Profiting from Connecticut’s C-PACE Financing Program Presented by: Brian McCarter CEO March 19, 2013.

Profiting from Connecticut’s C-PACE Financing Program

Presented by:

Brian McCarterCEO

March 19, 2013

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

July 2011 – CT passed statewide enabling C-PACE legislation

Clean Energy Finance & Investment Authority (CEFIA) directed to establish & administer the program

Municipalities that “opt-in” are authorized to place a benefit assessment on a property whose owner has secured financing through C-PACE

Program Background

Nov 2012 – CEFIA selected 3rd party program administration team tosupport technical underwriting process

Buonicore Partners (BP): energy & CRE advisory firm provides C-PACE project management & technical oversight for CEFIA

Celtic 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

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.

Private capital provides 100%

long-term funding

Repayment through property taxes

A senior PACE lien is put on the property

and stays regardless of ownership

Program Background

Taxes, to repay assessment, collected in normal course by municipality

Process is entirely consistent with other benefit assessments

The PACE assessment has priority over existing mortgages

The owner must secure written consent from the mortgage holder prior to project approval

Program Background

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

Anything that saves from baseline

High efficiency lighting

HVAC upgrades

New automated building and HVAC

controls

Variable speed drives (VSDs) on

motors fans and pumps

High efficiency chillers, boilers, and

furnaces

High 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

Appliances, e.g., refrigerators,

dishwashers, etc.

Plug load devices

Vending machine controls

Any package of measures with a

weighted average effective

useful life (EUL) that does not

meet or exceed life of the loan

Any package of measures that

does not achieve an energy

savings to investment ratio > 1

ECM 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.

Capital improvements without capital expense

100% of project cost covered Engineering and construction costs

Energy audits

Renewable energy feasibility studies

Post-construction measurement & verification of energy savings

PACE assessment is an obligation of the property, not the owner

Repayment made through property tax bill

The Power of C-PACE Financing

Property tax payments may qualify as an operating expense

Obligation not accelerated at the time of sale

Tax payments may be passed through to tenants who enjoy the benefits

Long-term financing

Energy savings will exceed investment cost

Well-developed projects can achieve positive cash flow from day one

Increases building value

Enhances building’s competitive position in the marketplace

The Power of C-PACE Financing

CEFIA:

Acts as a conduit for private investment

Encourages CRE owners to arrange their own financing

Can connect owners to capital providers

CRE owners:

Negotiate rate, terms, conditions & schedules with capital provider

Can undertake deeper more capital intensive retrofits with greater savings potential & longer payback periods

The Power of C-PACE Financing

Deeper energy retrofits with longer payback times can be pursued

Facilitates 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

Financial

Technical

C-PACE Underwriting Standards

Benefit assessment holds a senior (priority) position

Consent of property mortgage holder required

Total 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

Property must have clear title with no encumbrances

Property taxes should be current

There should be no outstanding tax liens or notices of default

Mortgage payments must be current

No easements or subordination agreements that would conflict with PACE assessment

Project useful life must be longer than the financing term

C-PACE Financial Underwriting

Key challenge: “Will the projected energy savings be realized?”

Problem #1: Energy savings can’t be measured directly

Problem #2: No standard methodology to underwrite energy efficiency

Problem #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

Nationally recognized technical standards define the process from data collection to energy savings measurement and verification

Energy savings can be forecast with a high degree of confidence

Actual energy savings performance can be measured and verified in a

reliable, consistent and fully-transparent manner

Risk of underperformance is low

C-PACE Technical Underwriting

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 confidence

International Performance Measurement & Verification Protocol (IPMVP)

Methodology for energy savings measurement & verification

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

C-PACE Technical Underwriting

Project data are entered & tracked in CDMP for use by all deal stakeholders across the entire project life cycle

Project development through M&V

Powered by SRS’s cloud-based software platform

Facilitates consistency & transparency

Compliance with 3 industry protocols

CEFIA Data Management Platform (CDMP)

All deal stakeholders have access to CDMP CEFIA

Building owner

Capital provider

Auditor, ESCO, Project Developer, Contractors

Insurer (where Energy Savings Insurance is used)

CDMP follows the project post-installation through M&V

CDMP meets reporting needs of multiple interdependent stakeholders

CEFIA Data Management Platform (CDMP)

Calculate Baseline Performance

CDMP enables auditor upload of utility bill data in excel format Normalize for calendar month, weather, occupancy, etc.

