Topics in Risk & Risk Management for Efficiency Finance. Patrick Grogan, Manager of Underwriting (East)

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1 Topics in Risk & Risk Management for Efficiency Finance Patrick Grogan, Manager of Underwriting (East)

2 Agenda Who is Energi? Warranty Program Overview Program Structure & Underwriting/Cost Barriers to Commercial EE Lending Advantages & Overcoming Barriers Success Stories 2

3 Overview of Energi Specialized provider of insurance and risk management services to sectors of the energy industry in the U.S. and Canada Distribute products and services directly and through partnerships with selected independent brokers Shareholders include leading Energy Companies, Management and Hannover Re Delivered some of the initial energy warranty insurance solutions

4 Alternative Energy Solutions AES Product Offerings Energy Savings Warranty Backstops savings guarantees offered to building or project owners Solar Installation Performance Warranty Backstops performance guarantees offered to system owners Manufacturer s Product Warranty Covers the cost to repair / replace defective products Output Performance Warranty Covers reduced output caused by manufacturer s defect 4

5 Product Overview Contractual Liability Insurance Policy Insurance backstops underlying guarantee contract for Energy Savings Guarantee, Solar Output Guarantee, Power Production Guarantee or Manufacturer s Product Warranty Contractor must first issue guarantee to customer Policies can be adjusted to fit the contract Insurance Paper & Risk held by International Insurance Company of Hannover (IICH), A.M. Best A+ rated 5

6 Warranty Program Structure Named Insured = Contractor/Installer/Manufacturer Loss Payee = 1) Project Owner & 2) Lender 10 Year maximum guarantee term Annual Self Insured Retention 12 month Master Policy with projects added by endorsement Non-cancellable project endorsements 3/28/2014 6

7 ESW Underwriting Requirements Contractor Information Description of Company Company Management Bios Historical Financial Information (3 years) Past Project History Project Information Project Location & Owner Audit & Existing Equipment at Facility Project Plans (Design Drawings & Equipment List) Energy Conservation Measures Baseline Energy Consumption (Pre-Project Energy Consumption) Savings Calculations/Modeling Software Guaranteed Energy Savings Values M&V Schedule 7

8 Program Cost Cost = 3-5% (one-time upfront premium) of total guaranteed energy savings or production Example Project: Annual SIR: $10,000 Term: 10 Years Project Limit: $1,000,000 Premium Cost: $40,000 Guaranteed Values Year kwh Savings kwh Rate $ Savings 1 833,333 $0.120 $100, ,333 $0.120 $100, ,333 $0.120 $100, ,333 $0.120 $100, ,333 $0.120 $100, ,333 $0.120 $100, ,333 $0.120 $100, ,333 $0.120 $100, ,333 $0.120 $100, ,333 $0.120 $100, Total 8,333,330 $1,000, /28/2014 8

9 Barriers to Commercial EE Lending ACEEE & Energi (along with NREL, DOE & Argonne National Lab) conducted Small Lender Energy Efficiency Convening to augment small bank activity in efficiency space Study identified key barriers preventing lender participation: 1. Origination & Demand 2. Cash Flow Validation 3. Financial Regulatory & Reporting Requirements 4. Documentation and Structural Elements

10 Program Advantages ESW addresses Cash Flow Validation barrier Lenders can rely upon guaranteed/insured savings > debt service amount A.M. Best A+ Rated Insurer Guarantee s Project Performance for full project term Project Owner Assurance via Third-Party Engineering Review & Detailed M&V Plan Enables new financing structures (ESA s, Shared Savings) that rely upon cash flows from savings

11 ESW Case Study Emerging Lighting contractor performing lighting swaps & controls at Fortune 100 company 10 Year Guarantee Term $6M in Guaranteed Energy Savings Lender required insurance coverage = annual debt service amount Utilized ESW to validate projected savings due to contractor balance sheet concerns

12 QUESTIONS? ext Centennial Drive Peabody, MA