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CDFA – Stern Brothers Renewable Energy Finance Webcast Series: Energy Efficiency (EE) & Renewable Energy (RE) Financing Best Practices The Broadcast will begin at 1:45pm (EDT).
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Katie Kramer
Director, Education & Programs Council of Development Finance Agencies Columbus, OH
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Energy Efficiency & Renewable Energy Financing Best Practices
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Energy Efficiency & Renewable Energy Financing Best Practices
CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net
Speakers
Les Krone, Moderator Stern Brothers & Co. Doug Lamb McGuire Woods LLP Anita Molino Bostonia Partners LLC Julie Metty Bennett Michigan Saves
Energy Efficiency & Renewable Energy Financing Best Practices
CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net
Les Krone
Managing Director Stern Brothers & Co.
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Energy Efficiency & Renewable Energy Financing Best Practices
CDFA National Development Finance Summit
Washington D.C.
August 8, 2013
1) No Construction Risk 2) No Merchant Risk 3) No Technology Risk
4) Feedstock Strategy (biomass) 5) Meaningful Sponsor ‘Skin-in-the-game’
Project Risk Mitigation Demands
Substantial Project Development Activity
Topaz Solar Project
Iowa Fertilizer Project
CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net
Doug Lamb
Partner McGuire Woods LLP Richmond, VA Energy Efficiency & Renewable Energy Financing Best Practices
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Energy Efficiency & Renewable Energy Financing Best Practices & Deal Strategies
CDFA – 2013 National Development Finance Summit
Washington, D.C. August 8, 2013 Douglas E. Lamb
McGuireWoods LLP | 2
Overview - Best Practices & Deal Strategies
technology risk
advantaged obligations, tax credits and grants
McGuireWoods LLP | 3
Project Planning and Initial Development
– Prequalification of Vendors – Standard Documentation
– Development, permitting, partners secured, financing structure, engineering
McGuireWoods LLP | 4
What Issues Face Emerging Technologies?
McGuireWoods LLP | 5
Energy Efficiency Structuring Considerations
– Commercial, industrial, residential or governmental
– Reduce demand, create jobs or be green
– Obligor, owner or facilitator
– Grants, bonds and rebate/incentive payments
McGuireWoods LLP | 6
Energy Efficiency - Common Structures
– Contract with an energy service company (ESCO) to audit and undertake system wide improvements – ESCO will provide a guarantee of savings – Government borrows funds for improvements that it owns; lender may take a security interest in the project – Terms of repayment vary; savings should exceed repayment
McGuireWoods LLP | 7
Energy Efficiency - Common Structures (cont’d)
– ESCO installs the efficiency improvements and agrees that its compensation is the savings generated from the improvements – The service recipient’s benefit is stable cash flow with less up front cost
agreements (PPA)
– Lender, lessor or service provider owns the assets – Leases and service agreements require special attention – Risk of PPAs are rising electricity costs
McGuireWoods LLP | 8
Common Energy Efficiency Financing Structure
Lender
Proceeds Debt
ESCO Borrower Escrow
Guaranty/ Services Draws Payments
For discussion purposes only; consult your tax advisor
Guaranty of Savings
McGuireWoods LLP | 9
Renewable Energy Structuring Considerations
– Use of power and control of facility – Reliable power supply at reliable rates – Is there tax equity?
– Maximizing tax incentives and rate of return: bonds, credits, grants and depreciation – Reducing structural risk – Ease of exit upon reaching target IRR
McGuireWoods LLP | 10
Renewable Energy - Common Structures
– Tax-exempt governmental bonds – Clean renewable energy bonds – Qualified energy conservation bonds
– Leases and power purchase agreements – Pre-paid power purchase agreements – Tax-exempt pre-pay bonds – Additional subsidies
McGuireWoods LLP | 11
Ownership Spectrum
Vanilla la PPA Prepaid id PPA True Electr ectric ic Prepay Lease Muni Owned
Owner Developer Developer Developer Developer owns Project /Purchaser
Purchaser (Muni) Debt Issuer Project Co Purchaser (Muni) SPV (no assets) Project Co Muni Debt Risks Full Project Risks Purchaser’s credit Full Project Risks Full Project Risks Purchaser’s Credit
Privately Owned Municipally Owned
McGuireWoods LLP | 12
Non-Operating Generators of Value
Benefit fit Descri cription ion
Tax Depreciation MACRS or Straight Line depreciation is a income statement deduction to reduce taxable income for a taxpaying entity. Equal to Depr. * tax rate Tax Credits (PTC/ITC) Investment Tax Credit (ITC) taken by taxpayer at in service date. Production Tax Credit (PTC) taken by taxpayer over 10 yrs as electricity is produced and sold to unrelated person. Tax-Exempt Debt Interest in tax-exempt debt provides value to investor, which is in turn passed on the renewable project as a lower interest rate. Lock-in/Pay as You Go Certain financing structures lock-in the electric purchaser to term, while others release the purchaser if electricity is not delivered. Transfer of Asset At the end of the financing term or sooner, the renewable asset can be transferred from developer to purchaser.
