Energy Efficiency Procurement and Finance

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1 Pennsylvania Sustainable Energy Finance Program Energy Efficiency Procurement and Finance April 21, 2016

2 Pennsylvania Sustainable Energy Finance Program A collaborative partnership between the Pennsylvania Treasury and the Foundation for Renewable Energy and the Environment (FREE) In an effort to expand its investments in energy efficiency, PA Treasury secured a grant from the West Penn Power Sustainable Energy Fund in order to set up PennSEF with the goal of purchasing the bonds issued by the program FREE is a nationally recognized leader in sustainable energy and its team has already piloted the PennSEF model, financing over $70 million in energy efficiency improvements in Delaware The FREE team includes Drinker Biddle & Reath as counsel and Becker Capital as financial advisor Visit PennSEF at: freefutures.org/pennsef

3 Energy Obesity

4 Negawatt hours (not consuming) Cheaper than Kilowatt hours Visit PennSEF at: freefutures.org/pennsef

5 PennSEF Program Features Prequalification of local and national energy service companies (ESCOs) through an RFQ process Standardized documentation that facilitates pooled financing which lowers costs for all Participants Guaranteed Savings Agreement is a transparent construction contract with a strong guarantee and spells out a monitoring and verification (M&V) plan in detail FREE s legal, financial and technical team assists throughout negotiations Visit PennSEF at: freefutures.org/pennsef

6 PennSEF Program Benefits Preliminary audit provided at no cost Investment grade audit must offer selffinancing measures based on participant priorities providing at least 90% of the savings quoted in the pre-contract audit All program costs are paid within the bond issue if a participant proceeds with a project No cross collateralization or risk associated with involvement of other participants Customized and serialized financing optimization Significant local job creation Visit PennSEF at: freefutures.org/pennsef

7 Procurement Process Pennsylvania government units can procure energy efficiency projects using a flexible process under the Guaranteed Energy Savings Act. The government unit issues an RFP that permits selection on the basis of multiple criteria to meet its needs. The government unit selects one ESCO to prepare a preliminary audit. If satisfied with the preliminary audit, the government unit makes a final selection of the ESCO and signs a Guaranteed Savings Agreement, which includes an Investment Grade Audit and Installation. Visit PennSEF at: freefutures.org/pennsef

8 Guaranteed Savings Agreement Purpose Agreement between ESCO and Participant to evaluate possible ECM s and undertake implementation of one or more conservation measures at the participant s facility. Mechanism ESCO performs Investment Grade Audit ESCO and participant negotiate final GSA schedules ESCO agrees to design, construct and install conservation measures selected by Participant ESCO guarantees that the amount of savings will exceed the payments due under the Lease. The Participant assumes operating responsibility, starting at project completion. Visit PennSEF at: freefutures.org/pennsef

9 Indicative Borrowing Rates PA Tax-Exempt Revenue Curve 3/1/2016 PA Taxable Curve 3/1/2016 Term AAA AA A BAA Term AAA AA AA BAA Rates are indicative only and are quoted for general category ratings and not for sub-categories such as Aa3. Rates are as of close of the market on March 1, Rates are generalized for a category rating and do not reflect the various nuances in the market in terms of the way investors see credits. For instance hospital credits are not seen in as positive a light as school district credits, and even within those credit categories it depends on the name of the hospital or school district. In addition, it does not account for various possible increases in ratings due to things like Pennsylvania s Intercept Program if that can back a school district s bonds. Rates in the Revenue Curve table are quoted as trading off the same GO category. The amount they trade off will depend on the borrower and the perception in the market of that borrower. The same rates may or may not apply for Lease Revenue Bonds or Certificates of Participation. Visit PennSEF at: freefutures.org/pennsef

10 Lease The Lease is a financing lease title passes to participant after final payment Participant can select term of lease and can select different payment terms for different ECMs Interest rate depends on length of term and participant s credit Payment obligation under the lease is subject to appropriations, consistent with the Guaranteed Energy Savings Act. Accordingly the lease does not count against a municipality s debt limit and there is no need for DCED approval Visit PennSEF at: freefutures.org/pennsef

11 Bond Financing Structure 1. Participant enters into Lease with the Issuer in which it agrees to make quarterly payments for installation of energy/water conservation measures ( ECMs ). 2. Participant enters into a Guaranteed Savings Agreement ( GSA ) with an Energy Service Company ( ESCO ), which constructs ECMs and guarantees annual savings for the life of the agreement. 3. Participant and ESCO enter into Program Agreement and agree to report performance of the ECMs and job creation. 4. Issuer issues bonds secured by payments under the Participants Leases. Trustee Indenture Assigns Lease Payments, Provides Construction Payment Accounts Issuer 1 Lease Payments Less Than Guaranteed Savings Participant Bondholders Bonds Program Agreement ESCO GSA Construction of CMs, Savings Guarantee Visit PennSEF at: freefutures.org/pennsef

