditions & schedules with capital providerCan undertake deeper more capital intensive retrofits with greater savings potential & longer payback periods

The Power of C-PACE Financing

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Deeper energy retrofits with longer payback times can be pursuedFacilitates new energy efficiency projects or re-activates projects that had been put on hold due to the “Great Recession”Market expansion beyond MUSH market to the much larger multi-tenant CRE market where turnover is more frequent and property owner credit quality may not be investment grade (single purpose LLCs)Whole building or targeted ECM retrofits (“pent-up demand”)

Cost of up-front energy audits, renewable energy feasibility studies and M&V costs can be bundled into the financing

Win-win for everyone!

Benefits to Auditors, ESCOs & Prj Developers

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FinancialTechnicalC-PACE Underwriting Standards

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Benefit assessment holds a senior (priority) positionConsent of property mortgage holder requiredTotal savings over the financing term must exceed the total project investment (SIR > 1) C-PACE may not be ideal for highly leveraged properties where existing debt plus a C-PACE assessment is greater than the property value CEFIA conducts review, including building’s debt, equity, income, & occupancy

C-PACE Financial Underwriting

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Property must have clear title with no encumbrancesProperty taxes should be currentThere should be no outstanding tax liens or notices of defaultMortgage payments must be currentNo easements or subordination agreements that would conflict with PACE assessmentProject useful life must be longer than the financing term

C-PACE Financial Underwriting

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Key challenge: “Will the projected energy savings be realized?”Problem #1: Energy savings can’t be measured directlyProblem #2: No standard methodology to underwrite energy efficiencyProblem #3: Without a solution to #1 & #2, EE Financing cannot become a mainstream financial asset class with a high degree of standardization, predictability and scale that attracts capital providers No longer true today!

C-PACE Technical Underwriting

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Nationally recognized technical standards define the process from data collection to energy savings measurement and verificationEnergy savings can be forecast with a high degree of confidenceActual energy savings performance can be measured and verified in a reliable, consistent and fully-transparent mannerRisk of underperformance is low

C-PACE Technical Underwriting

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Rely on three established industry protocols:ASTM Building Energy Performance Assessment Standard E2797-11 Methodology for collecting & analyzing baseline energy data ASHRAE Level I, II, III Energy Audit Guidelines Methodology to identify energy conservation measures (ECMs) & project energy savings with high degree of confidenceInternational Performance Measurement & Verification Protocol (IPMVP)Methodology for energy savings measurement & verification

Underwriting methodology is technically sound, standardized, reliable & fully-transparent

C-PACE Technical Underwriting

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Project data are entered & tracked in CDMP for use by all deal stakeholders across the entire project life cycleProject development through M&V Powered by SRS’s cloud-based software platformFacilitates consistency & transparencyCompliance with 3 industry protocols

CEFIA Data

Management Platform (

CDMP)

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All deal stakeholders have access to CDMPCEFIA Building ownerCapital providerAuditor, ESCO, Project Developer, ContractorsInsurer (where Energy Savings Insurance is used)CDMP follows the project post-installation through M&VCDMP meets reporting needs of multiple interdependent stakeholders

CEFIA Data Management Platform (CDMP)

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Calculate Baseline Performance CDMP enables auditor upload of utility bill data in excel formatNormalize for calendar month, weather, occupancy, etc.

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Recommend ECMs CDMP enables auditor upload of ECM data in excel format Create scenarios to determine optimized bundle of ECMs

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Project Energy Savings Scenarios

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Calculate Key Financial Metrics CDMP enables capital provider financial underwriting

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Project Cash Flows over C-PACE Term CDMP enables capital provider financial underwriting

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Financials establish loan amount & term CEFIA facilitates interest from capital providers, where needed Provide CDMP technical & financial underwriting data access Include credit enhancements (performance guarantees, insurance) Owner secures most “commercially-attractive” financing Existing mortgage holder

3

rd party capital provider ESCO arranged

Secure “Commercially-Attractive” Financing

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Measure & Verify Energy Savings

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Beacon Falls Bridgeport Durham Hartford MiddletownNorwalk Old Saybrook SouthburyComing soon: Waterbury, East Granby, Fairfield, Manchester, Wethersfield, New Haven, Meriden, Plymouth, Cheshire, Putnam

Simsbury Stamford Stratford

West Hartford

Westport

Wilton

Windham

Municipalities Opting in to C-PACE

(as of Mar 2013)

