All About Qualified Energy Conservation Bonds

Transcription

1 All About Qualified Energy Conservation Bonds Thursday, April 30,

2 About the Finance Network The goal is to facilitate the expansion of energy efficiency investments in the Southeast Network participants are invited to get involved and: Learn about innovative programs and successful approaches to energy efficiency financing; Collaborate with stakeholders from across the region; Share program information, case studies, resources and tools; Educate fellow energy efficiency finance colleagues and provide innovative ideas for creating profitable retrofit loan programs to serve home and building owners; Participate in webinars, discussion forums and events

3 GoTo Webinar Instructions Open and hide your control panel Join Audio Choose Mic & Speakers to use VoIP Choose Telephone and dial using the information provided Questions Submit questions and comments via the Questions panel Please raise your hand to be unmuted for verbal questions. 3

4 Meet Our Speakers Sara Telano Southeast Energy Efficiency Alliance (SEEA) Susan Rosenthal & Elizabeth Bellis Energy Programs Consortium Geoff Culm Banc of America Public Capital Corp Doug Lamb McGuireWoods Al Christopher Director, Division of Energy Virginia Department of Mines, Minerals and Energy 4

5 QECB Background First established by the Energy Improvement and Extension Act of 2008, QECB issuance capacity was expanded from $800 million to $3.2 billion by the American Recovery and Reinvestment Act of 2009 A QECB is among the lowest-cost public financing tools because the U.S. Department of Treasury subsidizes the issuer's borrowing costs Issuers may choose between structuring QECBs as tax credit bonds or as direct subsidy bonds 5

6 QECBs Authority IRS Notice sets forth the maximum face amount of qualified energy conservation bonds that may be issued by each State and large local government IRS Notice Authorizes issuers to elect to issue QECBs and direct subsidy bonds instead of tax credit rate bonds IRS Notice addresses questions regarding qualified conservation purposes eligible for financing with these bonds, particularly (1) how to measure reductions of energy consumption in publicly-owned buildings by at least 20 percent under and (2) what constitutes a green community program 6

7 QECBs Purpose Qualified Conservation Purpose Projects What does this mean? 7

8 Qualified Energy Conservation Projects Reducing energy consumption in publicly-owned buildings by at least 20% Implementing green community programs (including loans, grants or other repayment mechanisms to implement such programs) Rural development involving the production of electricity from renewable energy resources: Geothermal or solar energy facilities Hydroprower facilities Wind facilities, etc. Expenditures with respect to research facilities, research grants and supporting research: Increasing the efficiency of existing technologies for producing nonfossil fuels, Automobile battery technology or other fossil-fuel reduction technology in transportation, Technologies to reduce energy use in buildings, etc. 8

9 Qualified Energy Conservation Projects Mass commuting and related facilities that reduce energy consumption and pollution, including expenditures to reduce pollution from vehicles used for mass commuting Demonstration projects designed to promote the commercialization of: Green building technology, Conversion of agricultural waste to fuel, Advanced battery manufacturing technologies, Technologies to reduce peak use of electricity, etc. Public education campaigns to promote energy efficiency 9

10 Leveraging QECB Funds State Energy Offices can utilize State Energy Program (SEP) funds to support the issuance of QECBs U.S Department of Energy, SEP Program Notice , _crebs.pdf Rebates and Incentives may be able to reduce the cost of the energy improvement project, which may add up to substantial saving for the project 10

11 QECBs in the Southeast: A $600m Challenge and Opportunity April 30, 2015

12 QECBs Nationwide Of $3.2 billion in total allocations, around $1.1 billion (34%) are known to have been issued Some states, such as Kansas, Kentucky and Colorado, have utilized almost all of their allocations, with additional states (Alabama, California, Montana, and Nebraska) close behind Kansas, Kentucky and Nebraska used their allocations on large projects, primarily energy efficiency projects at universities California and Colorado combined waived bonds from LLGs with state allocation and conducted competitive reallocation process

13 QECBs Uses Nationwide, highest percentage have been used for energy efficiency improvements to publicly owned buildings (primarily municipal buildings, universities and schools) Green community programs are becoming more popular, have been used for residential energy efficiency loan programs and LED streetlight conversions

