Financing Commercial EE Trends in North America. BPIE Investing In Energy Efficiency Brussels, Belgium 2014

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1 Financing Commercial EE Trends in North America BPIE Investing In Energy Efficiency Brussels, Belgium 2014

2 The Energy Efficiency Gap Retrofit Opportunities Building Owners And Investors

3 Near-Term: Low Deal-Flow High Transaction Costs Lack of Demand High Cost of Capital Long-Term: Engage Capital Markets Standardization Risk Management Data

4 Barriers to Energy Efficiency Projects Credit: Institute for Building Efficiency, JCI

5 Pay for it (Self-Fund) Pay For a project out of internal capital budget or by taking out corporate debt On-balance sheet Customer retains all savings but assumes project performance risk Capital budget constraints often lead to single measure, short-term projects that limit savings and don't optimize total building performance

6 Tax Exempt Bonds (for the government) Up to 100% Financing for 15 to 20 year terms On-balance sheet Low cost of capital fie lax exempt financing rates Limited to public sector customers with Large-scale projects due to the high cost of bond issuance

7 Lease It Up to 100% financing via a capital or operating lease 5 to10 year lease terms (longer terms, up to 15 years, are possible for tax exempt customers] On-balance sheet (upcoming GAP accounting changes will likely eliminate the use of operating leases) Relatively flexible on credit quality Best For big ticket equipment

8 Get A C-PACE Assessment Customer owns project performance risk due to fixed lease payments Up to100% financing for 15 to 20 year terms Obligation is secured by priority lien an real properly Customer payments are Iced PACE repayment is bed to property, not present owner Requires mortgage holder consent, which may be time consuming and tough to get Emphasis on commercial real-estate

9 Managed Energy Service Agreements (MESA) 100% financing off-balance sheet Can fund king (5-10 year) payback period projects Cash flow neutral pricing payments set equal to historical utility costs Providers manage projects and costs, assume performance risk MESA provider takes control over customer utility relationship (MESA provider pays customer utility) Strong customer credit profit emphasis on commercial real estate

10 Energy Service Agreements (ESA) 100% financing Off-balance sheet Can fund long (5-10 year payback period projects Cash flow positive prior payments set below current historical utility costs and based on per unit energy swings (i.e. negawatt charge) Providers manage projects and costs. assume performance risk and give advice Ability to fund multi-facility Projects Strong customer credit profile, emphasis on owneroccupied facilities

11 Breaking Down Barriers to EE Finance How do I know if the savings will really be there? How does a EE effect rental rates, resale, turn time, & maintenance? How can you lend money to a bankruptcy remote LLC SPE?

12 Breaking Down Barriers to EE Finance Benchmarking Asset Labeling Disclosure

13 Benchmarking to Address Asset Risk

14 Value of EE in Tenant Occupied Buildings Credit: Institute for Building Efficiency, JCI

15 Breaking Down Barriers to EE Finance On-Bill Repayment Commercial PACE Green Banks

16 Property Assessed Clean Energy (PACE)

17 Commercial PACE

18 Commercial PACE 26 active PACE programs / platforms ready to fund projects More than 250 commercial PACE projects completed Nearly $75 million in funded projects More than $250 million in PACE project applications

19 On-Bill Repayment

20 Green Banks The purpose of a state green bank is to use public funds and authority to lower the cost and increase the amount of private financing for clean energy technology

21 Green Banks The purpose of a state green bank is to use public funds and authority to lower the cost and increase the amount of private financing for clean energy technology

22 Breaking Down Barriers to EE Finance PROJECT FINANCE Long-term financing of projects based upon the projected cash flows of the project rather than the balance sheets of its sponsors.

23 ICP Addressing Performance Risk Savings Uncertainty Lots of winners and losers (variance) Many approaches to savings estimation, installation, commissioning Project Origination Costs Lack of standards puts engineering overhead on each firm Difficult to diligence and manage performance and operation risks Actuarial Data Lack of data standards and agreement on measurement approaches Insufficient data on financial and energy performance

24 What Is An Energy Efficiency Project?

25 Energy Performance Protocols Cx BASELINING SAVINGS COMMISSION OPERATIONS MEASUREME Existing Building Drawings Weather File Energy Usage Energy Rates Occupancy Model File Calibration Data Bid Packages Certifications Cx Plan Cx Authority Test Procedures Facilities Req. BMS Points Fault Plan Maintenance Plan M&V Model Regression Model Adjustments Impact Baseline Adjustments

26 INVESTOR READY ENERGY EFFICIENCY

27 ICP Credentialed Software Providers

28 Stakeholder Value of Standardization

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30 Investor Confidence Project Matt Golden ICP Project Director Environmental Defense Fund Panama Bartholomy ICP Europe Director Environmental Defense Fund