McGuireWoods LLP | 13
What Value is Extracted
Muni Owned Vanilla la PPA Prepaid id PPA True Electr ectric ic Prepay Lease Tax Depreciation Tax Credits (PTC/ITC) Tax Exempt Debt Purchaser Off Balance Sheet Paygo
McGuireWoods LLP | 14
Tax-advantaged Obligations General Characteristics
Tax-exe exempt mpt New CREBs, s, QECBs, Bs, QZABs s and QSCBs Bs Governm rnmenta tal Issuer (discussed later) Yes Yes, with exceptions for New CREBs Governm rnmenta tal Owners rshi hip Not required for private activity bonds QZABs and QSCBs generally, but not required for all New CREBs and certain QECBs Allocat ation
lume e Cap Yes, except not for governmental tax- exempt or 501(c)(3) Yes (discussed later) IRS Filings At closing At closing, and to claim tax credit or direct payment Subsi sidy dy Tax-exempt interest, and private activity bonds are subject to AMT Taxable interest with tax credit or direct payment (except for QZABs with post 2010 allocation – credit only) Types es of Transac acti tions New money, current and advance refundings, except no-advance refundings for certain private activity bonds New money only; and certain refinancings of bridge loans
McGuireWoods LLP | 15
Governmental Projects
– Pre-pay transactions: proceeds of bonds are used to pre-purchase gas or electricity from the generator
– Output facilities: proceeds of bonds are used for capital expenditures for such facilities (discussed on next slide) – QECBs and New CREBs: for governmental projects, there are fewer restrictions (discussed later)
– QECBs, QZABs for rehabilitation and equipment generally and QSCBs for new construction and equipment – Tax-exempt obligations
McGuireWoods LLP | 16
Governmental Projects (cont’d)
– $15 million limitation: generally, not more than $15 million of an issue for an output facility may be used for a private business use – Private business use is use directly or indirectly in a trade or business that is carried on by any person other than a governmental unit. Governmental use is any use other than a private business use. – Purchase pursuant to a contract by a non-governmental person of available output of an
– There are numerous special allocation rules
McGuireWoods LLP | 17
Non-governmental Projects
gas, local district heating or cooling, environmental enhancements of hyrdroelectric generation, green building and qualified 501(c)(3)
McGuireWoods LLP | 18
Private Activity Bonds
projects subject to limitations – Limitations: first useful product rule or useful energy
water or steam
improvements
consumption and SO2 emissions, expanded solar PV and used fuel cell energy
McGuireWoods LLP | 19
Eligibility for New CREBs and QECBs - Basics
– Projects: wind, solar, geothermal, closed and open loop biomass, landfill gas, trash combustion and hydro, plus functionally related and subordinate facilities – Borrowers: governmental and tribal bodies, mutual and cooperative electric companies and public power providers (“PPPs”)
– Issuers: qualified borrowers, certain “CREB lenders” (e.g., CoBank and NRUCFC) and certain not-for-profit electric utilities
– Projects: qualified conservation purposes (see next slide) – Borrowers: qualified issuers and non-governmental entities subject to limitations
community programs are exempt
– Issuers: same as tax-exempt issuers
Act’s prevailing wages
McGuireWoods LLP | 20
QECBs – Qualified Conservation Purposes
Capital l Expendit nditure ures for: Researc rch Other
buildings by at least 20% Expenditures for research facilities and research grants to support research in:
building technology, agricultural biofuel conversion, advanced battery manufacturing technologies, technologies to reduce peak use of electricity or technologies for the capture & sequestration
produce electricity
use of loans, grants, or other repayment mechanisms to implement such programs”
from renewable energy resources
sequestration of carbon dioxide produced through the use of fossil fuels
development
technologies for producing non-fossil fuels
technologies to reduce fossil fuel consumption in transportation
buildings
McGuireWoods LLP | 21
QECBs – QCP Recent IRS Guidance
– Financed improvement may be a unit of a publicly owned building – Units: single or multiple buildings, a system component (i.e., HVAC, water, lighting
– Purpose is to promote energy conservation, energy efficiency or environmental conservation initiatives – Relates to property is available for general public use or involves loan or grant program that is broadly available
McGuireWoods LLP | 22
Traditional Municipal Structure
Debt Investors
Tax-exempt Debt Proceeds
Power Purchaser
MWh $/MWh
LT PPA
Municipal Owner Fuel Supplier
Payment Fuel
For discussion purposes only; consult your tax advisor
McGuireWoods LLP | 23
Commercial PACE Structure
Lender Governmental Entity ESCO
Debt Pledge of Lien on Assessments Proceeds
Borrower
Services Payment Assessment LIen
For discussion purposes only; consult your tax advisor
McGuireWoods LLP | 24
Pre-Paid Power Purchase Agreement – “Flip”
Proceeds Tax Exempt
Debt Investors Muni Power Purchaser
MWh Prepayment Post-Flip 5% Pre-Flip 99% Pre-Flip 1% Post-Flip 95%
Developer Tax Equity Project Company
For discussion purposes only; consult your tax advisor
McGuireWoods LLP | 25
Bond Proceeds Contractual Relationship (e.g., by Sublease) QEI NMTCs NMTCs
CDE
QLICI Debt Debt Service Ownership/ Capital Contribution PPA/Services Agreement
QECBs, NMTCs (Leveraged) and ITC
Lender QALICB Bond Borrower Muni NMTC Tax Equity Investor Borrower Affiliate/ Sponsor Investment Fund Lessee
True Lease
Property Loan/Grant
ITC Investor
Equity Contribution Tax Credits
McGuireWoods LLP | 26
Before Proceeding, Ask Yourself …
and community support)?
transaction parties?
McGuireWoods LLP | 27
Tax-advantaged Obligations
Feature tures Tax-exempt mpt QSCBs 1, 2 QZABs 1,2, 3 New CREBs1, 2 QECBs 1, 2 Purpos pose Governmentally owned and operated subject to exceptions for private use and private activity bonds Public School Facilities, including Construction and Renovation, plus Land Acquisition and Equipment Qualified School Renovation, Related Equipment, School Personnel Training and Course Material Development Electricity Produced from Renewable Energy Sources Renewable Energy and Energy Conservation Assets, Programs and Research for Qualified Conservation Purposes Autho thorize rized d Amou
t Applicable for non- 501(c)(3) private activity bonds $11 B for 2009 and $11B for 2010 (Total of $22B) $1.4 B for 2009 and 2010; $400 M for 2011 $2.4 B nationally $3.2 B nationally ______________
1Pursuant to the Hiring Incentives to Restore Employment Act (enacted March 18, 2010), an issuer of QSCBs, QZABs (subject to limits), New CREBs and QECBs may
elect that the subsidy be a direct payment from U.S. Treasury as opposed to a tax credit.
2Generally, direct pay/tax credit obligations may not be used to refund prior debt. 3Pursuant to the Tax Relief Act of 2010 (a/k/a extension of Bush tax cuts), QZABs issued under the 2011 allocation may not opt for the direct subsidy.