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C-PACE technical underwriting enables energy savings to be forecast with a high degree of confidence resulting in a low risk of underperformanceActual energy savings performance can be measured and verified in a reliable, consistent and fully-transparent mannerC-PACE is enabling EE financing to become a mainstream financial asset class with high degree of standardization, predictability & scale C-PACE financing structure is very attractive to CRE owners and provides “an offer that is very difficult to refuse”C-PACE represents a significant opportunity for ESCOs, auditors, project developers, consultants and contractors to increase their CRE business

Summary

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First round of training sessions:March 22, 2013 Berlin, CTMarch 26, 2013 Norwalk, CTApril 1, 2013 Berlin, CTRegistration link and application on www.c-pace.com/application/contractor

Auditor, Contractor & ESCO C-PACE Training

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Understanding Connecticut’s C-PACE Technical RequirementsPresented by:Paul PopinchalkDirector of EngineeringMarch 19, 2013

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C-PACE Program Industry ProtocolsASTM Building Energy Performance Assessment Standard E2797-11 Methodology for collecting & analyzing baseline energy data ASHRAE Level I, II, III Energy Audit Guidelines Methodology to identify energy conservation measures (ECMs) & project energy savings with high degree of confidenceInternational Performance Measurement & Verification Protocol (IPMVP)Methodology for energy savings measurement & verification

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ASTM BEPA Standard to Establish Energy Use Baseline What was the Problem? What is the “building’s energy consumption? Sounds simple, but “the devil is in the details” Lack of standardization to collect and analyze building energy use

■

No consistent and transparent methodology existed for building energy use data collection to establish baseline conditions!

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What does the ASTM BEPA “Standardize” in the Baseline? The time frame over which data needs to be collected3 years or back to last “major renovation” if less than 3 years, with a minimum of 1 year of data meeting reliability criteria What constitutes a “major renovation”

■ A renovation involving expansion (or reduction) of a building’s gross floor

area

by 10% or more, or any renovation impacting total building energy use

by

more than 10%)

What

weather data

needs to be collected, from

where

and how it

is to

be statistically analyzed to

establish

baseline conditions

(minimum 10 years HDD & CDD data from nearest weather station with historical data)

How the

building energy use equation is developed

(relating energy use to the independent variables that impact energy

use)

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What does the ASTM BEPA “Standardize” in the Baseline?What constitutes an appropriate range for building energy use ■ An upper limit with independent variables at the 75th percentile

■

A lower limit with independent variables at the 25th percentile

What constitutes the most representative value for building energy use (for benchmarking purposes)

■ Pro forma building energy use (based on mean values for independent

variables)

Identifies criteria for collecting reliable building energy use data…

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Criteria for Collecting Reliable Energy Use DataNo “major renovations” in time periodA minimum of 10 years of weather data from the nearest weather station (with historical data) to the building

Special criteria if only 12 months of energy use data is collected

(non-weather independent variables must be within 15% of the monthly average determined over the previous 3 years)

Qualified professionals used for data verification

(such as for gross floor area calculation, definition of vacant space, identification of pertinent building characteristics, electric meter box coverage, energy use in parking areas, major building energy use systems, independent variables impacting building energy use, etc.)

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ASTM BEPA Standard ComponentsComplements the ASHRAE Energy Audit: Site Visit & Building “walk-through” (already part of the energy audit scope of work) Interviews (

already part of

the energy audit scope of work)

Records Collection & Compilation

(

already part of the energy audit scope of work

)

Records Review & Analysis

(

already part of the energy

audit scope of work

)

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Summary of ASTM BEPA Methodology Develops building energy use baseline (energy use (total, fuel, electricity) as a function of independent variables impacting energy use) Can be used to project building energy use without ECMs installed Uncertainty analysis can be incorporated (by evaluating the standard deviation comparing actual

energy use against

projected energy use and selecting a confidence level)

Determines normalized building energy use

metrics (such as EUI,

kBTU

/SF-

yr

) for benchmarking

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Benchmarking ■ Select one or more benchmarking models/databases as appropriate CBECS (2003) State-developed Benchmarking Initiatives (e.g., CA) Energy Star (derived from CBECS) Consultant’s Internal Benchmarking Data Building Owner’s Internal Benchmarking Data

