The Private Sector Role in Clean Energy NGA Clean Energy Financing Workshop Neal Skiver Energy & Power Finance Banc of America Public Capital Corp

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1 The Private Sector Role in Clean Energy NGA Clean Energy Financing Workshop Neal Skiver Energy & Power Finance Banc of America Public Capital Corp February 25, 2010

2 The American Recovery and Reinvestment Act of 2009

3 New Clean Renewable Energy Bonds (CREBs) American Recovery and Reinvestment Act of 2009 Tax Credit Bonds $2.4 billion in new CREBs to be split equally between Governmental bodies Public power providers Cooperative electric companies Provide funding for renewable energy projects that create electricity Solar PV (not thermal) Wind Biomass/Landfill Gas Small Hydro Lender/Bondholder receives a Federal tax credit, which reduces the rate to the borrower/issuer Allocation are awarded from smallest-to-largest locations CREBs must be issued within 3 years of allocation notice from IRS 3

4 American Recovery and Reinvestment Act of 2009 Tax Credit Bonds Qualified Energy Conservation Bonds (QECBs) $3.2 Billion allocated among the states in proportion to population Similar to CREBs, lender/bondholder receives a Federal tax credit during the term Automatic Allocation to large local governments (counties/cities with population >100,000) Projects related to reducing energy consumption in publically-owned buildings Implementing green community programs Renewable energy projects (solar, wind, biomass, landfill gas, etc.) Research facility expenditures and research grants Public education campaigns to provide energy efficiency 4

5 Energy Efficiency and Renewable Energy Financing Strategies

6 Financing Strategies There are two basic ownership strategies for financing solar energy projects. Third Party Ownership Service agreement, not a financing Power purchase agreement Energy assets owned by a third-party Host customer purchases output at a fixed price Cost effective solution (?) Government/Host Ownership Cash purchase Tax-exempt financing options General obligation bonds Lease revenue bonds/certificates of participation Municipal lease/purchase Tax credit bonds Clean Renewable Energy Bonds (CREBs) Qualified Energy Conservation Bonds (QECBs) Qualified School Construction Bonds (QSCBs) Qualified Zone Academy Bonds (QZABs) Build America Bonds (BABs) 6

7 Acquisition Strategy Tax-exempt Lease/Purchase Financing Butte-Glenn Community College District Overview: Butte-Glenn Community College District is a national leader in sustainability in community colleges, with a goal to be carbon neutral by The district has completed four solar projects and the fifth project will be completed in the next few months. Issuer Benefit: The total project cost is approximately $7.7 million. Over the next five years, the district will qualify for an estimated $1.7 million in utility incentives. After the lease/purchase is paid off, the district will save an additional estimated $7.5 million over the life of the system. Structure: Bank of America provided tax-exempt funding in November 2008 under a 20-year lease/purchase agreement. 7

8 Tax-Exempt Financing Structure Traditional tax-exempt funding mechanism for energy related projects. SOLAR CONTRACTOR Installation Contract, O&M Services GOVERNMENT HOST CUSTOMER Energy Savings, Utility Incentive Payments Project Funding P&I Payments (Tax-exempt) Environmental Attributes (RECs, Carbon, etc.) LENDER / INVESTOR 8

9 Approved for external use California Department of Transportation (CalTrans) Clean Renewable Energy Bonds (CREBs) $20,000,000 CREB s Solar panels Overview: Banc of America Public Capital Corp s Energy Services team recently provided funding for a $20MM series of Clean Renewable Energy Bonds (CREBs) to the California Department of Transportation (CalTrans). Proceeds from the CREBs will be used to finance the installation of solar photovoltaic panels at approximately 70 sites throughout the State of California. The bonds were issued by the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) on behalf of CalTrans. Issuer Benefit: CREBs, which were created as part of the Energy Policy Act of 2005, are taxable bonds under which a majority of the financing costs are paid to the bondholder in the form of a Federal tax credit. This program enables a municipal organization to finance renewable energy projects at a very low rate of interest. In conjunction with Banc of America Securities, Energy Services responded to CAEATFA s Request for Proposal with an offer to directly purchase the CREBs on a private placement basis. Total debt service (principal and interest) over the 15-year term will be $22.5 million. During the same period, Caltrans will save $24.7 million on its energy bills. Use of the solar panels will reduce the costs of generating and transmitting electricity, provide relief to the local electricity grid, and reduce greenhouse gas and nitrous oxide emissions. Structure: CalTrans will pay an interest rate of 1.45% over a 15-year repayment term. Over the entire 25-year lifespan of the photovoltaic solar panels, CalTrans energy cost savings will total $52.5 million, with $27.8 million of the savings coming after the bonds are repaid. 9

10 Tax Credit Bond Structure Tax credit bond funding mechanism for energy related projects. ENERGY CONTRACTOR Installation Contract, O&M Services GOVERNMENT HOST CUSTOMER Energy Savings, Utility Incentive Payments Project Funding Sinking Fund or P&I Payments (Taxable) Environmental Attributes (RECs, Carbon, etc.) LENDER / INVESTOR Federal Tax Credit Payment 10