McGuireWoods LLP | 28
Features ures Tax-ex exem empt QSCBs Bs QZAB ABs New CREBs QECBs Bs Durat uration ion (term rm) of Issuan uance ce Tax-exempt bonds are subject to general “abuse” limitations regarding
Private activity bonds’ are also subject to a test that the average maturity cannot exceed 120% of the economic life of financed assets. Maximum Term set by Treasury Monthly4 Maximum Term set by Treasury Monthly4 Maximum Term set by Treasury Monthly4 Maximum Term set by Treasury Monthly4 Expira iration ion of Authorizat
ion for Issuan uance ce Not applicable except for certain defined private activity bonds. Must issue before end of calendar year in which alocation received unless pursuant to carry forward. Must have been issued before 1/1/2012 unless pursuant to carryforward which is two calendar years following year in which allocation arose. Expired October 27, 2012. There is guidance suggesting the IRS may reallocate unused amounts. No expiration date. States’ rules may vary. ______________
4Maximum maturities can be found at https://www.treasurydirect.gov/rates/rates-irstcb.htm.Tax-advantaged Obligations (cont’d)
McGuireWoods LLP | 29
Features ures Tax-ex exem empt QSCBs Bs QZAB ABs New CREBs QECBs Bs Expen endit ditur ure of Procee eeds Subject to arbitrage limitation of 3 year reasonable expectations test at issuance, including binding commitment for at least 5% within 6 Months, plus applicable rebate matters if yield of proceeds exceeds yield of obligations and rebate exceptions are not satisfied Must Spend Available Project Proceeds (“APP”) within 3 Years 5 Binding Commitment for at least 10% within 6 Months Must Spend APP within 3 Years Binding Commitment for at least 10% within 6 Months Must Spend APP within 3 Years Binding Commitment for at least 10% within 6 Months Must Spend APP within 3 Years Binding Commitment for at least 10% within 6 Months Elig igib ible e Issuers uers State or Local Governments (i.e., political subdivisions and on-behalf of issuers, such as improvement and economic development authorities) Same as tax-exempt issuers Same as tax-exempt issuers State or Local Governmental Entities, CREB Lenders (e.g. CoBank or CFC) and Public Power Providers Same as tax-exempt issuers ______________
5IRC §54A(d)(2) defines “available project proceeds” as sale proceeds less financed costs of issuance (not to exceed 2%) plus earnings thereon.Tax-advantaged Obligations (cont’d)
McGuireWoods LLP | 30
Speci cial al Features ures for Tax Credit dit Bonds nds Only QSCBs Bs QZAB ABs New CREBs QECBs Bs Tax Credit dit Amoun
rect Pay Amou
nt Face Amount of Outstanding Obligation X Tax Credit Rate ____________ Lesser of Coupon Interest or Interest Calculated at Tax Credit Rate Face Amount of Outstanding Obligation X Tax Credit Rate ____________ Lesser of Coupon Interest or Interest Calculated at Tax Credit Rate (Available for 2009 and 2010 Allocations Only) Tax Credit - Face Amount of Outstanding Obligation X Tax Credit Rate, Minus 30% ____________ Direct Pay - Lesser of Coupon Interest or 70% of Interest Calculated at Tax Credit Rate Tax Credit - Face Amount of Outstanding Obligation X Tax Credit Rate, Minus 30% ____________ Direct Pay - Lesser of Coupon Interest or 70% of Interest Calculated at Tax Credit Rate Tax Credit dit Rate Set by Treasury Daily7 Set by Treasury Daily7 Set by Treasury Daily7 Set by Treasury Daily7 Stripp ippab able e Credit dits8 Yes Yes Yes Yes
________________________ 6Calculated on each March 15, June 15, September 15 and December 15 and last day bonds are outstanding. The credit is included in gross income. Generally, the credit may be used tomarket sectors selected by Treasury with a rating of between A and BBB for bonds of a similar maturity.
8The IRS released stripping guidance on March 23, 2010 in IRS Notice 2010-28.Tax-advantaged Obligations (cont’d)
McGuireWoods LLP | 31
Energy Resource or Facility Required Start
Construction Date Amount of PTC or ITC 1 PTC Period or ITC Recapture Reduction for Subsidized Financing Basis Reduction Wind Before 1/1/14. PTC equal to 1.5¢ per kwh of electricity sold (adjusted annually for inflation). PTC is 2.3¢ per kwh of electricity sold in 2013. ITC is equal to 30%
qualified property. For PTC, no recapture and 10 year credit period begins on the date the facility is placed in service. For ITC, proportional amount of ITC is recaptured if property is disposed of or
to qualify within 5 years from placed in service date. PTC reduced if the project is financed with grants, tax- exempt bonds or subsidized energy financing. ITC is not reduced if tax-exempt bonds or subsidized energy financing used. If ITC is received, adjusted basis of qualified property must be reduced by half of ITC amount. ______________