12 Indenture Indenture provides for the assignment of community lease payments for the benefit of bondholders and the issuance of bonds No risk for another community s default A fully funded construction account is established for each community s project Community signs off on construction draws Prepayment without penalty permitted after 5 to 10 years (varies with term of lease) Defeasance (by deposit of advance prepayment) permitted anytime but is subject to interest rate variation Visit PennSEF at: freefutures.org/pennsef

13 Rating Agency Questions Project typically improves borrower cash flow ESCO guarantee is not the principal credit, and is evaluated on an operational rather than a financial basis Undertaking efficiency improvements reflects well on management Visit PennSEF at: freefutures.org/pennsef

14 Financing Solar and other Generation Project Financing Based on Revenues Long Term Power Purchase Agreement Renewable Energy Credits Ancillary Services (e.g. batteries) Financing Structured for Tax Credits Renewables Cogeneration Fuel cells and microturbines Batteries are included Special Purpose Entities Not Eligible for Tax-Exempt Finance Visit PennSEF at: freefutures.org/pennsef

15 Financing Microgrids Microgrids look more like energy retrofits Controls, HVAC equipment, storage are typical for energy retrofits Ancillary services revenues don t come with long term contracts Energy savings aren t a revenue stream to pledge Generation is mostly used on site The techniques that work for energy retrofits work for microgrids For generation components a companion financing probably makes sense Visit PennSEF at: freefutures.org/pennsef

630 5 th Avenue Suite 2000 New York, NY 10111 www.

org (212) 705-8758 / (215) 494-7383 One Logan Square

com (215) 988-3338 Suite 134, The Sanctuary 100 Riversedge

16 630 5 th Avenue Suite 2000 New York, NY Program Manager: Pam Hague pam@freefutures.org (212) / (215) One Logan Square Philadelphia PA C. Baird Brown Baird.Brown@dbr.com (215) Suite 134, The Sanctuary 100 Riversedge Drive Atlanta, GA Kenneth Becker kbecker@beckercf.com (302)

17 Regional Streetlight Procurement Program (RSLPP) Liz Compitello Office of Energy and Climate Change Initiatives April 21,

18 Municipal Street Lighting Costs Vehicles 43% Buildings 41% Outdoor Lighting 16% Outdoor Lighting often represents a significant portion of a municipality s energy bill. Pump Stations, 2% Outdoor Lighting, 44% Buildings, 54% 18

lifespans reduces maintenance Improves lighting quality (safety!

19 LED Street Lighting Benefits High pressure sodium (left) LED technology (right) Source: City of San Jose Benefits Saves energy (reduces energy use 60-75%) Long lifespans reduces maintenance Improves lighting quality (safety!) Directional light source reduces light pollution and trespass Controls help manage light quality/quantity 19

Technological: LED quality improvements Pilots and successful projects

20 Perfect Storm for Retrofit Regulatory: Municipal ownership of streetlights PECO will adjust bill for LED energy savings. Technological: LED quality improvements Pilots and successful projects demonstrated in the region Financial: LED costs are dropping & warranty s longer PennSEF program Act 129 Rebates Source: PECO

21 Regional Streetlight Procurement Program (RSLPP) Program Objective: Municipalities retrofit entire street lighting systems to LED Achieve economies of scale in purchasing and finance Key Program Mechanisms Joint RFP to select a single pre-qualified Energy Services Company (ESCO) for project design, procurement, and installation. Leveraged PennSEF RFP template. Energy Performance Contracts leveraging long-term, lowinterest financing supported by the PennSEF program. Guaranteed Savings Agreements: ESCO required to provide a guarantee of energy cost savings that exceed finance payments. Leveraged PennSEF GSA. Joint, expert-vetted street lighting specifications for highquality lamps that meet the application. Bulk purchase using common specification for highest quality lamps at the lowest price. 21

RSLPP Program Overview Program Scope ~39 out of

Simple to Complex Networked Control Systems

22 RSLPP Program Overview Program Scope ~39 out of 45 (87%+) Municipalities proceed with contract Across 4 Counties 23,500 Streetlights Cobraheads, decoratives, Traffic signals, exterior lighting + Simple to Complex Networked Control Systems Turnkey design and installation services Program Partners 22

