energy efficiency procurement and finance

Pennsylvania Sustainable Energy Finance Program

Energy Efficiency Procurement

and Finance

April 21, 2016

Pennsylvania Sustainable Energy

Finance Program

Visit PennSEF at:

freefutures.org/pennsef

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

Energy Obesity

Negawatt hours (not consuming) – Cheaper than Kilowatt hours

Visit PennSEF at:


Guaranteed Savings Agreement is a

transparent construction contract with a

strong guarantee and spells out a monitoring

and verification (M&V) plan in detail

Standardized documentation that facilitates

pooled financing – which lowers costs for

all Participants

Prequalification of local and national energy

service companies (ESCOs) through an RFQ

process

FREE’s legal, financial and technical team

assists throughout negotiations

PennSEF

Program

Features

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Preliminary audit provided at no cost

Investment grade audit must offer self-

financing measures based on participant

priorities providing at least 90% of the savings

quoted in the pre-contract audit

No cross collateralization or risk associated

with involvement of other participants

Significant local job creation

Customized and serialized financing optimization

All program costs are paid within the bond issue if

a participant proceeds with a project

PennSEF Program Benefits

Visit PennSEF at:


The government unit selects one ESCO to

prepare a preliminary audit.

The government unit issues an RFP that permits

selection on the basis of multiple criteria to meet

its needs.

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.

Pennsylvania government units can procure

energy efficiency projects using a flexible process

under the Guaranteed Energy Savings Act.

Procurement Process

Visit PennSEF at:


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.

Guaranteed Savings

Agreement

Visit PennSEF at:


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, 2016.

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:


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

1 0.57 0.60 0.78 1.21

1 0.69 0.82 1.02 1.70

5 1.15 1.30 1.58 2.06

5 1.38 1.51 1.96 3.17

10 2.08 2.29 2.66 3.11

10 2.21 2.34 2.70 4.23

15 2.59 2.82 3.22 3.65

15 2.95 3.08 3.70 5.04

20 2.88 3.11 3.51 3.92

20 3.13 3.26 3.90 5.13

Lease

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• 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

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 Bondholders

Issuer

Participant

Indenture Assigns Lease Payments,

Provides Construction

Payment Accounts

Lease Payments Less Than

Guaranteed Savings

GSA Construction of CMs,

Savings Guarantee

Bonds

ESCO

Program

Agreement

1

2

3

4

Visit PennSEF at:


Indenture

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• 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

Project typically improves

borrower cash flow

Undertaking efficiency

improvements reflects well on

management

Rating Agency Questions

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ESCO guarantee is not the

principal credit, and is

evaluated on an operational

rather than a financial basis

Financing Solar and other Generation

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• 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

Financing Microgrids

Visit PennSEF at:


• 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

630 5th Avenue

Suite 2000

New York, NY 10111

www.freefutures.org

Program Manager: Pam Hague

[email protected]

(212) 705-8758 / (215) 494-7383

One Logan Square

Philadelphia PA 19103

C. Baird Brown

[email protected]

(215) 988-3338

Suite 134, The Sanctuary

100 Riversedge Drive

Atlanta, GA 30339-2949

Kenneth Becker

[email protected]

(302) 740-6795

April 21, 2016

Regional Streetlight Procurement Program (RSLPP) Liz Compitello Office of Energy and Climate Change Initiatives [email protected] 215.238.2897

17

Buildings, 54%

Outdoor Lighting, 44%

Pump Stations, 2%

Buildings 41%

Outdoor Lighting 16%

Vehicles 43%

Outdoor Lighting often represents a significant portion of a municipality’s energy bill.

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Municipal Street Lighting Costs

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

High pressure sodium (left) LED technology (right) Source: City of San Jose

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LED Street Lighting Benefits

Source: PECO 2009 20

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

Perfect Storm for Retrofit

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, low-interest 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 high-quality lamps that meet the application.

– Bulk purchase using common specification for highest quality lamps at the lowest price.

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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

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Program Partners

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

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RSLPP Timeline

24

Draft RFP and Send

ESCO Responses

Preliminary ESCO Selection

Preliminary Audits

Preliminary Audit Review/ Sign GSA

IGA Completed

Review and Negotiate IGA Approve GSA Schedules & Lease

Financing

Purchasing and installation

To edit the timeline, select the

timeline object, and then click

Ungroup on the Draw menu.

Sept Oct Nov Dec Jan Feb Mar Apr May Jun

1.25

1

.7

2

1.5

2.0

1.5

2.0

ongoing

24

We are here

Street Lighting Audit

25

April 21, 2016

Regional Streetlight Procurement Program

For More Information

Liz Compitello

Office of Smart Growth

[email protected]

215.238.2897

26

Solarize Stimulating Local Solar Market Growth

27

• 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.

What is Solarize?

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

Solarize Campaigns

Solarize Helps Overcome Barriers

High Upfront Cost

Complexity

Customer Inertia

Why don’t more interested homeowners end up installing solar? Barriers

How Solarize Works

• Group purchase

• Volume discount – below market rate

High Upfront Cost

• Competitive selection of installer

• Community workshops and outreach Complexity

• Limited time offer

• Peer pressure

Customer Inertia

Barriers Solutions

How Solarize Works

• Group purchase

• Volume discount – below market rate

High Upfront

Cost

• Competitive selection of installer

• Community workshops and outreach

Complexity

• Limited time offer

• Peer pressure Customer

Inertia

• 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?

Select Installer

Marketing & Workshops

Enrollment Site

Assessment Decision & Installation

33

Solarize Process

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

Solarize – Lasting Impact

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

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

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)

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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

Solarize Greater Media

http://solaroutreach.org/wp-content/uploads/2015/09/Solarize.pdf www1.eere.energy.gov/solar/pdfs/54738.pdf

Solarize Resources

Liz Compitello

Senior Research Analyst

Delaware Valley Regional

Planning Commission

[email protected]

215.238.2897

38

www.dvrpc.org/EnergyClimate/SolarReady.htm

www.narc.org/solarready

For More Information About Solarize

mailto:[email protected]

http://www.dvrpc.org/EnergyClimate/aeowg.htm

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