1 With respect to qualifying property, a taxpayer may elect to receive only one of ITC or PTC .
Tax Credits for Certain Energy Resources
McGuireWoods LLP | 32
Energy Resource or Facility Required Start
Construction Date Amount of PTC or ITC 1 PTC Period or ITC Recapture Reduction for Subsidized Financing Basis Reduction Closed-Loop Biomass Closed-loop biomass facilities use organic material from a plant which is planted exclusively for the purpose of being used at a qualified facility to produce electricity. Before 1/1/14. PTC equal to 1.5¢ per kwh of electricity sold (adjusted annually for inflation). PTC is 2.3¢ per kwh of electricity sold in 2013. ITC equal to 30%
qualified property. For PTC, no recapture and 10 year credit period begins on the date the facility is placed in service. For ITC, proportional amount of ITC is recaptured if property is disposed of or
to qualify within 5 years from placed in service date. PTC reduced if the project is financed with grants, tax- exempt bonds or subsidized energy financing. ITC is not reduced if tax-exempt bonds or subsidized energy financing used. If ITC is received, adjusted basis of qualified property must be reduced by half of ITC amount. ______________
1 With respect to qualifying property, a taxpayer may elect to receive only one of ITC or PTC.
Tax Credits for Certain Energy Resources (cont’d)
McGuireWoods LLP | 33
Energy Resource or Facility Required Start of Construction Date Amount of PTC or ITC 1 PTC Period or ITC Recapture Reduction for Subsidized Financing Basis Reduction Open-Loop Biomass Open-loop biomass facilities generate electricity from the use of (1) agricultural livestock waste nutrients or (2) solid, nonhazardous, cellulosic waste material or any lignin material which is derived from certain organic waste
include facilities that burn biomass in conjunction with fossil fuel (cofiring) beyond such fossil fuel required for startup and flame stabilization. Before 1/1/14. PTC equal to half
electricity sold (adjusted annually for inflation). PTC is 1.1¢ per kwh of electricity sold in 2013. ITC equal to 30%
qualified property. For PTC, no recapture and 10 year credit period begins on the date the facility is placed in service. For ITC , proportional amount of ITC is recaptured if property is disposed of or
to qualify within 5 years from placed in service date. PTC reduced if the project is financed with grants, tax- exempt bonds or subsidized energy financing. ITC is not reduced if tax-exempt bonds or subsidized energy financing used. If ITC received, adjusted basis of qualified property must be reduced by half of ITC amount. ______________
1 With respect to qualifying property, a taxpayer may elect to receive only one of ITC or PTC.
Tax Credits for Certain Energy Resources (cont’d)
McGuireWoods LLP | 34
Energy Resource or Facility Required Start of Construction Date Amount of PTC or ITC1 PTC Period or ITC Recapture Reduction for Subsidized Financing Basis Reduction Landfill Gas Landfill gas facilities produce electricity from gas derived from the biodegradation of municipal solid waste. Before 1/1/14. PTC equal to half
electricity sold (adjusted annually for inflation). PTC is 1.1¢ per kwh of electricity sold in 2013. ITC is equal to 30%
qualified property. For PTC, no recapture and 10 year credit period begins on the date the facility is placed in service. For ITC, proportional amount of ITC is recaptured if property is disposed of or
to qualify within 5 years from placed in service date. PTC reduced if the project is financed with grants, tax- exempt bonds or subsidized energy financing. ITC is not reduced if tax-exempt bonds or subsidized energy financing used. If ITC is received, adjusted basis of qualified property must be reduced by half of ITC is amount. ______________
1 With respect to qualifying property, a taxpayer may elect to receive only one of ITC or PTC.
Tax Credits for Certain Energy Resources (cont’d)
McGuireWoods LLP | 35
Energy Resource or Facility Placed in Service Date Amount of PTC or ITC 1 PTC Period or ITC Recapture Reduction for Subsidized Financing Basis Reduction Solar Solar energy property includes equipment which uses solar energy to generate electricity, to heat
water for use in) a structure, to illuminate the inside of a structure using fiber-optic distributed sunlight, to provide solar process heat, except for property used to heat a swimming pool. Before 1/1/17. No PTC available. ITC is equal to 30%
qualified property. No PTC available. For ITC, proportional amount of ITC is recaptured if property is disposed of or
to qualify within 5 years from placed in service date. No PTC available. ITC is not reduced if tax-exempt bonds or subsidized energy financing used. If ITC is received, adjusted basis of qualified property must be reduced by half of ITC is amount. ______________