14 QECBs Issued by Region* (as of 4/1/15) Region Total QECB Allocation Total QECBs Known Issued Percentage Issued Southwest $524,716,000 $344,931, % Midwest $627,966,000 $260,131, % Northwest $143,557,000 $53,230, % Central $421,622,000 $125,077, % Southeast $776,381,000 $173,664, % Northeast $662,279,000 $138,294, % *Reflects regions used by EPC in its QECB paper, not regions used for regional energy efficiency networks

15 Qualified Energy Conservation Bonds Known Issued by SEEA States as of 4/1/15 State Number of Issuances QECB Allocation Amount Issued Percent Issued QECB Allocation Remaining Alabama 8 48,364,000 39,325, % 9,038,675 Arkansas 2 29,623,000 9,125, % 20,498,000 Florida 0 190,146, % 190,146,000 Georgia 2 100,484,000 22,306, % 78,178,000 Kentucky 4 44,291,000 44,197, % 94,000 Louisiana 1 45,759,000 30,318, % 15,440,756 Mississippi 0 30,486, % 30,486,000 North Carolina 4 95,677,000 7,492, % 88,184,298 South Carolina 2 46,475,000 7,250, % 39,225,000 Tennessee 2 64,476,000 9,940, % 54,536,000 Virginia 2 80,600,000 3,710, % 76,890,000 Total 26 $776,381,000 $173,664, % 602,716,729

16 SE States among National Leaders in QECBs issued Kentucky has utilized almost 100% of its allocation ($44,197,000) 4 large issuances 2 for ESPCs for universities 2 for energy efficiency improvements for publicly owned buildings (municipal buildings and correctional facilities) Alabama has also utilized a large proportion of its allocation ($39,325,325, 81.31%) all issued for smaller projects primarily municipal buildings and schools as well as 2 issuances for lighting upgrades at municipal sports facilities Louisiana has used 66% of its allocation ($30,318,244) consisted of one $30 million issuance for energy efficiency upgrades to state correctional facilities over $20 million of large local government allocations were waived back to state and combined with state s remaining allocation to enable this issuance

17 Innovative Green Community Programs in SE States North Carolina and South Carolina have chosen to establish Green Community Programs to utilize QECBs South Carolina South Carolina has a new statewide GCP; established in 2014; two reallocations have been made to the GCP totaling $25 million with expectation will be utilized by end of issuances to date $2 million for the conversion of a private truck fleet to compressed natural gas vehicles (first known use of QECBs for CNG vehicles) $5,250,000 for ESPC for a school district North Carolina Case study on next slide

18 North Carolina QECB Case Study Established in 2012 by the North Carolina Agricultural Finance Authority to promote the development of renewable energy resources on agricultural land in North Carolina The program is open to any person/project that meets these qualifications A wide variety of projects are eligible for the program: wind energy facilities solar facilities distributed generation initiatives research/demonstration projects that promote the commercialization of clean energy sources (such as the conversion of agricultural waste for use in the production of fuel) The project must have a significant nexus to agriculture located on land that is leased from an owner who is also uses it for agricultural purposes uses agricultural products or by-products as part of green energy production

19 North Carolina QECB Case Study cont. The Authority issues QECBs from the State s allocation on behalf of the project borrower - acts as a conduit issuer and loans the QECB issuance proceeds to the project borrower under this system, the project borrower is the one responsible for the repayment of the funds and these funds are not considered a debt of the state To date 4 projects totaling $7,492,702 have been financed by the program, all for solar installations on agricultural land bonds were all sold in private placements Program potentially has access to up to $33 million of QECBs that remained at state level in North Carolina; because it is a GCP open to any qualified applicant, the 30% private activity limitation doesn t apply

20 Developments/Opportunities with QECBs in SE States Florida authorized its $190 million allocation in June 2014 after overcoming significant political challenges finalizing LLG allocations right now; is already a lot of interest at the local level Tennessee state has been active in getting unused allocations waived back to state; over $17 million has been waived has conducted outreach and RFPs to reallocate the waived bond allocations to suitable projects Had 2 rounds of competitive sub-allocation and have just announced a third; first issuance resulting from this closed April 1, 2015 $3.5 for the City of Lebanon to construct a sustainable waste-to-energy gasification plant and electricity-generating solar panel array adjacent to a wastewater treatment plant Virginia recently issued new Executive Order reauthorizing QECBs will be launching statewide Green Community Program