Commercial benchmarking services

← Selected by C-PACE■ Benchmark against “peer” buildings

Building Total EUI

Building Fuel EUI

Building Electricity EUI

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Energy Audit What’s done in an energy audit? Establish baseline building energy useQuantify energy use according to major building functionBenchmark against peer buildingsRecommend ECMs, project energy savings, estimate project cost and determine key financial metrics

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Energy Audit cont’d ASHRAE provides guidelines for 3 types of energy audits:Level I – “Walk-through Analysis” or “Preliminary Audit” Level II – “Energy Survey and Analysis” or “Comprehensive Audit”

Level III

– “Detailed Analysis of Capital-Intensive

Modifications” or “Investment Grade Audit”

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ASHRAE Level I Energy Audit Building descriptionOn-site walk-through (typically one day)Collect historic building energy use and cost dataBenchmarking analysis

Identify potential ECMs and typical energy savings

Prioritize energy savings opportunities for further investigation (Level II Audit)

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ASHRAE Level II Energy Audit More comprehensive on-site survey (up to 1 week)In depth analysis of historic building energy use and cost data (interval data, if available)Identify energy savings opportunities (ECMs)

Identify ECM EULs and degradation factors

Project energy savings (building modeling)

Estimate costs (including incentives/rebates)

Recommend ECMs meeting criteria

Investment and cost savings analysis

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ASHRAE Level III Energy Audit (IGA) More comprehensive than Level II audit to bring a highest level of confidenceGenerally for very capital intensive projectsMore detailed field data gathering and more rigorous engineering analysis over a longer period of time (typically up to a month)

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M&V Plan (C-PACE Requires Upfront) Goal and objectivesECM description and operationRecommended M&V approach (IPMVP?)Data analysis procedures and algorithmsField monitoring (data points)Reporting (CDMP)

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IPMVP for M&V: Four Options(1) Option A: Retrofit Isolation - Key Parameter Measurement (e.g., a lighting retrofit where power draw is the key performance parameter measured, but where interactive impacts, to heating and cooling loads, can be calculated) (2) Option B: Retrofit Isolation - All Parameter Measurement in the field (e.g., install variable speed drive and controls to a motor, and measure electric power with a kW meter installed on the electrical supply to the motor)

(3) Option C: Whole Facility -

when a multifaceted energy management program affecting many interrelated systems is installed, and gas & electric utility meters exist to measure energy use at the facility(4) Option D:

Calibrated Simulation

(e.g., a

multifaceted

energy management program affecting many interrelated systems is installed, but no meters exist and

building simulation model

must be developed – such as for a new building

or a college campus with central utility metering and no metering at individual buildings)

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Option C-Usually Best for Commercial Whole Building Energy RetrofitsMultiple ECMs retrofitted in a commercial building (such as an office building, a hotel or a retail building)ECMs involve activities whose individual energy use is difficult to separately measure (e.g., window upgrades)Interactive effects or interactions between ECMs can be substantialHistoric energy use data exists (to establish the baseline)Reasonable correlations can be developed relating building energy use to independent variables

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IPMVP General Framework for Commercial Buildings: Pre-ECM InstallationUse energy audit to establish baseline energy use profile prior to installation of ECMsUse baseline to project energy use into the future (over the “reporting period”) had the ECMs not been installed

Use baseline to

project energy use into the future (over the “reporting period”)

with the

ECMs installed

Projected savings

(“

avoided energy use

”)

is difference between expected energy used assuming ECMs not installed and expected energy use assuming the ECMs installed

(with both calculated under the

same conditions

)

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IPMVP General Framework for Commercial Buildings: Post-ECM InstallationDetermine actual energy use in the “reporting period” with the ECMs installedUse baseline to project energy use in the “reporting period” had the ECMs not been installed

(calculated

under the same conditions experienced while collecting actual energy use data)

Savings

(“avoided energy use” in the “reporting period”)

is difference between projected energy use had ECMs not been installed and the actual energy use after ECMs installed

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ECM Performance Verification

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Visit C-PACE program website: www.c-pace.comGenevieve Sherman: CEFIA Manager, C&I Property Assessed Clean Energy Email: genevieve.sherman@ctcleanenergy.com Direct phone: 860.257.2897Brian Burstiner: SRS Director of Sales Email: bburstiner@srmnetwork.com

Direct phone: 203.880.9622

Paul Popinchalk: Celtic Energy, Director of Engineering

Email:

paul@celticenergy.com

Direct phone:

860-882-1515

Additional Information & Contacts