1 With respect to qualifying property, a taxpayer may elect to receive only one of ITC or PTC.
Tax Credits for Certain Energy Resources (cont’d)
McGuireWoods LLP | 36
Energy Resource or Facility Required Start
Construction Date Amount of PTC or ITC 1 PTC Period or ITC Recapture Reduction for Subsidized Financing Basis Reduction Trash (Municipal Solid Waste) Trash facilities use municipal solid waste to produce electricity. Before 1/1/14. PTC equal to half
electricity sold (adjusted annually for inflation). PTC is 1.1¢ per kwh of electricity sold in 2013. ITC is equal to 30%
qualified property. For PTC, no recapture and 10 year credit period begins on the date the facility is placed in service. For ITC, proportional amount of ITC is recaptured if property is disposed of or
to qualify within 5 years from placed in service date. PTC reduced if the project is financed with grants, tax- exempt bonds or subsidized energy financing. ITC is not reduced if tax-exempt bonds or subsidized energy financing used. If ITC is received, adjusted basis of qualified property must be reduced by half of ITC amount. ______________
1 With respect to qualifying property, a taxpayer may elect to receive only one of ITC or PTC.
Tax Credits for Certain Energy Resources (cont’d)
McGuireWoods LLP | 37
Questions, Resources and Contact Information
Dougl glas as E. Lamb 804.775 .775.110 .1107 dlamb@ b@mcgui mcguirewoods.com
www.mcgui guirewoods
.com 2012 McGuireWoods LLP http://ww ://www.e .eere ere.en .energy ergy.gov .gov http://ww ://www.dsire .dsireusa.org usa.org http://ww ://www.c .cdf dfif ifun und.gov d.gov http://ww ://www.c .cdf dfa.ne .net http://ww ://www.e .epa.gov pa.gov http://ww ://www.pa .pace cenow
.org http://ww ://www.a .ace ceee.or .org
CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net
Anita Molino
President Bostonia Partners LLC Boston, MA
Are you a CDFA Member? Members receive exclusive access to thousands of resources in the CDFA Online Resource Database. Join today at www.cdfa.net to set-up your unique login.
Energy Efficiency & Renewable Energy Financing Best Practices
Energy Efficiency & Renewable Energy Financing Best Practices
2013 CDFA National Development Finance Summit
Anita P. Molino, Bostonia Partners August 8, 2013
www.bostonia.com
www.bostonia.com
requirements
Energy Efficiency & Renewable Energy Markets
Energy Financing Basics
www.bostonia.com
3
Energy Efficiency Challenges
Renewable Energy Challenges
For success, any financing program or aggregation strategy must proceed on a state by state basis, finding the critical path within common boundaries.
Energy Efficiency & Renewable Energy Markets
www.bostonia.com
4
Critical Issues Associated with Aggregation
attractive size of the financing
available
Energy Efficiency & Renewable Energy Markets
www.bostonia.com
commercial & industrial, and MUSH
5
State of the Markets
Energy Efficiency & Renewable Energy Markets
www.bostonia.com
Tax-Exempt MUSH Pools
Affordable Housing Sectors
Requires Pools, Senior-Sub Structures and/or Reserves, and Higher Coverage
Non-Investment Grade
Taxable PACE for Small C&I and Residential REITs & MLPs Community Bank Partners for Residential/Affordable Housing Pools Tax-Exempt and Taxable Bank and Capital Market Debt On-Balance Sheet
Investment Grade
Taxable Contract Securitizations On- or Off-Balance Sheet Taxable PACE for Large C&I Taxable Private Placements for MUSH and Equity Funds for Renewables
Energy Financing Options
www.bostonia.com
7
Cost of Funds
Expected Rate of Return Risk to Investor Tax- Exempt Debt Taxable Debt Tax Equity Project Equity
“Spread”
100% Recourse to Government Private Sector Transaction Public Sector Transaction Public-Private Risk Sharing
www.bostonia.com
8
Cost of Capital
NOTE: Example presents a capital cost comparison only and does not attempt to assign values to efficiencies, savings, and retained or transferred risks, which would be part of a complete cost benefit analysis.
Based on a $50 Million Renewable Biogas-to-Energy Cogeneration and Thermal Drying— Wastewater Treatment Facility (20 Year Term)
Cost of Electricity/Sludge Processing
Debt 3.2% yield
Ownership
KWh – 3% escalation 100%
3% escalation Muni Tax-Exempt A rated 100% leveraged
Debt 3.8% Yield
Tax Equity – 30% ITC Monetization 13% yield Project Equity 20% yield
Tax-Advantaged NAIC-1, taxable private placement (35% tax rate) 5% 25% 70%
Ownership
3% escalation
Debt 3.8% Yield
Project Equity 20% yield
70% 30%
NAIC-1, taxable private placement (35% tax rate)
www.bostonia.com
9
Evaluating the Cost Effectiveness of PPPs
Governments
“Testing Tradition: Assessing the Added Value of Public-Private Partnership”, a thorough and proper evaluation involves several analyses:
Financing costs for projects may be higher for PPPs however FLC analysis often shows savings over time due to risk allocation, design, construction, and long-term O&M.
www.bostonia.com
10
Project Overview
renewable energy, high voltage transmission assets, and energy service activities.