21 Next Steps/How to get involved Advocate authorization of QECBs in your state if not already authorized Reach out to EPC and educate yourself about the opportunity so that you may be a resource to local stakeholders who might utilize the program Consider including information about QECBs on your website Consider a focused effort to encourage utilization of QECBs in your state, such as a request for proposals or allocations or a targeted outreach/education program

22 Energy Programs Consortium Elizabeth Bellis: Susan Rosenthal:

23 All About Qualified Energy Conservation Bonds: A Lender s Click Perspective to edit Master Putting title QECBs style to Work SEEA April 30, 2015, 2:00 PM EST

24 Overview Establishing a Green Community Program A Real GCP Comparative Features of QECBs v. Tax-exempt Obligations Additional QECB Rules McGuireWoods 24

25 Green Community Programs (GCP) Two Tests: (a) Program Purpose and (b) General Public Use or Broad Public Availability. Purpose Test: The GCP must promote energy conservation, energy efficiency, or environmental conservation initiatives relating to energy consumption, broadly construed. Eligible purposes include promotion of energy savings through retrofitting initiatives for heating, cooling, lighting, water-saving, storm-water reducing, or other efficiency measures; distributed generation initiatives; or transportation initiatives that conserve energy and/or support alternative fuel infrastructure (which may include, for example, improvements to public bicycle paths or mass transit systems). McGuireWoods 25

26 GCP (cont d) General Public Use or Broad Public Availability Test A GCP must: (i) involve property that is available for general public use (using standards similar to standards for distinguishing general public use from private business use under Treas. Reg (c)); or (ii) involve a loan (or other repayment mechanism) or grant program that is broadly available to members of the general public, including individuals or businesses A GCP need not affect the entire geographical area or all the residents and businesses within the jurisdiction of the State or local governmental unit that implements the program, provided that the program broadly benefits the general public, residents, or businesses in the affected area of the State or local governmental unit McGuireWoods 26

27 GCP (cont d) Examples of general public use include programs to make improvements to public infrastructure that enhances proximity and connectivity between community assets and public transit in order to reduce motor vehicle use and promote energy conservation Example of a loan or grant program that is broadly available to the general public would be a program for residential housing or private building energy efficiency initiatives that provides grants or loans that are broadly available for homeowners or businesses McGuireWoods 27

28 GCP (cont d) Considerations when setting up a GCP Executive or legislative determinations from bodies with jurisdiction over the areas where the issuer and project are located to make appropriate findings, including implementation of GCP Ensuring GCP transaction is conducive with existing policies How is allocation derived for the GCP Method Have the appropriate issuing authority make legislative determinations of the need for the GCP Ensure compliance with purpose and public use tests McGuireWoods 28

29 Example of a GCP South Carolina-Jobs Economic Development Authority (JEDA) in connection with Clean Source Capital (CSC) implemented a GCP in 2012 JEDA made legislative findings through its inducement and allocation process that the GCP furthers statewide policies The GCP is established as an eligible borrower for purposes of the JEDA enabling legislation and may lend to any member of the public Existing borrowers are a private trucking company and a school district The QECB Allocation was granted for use as a GCP CSC administers the GCP through a streamlined process that allows any lender to use its desired form of financing for the particular borrower McGuireWoods 29

30 Direct Pay Option; Effect of Sequestration Amount of subsidy payment is equal to the lesser of (1) the interest paid by the issuer on each interest payment date; or (2) 70% of the applicable tax credit rate Subsidy may not be paid on OID While federal sequestration continues, the subsidy payment is reduced. For the fiscal year ending September 30, 2015, the reduction is 7.3% of the subsidy payment. For the fiscal year ending September 30, 2016, the reduction is 6.8% of the subsidy payment McGuireWoods 30

31 Tax Credit Rate & Maturity Limitation Tax credit rate changes daily & is posted at: As of April 29, 2015, the tax credit rate is 4.18% Treasury sets the maximum permitted maturity monthly, see: As of April 29, 2015, the maximum maturity is 26 years A QECB that is priced on April 29, 2015 with a 4.50% taxable interest rate, would have an effective rate of 1.574% In other words, the subsidy would equal 2.926% Taking into account sequestration for FY 15, the subsidy would drop to % or a net effective rate of % McGuireWoods 31