Recommend ECMs

CDMP enables auditor upload of ECM data in excel format

Create scenarios to determine optimized bundle of ECMs

Project Energy Savings Scenarios

Calculate Key Financial Metrics CDMP enables capital provider financial underwriting

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

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 3rd party capital provider ESCO arranged

Secure “Commercially-Attractive” Financing

Measure & Verify Energy Savings

Beacon Falls

Bridgeport

Durham

Hartford

Middletown

Norwalk

Old Saybrook

Southbury

Coming 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)

C-PACE technical underwriting enables energy savings to be forecast with a high degree of confidence resulting in a low risk of underperformance

Actual energy savings performance can be measured and verified in a reliable, consistent and fully-transparent manner

C-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

First round of training sessions:

March 22, 2013 Berlin, CT March 26, 2013 Norwalk, CT April 1, 2013 Berlin, CT

Registration link and application on www.c-pace.com/application/contractor

Auditor, Contractor & ESCO C-PACE Training

Understanding Connecticut’s C-PACE Technical Requirements

Presented by:

Paul PopinchalkDirector of Engineering

March 19, 2013

C-PACE Program 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 confidence

International Performance Measurement & Verification Protocol (IPMVP)

Methodology for energy savings measurement & verification

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!

What does the ASTM BEPA “Standardize” in the Baseline?

The time frame over which data needs to be collected 3 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)

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…

Criteria for Collecting Reliable Energy Use Data

No “major renovations” in time period

A 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.)

ASTM BEPA Standard Components

Complements 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)

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

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

Energy Audit

What’s done in an energy audit?

Establish baseline building energy use

Quantify energy use according to major building

function

Benchmark against peer buildings

Recommend ECMs, project energy savings, estimate

project cost and determine key financial metrics

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”

ASHRAE Level I Energy Audit

Building description

On-site walk-through (typically one day)

Collect historic building energy use and cost data

Benchmarking analysis

Identify potential ECMs and typical energy savings

Prioritize energy savings opportunities for further

investigation (Level II Audit)

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

ASHRAE Level III Energy Audit (IGA)

More comprehensive than Level II audit to bring a

highest level of confidence

Generally for very capital intensive projects

More detailed field data gathering and more

rigorous engineering analysis over a longer period

of time (typically up to a month)

M&V Plan (C-PACE Requires Upfront)

Goal and objectives

ECM description and operation

Recommended M&V approach (IPMVP?)

Data analysis procedures and algorithms

Field monitoring (data points)

Reporting (CDMP)

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)

Option C-Usually Best for Commercial Whole Building Energy Retrofits

Multiple 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 substantial

Historic energy use data exists (to establish the baseline)

Reasonable correlations can be developed relating building energy

use to independent variables

IPMVP General Framework for Commercial Buildings: Pre-ECM Installation

Use energy audit to establish baseline energy use profile

prior to installation of ECMs

Use 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)

IPMVP General Framework for Commercial Buildings: Post-ECM Installation

Determine actual energy use in the “reporting period”

with the ECMs installed

Use 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

ECM Performance Verification

Visit C-PACE program website: www.c-pace.com

Genevieve Sherman: CEFIA Manager, C&I Property Assessed Clean Energy

Email: [email protected]

Direct phone: 860.257.2897

Brian Burstiner: SRS Director of Sales

Email: [email protected]

Direct phone: 203.880.9622

Paul Popinchalk: Celtic Energy, Director of Engineering

Email: [email protected]

Direct phone: 860-882-1515

Additional Information & Contacts