Western Massachusetts with facility sizes ranging from 85 kW to 3.0 MW, totaling 9.2 MW.
grade parties.
Financing Overview
construction loans, 1603 bridge financing, tax equity, and term financing for each project.
pool utilizing similar terms and structure.
10 year term of the Mass SREC market. Challenges / Lessons Learned
Citizens Energy, Massachusetts Solar Portfolio
www.bostonia.com
11
Pennsylvania Keystone Home Energy Loan Program (HELP)
Program Overview
improvements; Pennsylvania Treasury Department owned the Keystone HELP loans as an investment.
inception in 1986 using a contractor driven model managed by AFC First Corp, one of three FNMA approved underwriters in the nation.
charge off rate (<5%). Financing Overview
consumer loans with anticipated cash flows of more than $35,500,000.
Bostonia Partners, purchased the loan pool from Treasury.
community bank lenders led by Fox Chase Bank, with Treasury retaining a residual interest in the loan pool in addition to its cash sale proceeds received at closing.
Challenges / Lessons Learned
and AFC First program management.
history; high initial transaction due diligence and transaction costs; and credit rating not practical.
HELP can work for new money programs.
www.bostonia.com
12
White Sands Missile Range, Solar ESPC
Project Overview
Management Control System
energy consumption at the installation
contract term based on escalation of electricity rates Financing Overview
monetize federal tax credits
power without upfront capital or a buy down of project capital cost
will own the RECs Challenges / Lessons Learned
success
www.bostonia.com
U.S. FDA White Oak Federal Research Center, Silver Spring, Maryland
Project Overview
microgrid for the 3.9 million SF, $1.5 billion office and laboratory compound for the FDA.
55MW) that reliably produces electricity for the critical laboratory needs of FDA and uses waste heat to produce building heating and cooling.
ventilation, and air conditioning systems, improvements to lighting—including the latest LED technology—and building envelope modifications. Financing Overview
flow structure from energy cost savings derived from energy conservation measures implemented at the campus.
first year of operation through energy savings and avoided operations and maintenance costs, and approximately $200 million in government savings over 20 years, according to a Public Service Comparator analysis. Highlights
awarded under the Department of Energy’s ESPC program.
energy objectives outlined in Executive Order 13514 for the reduction of energy consumption and greenhouse gas emissions.
continue its operations during Hurricane Sandy in 2012 while the surrounding area was without power.
www.bostonia.com
14
U.S. Virgin Islands Energy Alliance Program
Implementation and Financing Overview
utility demand reduction services;
Residential Markets;
energy generation to be installed throughout the Territory. Program Overview
initiative for all utility rate classes
through private sector “Implementation Agent” to design and implement program
are underway Challenges / Lessons Learned
www.bostonia.com
Conclusions
15
Development
coupled with NIMBY issues
cost Financing
ensure that projects are financeable
protect investors and lenders in certain circumstances.
www.bostonia.com
Contact Information
16 This information has been prepared solely for information purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument
Anita P. Molino President 617-226-8102 Direct 617-437-0150 Main amolino@bostonia.com
CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net
Julie Metty Bennett
Vice President Michigan Saves Lansing, MI Energy Efficiency & Renewable Energy Financing Best Practices
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Michigan Saves:
Making Energy Improvements Easy and Affordable
August 8, 2013 CDFA National Development Finance Summit Julie Metty Bennett, Executive Director
Homeowners Municipalities Businesses
What is Michigan Saves?
Energy Efficiency Loans
Structure
Key Michigan Saves roles:
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Current Programs
Home Energy Loan Program
www.michigansaves.org
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HELP Lenders
HELP Loans Issued
Loan value: $22.1 million (of $68 million committed) Loan loss reserve committed: $779,018 (of $3.4 million committed) Loan defaults: 18 loans (out of 2,712 issued or 0.66%)
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$0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 Cumulative Value Monthly Loan Value
Business Energy Financing
for energy efficiency improvements through local lender, Ervin Leasing
with focus on food industry
terms up to 5 years
Typical Improvements
maintenance
Photograph by Marvin Shaouni
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Special Offer!