32 Questions or Comments? Douglas E. Lamb Geoffrey R. Culm McGuireWoods 32

33 Notice to Recipient McGuireWoods 33

34 QECB Webinar Using QECBs to fund a state s Green Community Program Why is Virginia considering QECBs Challenges / Barriers/Opportunities Thursday, April 30, 2015, 2:00 pm EST

35 Virginia Energy Plan Key Recommendations Make Virginia a Leader in Energy Efficiency to Reduce Consumption and Spur Economic Growth Establish the Governor s Executive Committee on Energy Efficiency Voluntary goal of reducing energy consumption by 10 Percent by 2020, accelerating the 2007 Virginia Energy Plan goal by two years. Expand, Improve, and Increase the Reliability of Virginia s Energy Infrastructure Create flexible financing mechanisms to help to put in place key additional energy assets and support priority energy programs. Objectives include: provision of low-cost financing for energy program delivery and projects to expand or improve energy infrastructure, including renewable energy systems, energy conservation and efficiency and alternative fuels; An increase local economic activity and create jobs; and leverage of private funding and markets.

36 Executive Order 36 Qualified Energy Conservation Bonds (QECB) Federal Qualified Energy Conservation Bonds are significant tools that can be used by the state and local governments, as well as the private sector, to lower the cost of financing energy efficiency, conservation and renewable generation projects. The QECB Allocation Director will establish a process to develop a Green Community Program The QECB Allocation Director is further directed to issue a Request for Proposal (RFP) to select a firm or firms for the administration of the Green Community Program

37 RFP - Virginia Green Community Program Issued March 18, Closes April 30, 2015 DMME seeks proposals to design, develop and administer a Virginia Green Community Program which will provide low-cost financing and other services to assist in the achievement of the objectives and recommendations contained in Executive Order 36 and the 2014 Virginia Energy Plan

38 Virginia Seeks A GCP That Supports These Goals: 1. Energy program delivery and projects to expand or improve energy infrastructure, including renewable energy systems, energy conservation and efficiency and alternative fuels 2. Energy Performance Contracting (EPC) to improve building energy efficiency to help accomplish the goal of reducing electricity consumption in State facilities by 15 percent through EPC by Reinstitute an energy retro-commissioning pilot program in State facilities. 4. Offer creative financing tools that can be used at both the generation and demand side. 5. Support energy efficiency building upgrades for low-income Virginians particularly in Southside and Southwest Virginia. 6. Promote additional public private partnerships to double the total deployment of all types of alternative fuel refueling infrastructure for government and private fleets and public motoring use. 7. Facilitate partnerships between Virginia s electric utilities, government and private generation developers to install 15MW of solar energy generation at state and local government facilities, and an additional 15MW of solar energy generation at commercial, industrial and residential facilities by June 30, 2017.

39 Virginia Seeks a GCP That Supports These Goals: Prohibitions: No bonds issued under allocations provided by Executive Order 36 will be state-supported debt without prior approval of the Virginia General Assembly.

40 Meeting A Credit Risk Challenge Proposed programs must use a conduit issuer to ensure that each project funded by the Green Community Program is underwritten in a way whereby the project credit stands on its own and does not impact the general obligation or credit of the Commonwealth. Proposals shall describe how the Green Community Program administrator will work with the Virginia Small Business Finance Authority, the Virginia Resources Authority or other qualified conduit issuer and private entities to ensure that the general obligation or credit of the state is not impacted.

41 Meeting Funding And Demand Challenges Offerors shall describe the types and amounts of fees and all other revenues that will be produced by the proposed program, and explain how all fees and other revenues will be transparently disclosed, collected, reported to DMME and used by the administrator to reimburse the administrator for its costs, any other expenses or overhead and profit. Proposals shall include a marketing and communications plan, including a description of experience that the offeror team has in driving demand for programs like this, tactics and strategies that will be employed, potential partners who can assist and how offeror would work with and coordinate with DMME.

42 Thank You Al Christopher Director, Division of Energy Department of Mines, Mineral and Energy (804)