23 RSLPP Benefits Selected the most qualified ESCO best service, best costs, and high-quality products. Facilitated ESCO communication of projects So munis can make the most informed decision possible Transparent, negotiated pricing products, labor, service costs 15-20% below what municipalities can get on their own On-going oversight of ESCO solution development and pricing Pooled financing Lowers financing costs for all Legal and technical advisement on Guaranteed Savings Agreement from PennSEF 23

24 RSLPP Timeline 24 Sept Oct Nov Dec Jan Feb Mar Apr May Jun Draft RFP and Send ESCO Responses Preliminary ESCO Selection Preliminary Audits To edit the timeline, select the timeline object, and then click Ungroup on the Draw menu. Preliminary Audit Review/ Sign GSA IGA Completed Review and Negotiate IGA Approve GSA Schedules & Lease Financing Purchasing and installation We are here ongoing 24

25 Street Lighting Audit 25

26 Regional Streetlight Procurement Program For More Information Liz Compitello Office of Smart Growth April 21,

27 Solarize Stimulating Local Solar Market Growth 27

28 What is Solarize? Group purchasing for residential solar PV A community-driven outreach campaign and support system to assist residential and commercial customers overcome financial and logistical barriers to going solar.

29 Solarize Campaigns To date, over 220 Solarize campaigns have been conducted in 22 states + DC 29

30 Solarize Helps Overcome Barriers Why don t more interested homeowners end up installing solar? Barriers High Upfront Cost Complexity Customer Inertia

31 How Solarize Works Barriers High Upfront Cost Solutions Group purchase Volume discount below market rate Complexity Competitive selection of installer Community workshops and outreach Customer Inertia Limited time offer Peer pressure

How Solarize Works High Upfront Cost Complexity Customer Inertia Group purchase Volume discount below market rate Competitive selection of installer Community workshops and outreach Limited time

32 How Solarize Works High Upfront Cost Complexity Customer Inertia Group purchase Volume discount below market rate Competitive selection of installer Community workshops and outreach Limited time offer Peer pressure Who do I trust? Installers are unknown entities to most residents Residents uncertain if pricing is competitive and system is quality Incentives and policies are complicated Calculating value of investment is complicated Is solar right for me?

33 Solarize Process Select Installer Marketing & Workshops Enrollment Site Assessment Decision & Installation Competitive RFP process Introduced to installer and process, questions answered Limited sign up period encouraging Free site assessment Customers who wish to proceed sign contract with installer 33

34 Solarize Lasting Impact

Local Example: Solarize Greater Media All residents in

Led by Transition Towns Media with support from DVRPC and the

Single installer selected (Solar States) 9 Public workshops held,

35 Local Example: Solarize Greater Media All residents in municipalities within a 5- mile radius of Media Courthouse (Delco) Led by Transition Towns Media with support from DVRPC and the Delaware County Planning Dept. Single installer selected (Solar States) 9 Public workshops held, 4-5 more scheduled 215 customers signed up to find out more info 67 site visits scheduled 15 contracts pending 1 install to date

36 Solarize Greater Media DVRPC/county role: Assist RFP development Lead regional steering committee Prepare and distribute RFP Assist with installer selection Assist marketing material development Assist with workshop presentations Lead municipal permitting outreach Installer Role Manage customers through the process (LOTS OF DATA!!) Lead marketing material development Attend/present at all workshops Lead marketing material development Print marketing materials Site assessments Contract development Turnkey installation services at set price Local Campaign Partner Role: Lead RFP development Lead installer selection Manage installer (weekly check in calls, track leads, coordinate workshops and outreach) Arrange at 5-7 local workshops (secure venue, refreshments, etc.) Attend and present at all workshops Canvassing targeted neighborhoods Lead phone banks to local customers Assist media outreach Outreach to participating communities Assist marketing material development Distribute marketing material (flyers, posters, lawn signs, etc.) Assist social media (Facebook, Twitter) Leverage local networks/contacts for fundraising, and outreach on municipal permitting Develop website content Manage/lead social media (Facebook, Twitter) 36

37 Solarize Resources www1.eere.energy.gov/solar/pdfs/54738.pdf

38 For More Information About Solarize Liz Compitello Senior Research Analyst Delaware Valley Regional Planning Commission

Delaware Valley Regional Planning Commission. Request for Proposals. for. Guaranteed Savings Agreement. Prepared on Behalf of

Delaware Valley Regional Planning Commission Request for Proposals for Guaranteed Savings Agreement Prepared on Behalf of 45 municipalities in Bucks, Chester, Delaware and Montgomery counties of Pennsylvania