$2,000 rebate
for 20% energy savings for businesses in food industry
BEF Leases Issued
$0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 Nov Dec Feb Mar Apr May Jun Cumulative Lease Value Monthly Lease Value
Lease value: $956,993 (of $10 million committed) Loan loss reserve committed: $95,699 (of $1 million committed) Loan defaults:
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From left to right: Terri Schroeder, Sally Talberg, Gov. Rick Snyder, Julie Metty Bennett, and Todd O’Grady.
Public Sector Energy Financing
Financing Vehicle
Leasing
Eligible Improvements
energy measures
contractors
BetterBuildings for Michigan
$30M grant from US DOE to support statewide residential and commercial energy efficiency improvements
communicate with 11,340 serve 9,180
1-99 100-199 200-299 300+
sweeps
weatherize 13.5M square feet of commercial, industrial & public buildings
leverage $150M in private funds
create 2,063 green jobs
Residential Sweeps: Test and Learn
Driving Demand
Rebates
Preliminary Finding: Driving Demand
Driving Demand
Rebates
18% 15% 67%
Participate in program Say "No" Don't respond
conversion to additional measures
Preliminary Finding: Location
Driving Demand
Rebates 8% 45%
Grand Rapids
(Oakdale, Eastown)
Preliminary Finding: Co-pay
Driving Demand
Interest rates
HIGHER co-pays ($100)
produced higher average conversions:
47% vs. 28.6%
Preliminary Finding: Sweep Size
Driving Demand Sweep Size
Location 7% 20% 29% High Medium Low
(>1,200) (500–1,200) (<500)
Sweep size impacts % participating
# of homes:
Preliminary Finding: Duration
Driving Demand Duration
Co-pay 8% 32% 29% <3 mo. 4–6 mo. 7 + mo.
Ideal duration is 4–6 months
Preliminary Finding: Marketing
Driving Demand Marketing
Sweep size
have conversions homeowners participate
Re-Sweeps
Preliminary Finding: Contractors
Driving Demand Contractors
Duration Sweep 2 (Riverside) Sweep 3 (Oakdale) Sweep 4 (Westside) Sweep 5 (GVSU)
Contractor performance incentive put in place
Preliminary Finding: Rebates
Driving Demand Rebates
Marketing 30% 12% 15% 44% Phase I Phase II
Initial Uptake
Initial Uptake and Conversion to Additional Measures
Preliminary Finding: Interest Rates
Driving Demand Interest Rates
Contractors
Preliminary Finding: Interest Rates
0% 10% 20% 30% 40% 50% 60% 70%
DeWitt Township Marquette Oakdale Riverside Park Roseville Sterling Heights Three Rivers Traverse City Westside GVSU Southgate Wyandotte 1 Eastown Ferndale Lathrup Village Rosedale Park Sturgis Low (0%) Medium (1.99%) High (3.99% and up)
Low (0%) Medium (1.99%) High (3.99% and up)
Averages: 44% 40% 10%
Average Conversion Rates
Unique Marketing Approach: GVSU
Resources and Contacts
Julie Metty Bennett, Executive Director jbennett@michigansaves.org Phone: (734) 494-2190 Websites: www.michigansaves.org www.betterbuildingsformichigan.org Email: info@michigansaves.org
CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net
Audience Questions
Fundamentals of Development Finance Bond Finance Tax Increment Finance Tax Credit Finance Revolving Loan Fund Finance Federal Financing Programs State & Local Financing Programs Energy Finance Innovation Finance – Seed, Angel & Venture Capital Brownfield Finance Transportation Finance Access to Capital Finance Special District Finance Public-Private Partnership Finance
CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net
Intro EB-5 Finance WebCourse Daily: 12-5pm (EDT) September 18-19, 2013 Advanced Bond Finance WebCourse Daily: 12-5pm (EDT) October 15-16, 2013 Intro Tax Increment Finance WebCourse
Daily: 12-5pm (EST) November 12-13, 2013 Register online at www.cdfa.net
Upcoming Events at CDFA
CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net
CDFA – BNY Mellon Development Finance Webcast Series Tuesday, September 17, 2013 @ 1:00pm Eastern CDFA – Stern Brothers Renewable Energy Finance Webcast Series Thursday, September 26, 2013 @ 1:00pm Eastern
Upcoming Webcasts
CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net
Les Krone Managing Director 314-743-3054 lkrone@sternbrothers.com Katie Kramer Director, Education & Programs 614-224-1316 kkramer@cdfa.net
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