Laura RichardsonExecutive Director

The Jordan Institute

NH C-PACE Program Overview:

New Hampshire’s new market-driven energy solution for businesses

May 13, 2015 - Local Energy Working Group

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Who Are We?

• Non-Profit organization• Reduce energy use in buildings• Public policy and program design• Founded in 1995

• For-profit company, majority owned by The Jordan Institute

• Scale-up number of energy-efficient buildings

• Expand available EE services - projects in the field including energy-centric construction management

2013 Strategic Plan & Reorganization

2014+ Policy and Program Design

2015+ C-PACE Program Launch

Overview of this presentation

1. Defining C-PACE and our approach2. Framing the need for C-PACE3. How C-PACE works4. Timeline5. Our team6. How volunteers can help

C-PACE Definition

C-PACE = Property Assessed Clean Energy financing for Commercial buildings

NH Statute is RSA 53-F, rewritten for 3rd time in 2015; unanimous support from NH House and Senate

Jordan Institute and partners are launching the NH C-PACE program, 2015

NH C-PACE Overview

New Hampshire’s C-PACE Program ties

PRIVATE INVESTMENT for EE/RE projects to

PRIVATELY OWNED COMMERCIAL BUILDINGS

through the conduit of MUNICIPAL TAX ASSESSMENTS (voluntary LIENS) thereby creating an innovative financing tool that provides powerful benefits not otherwise available

Jordan Institute’s Approach

1. Understand and respect motivators of stakeholders2. Accept that public money will not solve this problem3. Build a team that has a deep bench of experience4. Build a program – from scratch and without any public

funding – that will be open, accessible, transparent, easy to navigate, leverage other EE/RE programs, and have lasting impact

5. Encourage projects statewide – in large and small municipalities and in all corners of the state – by 2017

6. Focus on projects that are straightforward, especially to start – clear ownership, obvious project scope, patience with start-up bumps

Anticipated Outcomes of NH C-PACE

1. Reduce the amount of energy used in commercial buildings, associated greenhouse gas emissions, and outflow of energy dollars from the state.

2. Enable municipalities to encourage site-appropriate EE/RE projects in commercial buildings.

3. Building owners improve the operational costs, energy performance, resiliency, comfort, and occupancy of their assets.

4. Create a sustainable stream of EE/RE project work for EE/RE professionals – JOBS!!

5. Develop a new financing product for lenders and investors. 6. Normalize EE/RE projects so that they are not seen as

philosophical pilot projects, but rather practical steps that make good economic sense.

The Talk: Cost – Cost – Cost

1. Energy rates are volatile2. Capacity and availability are dynamic3. Transition as big generators retire and others and

infrastructure projects are under consideration to be built

Users of energy do not have control over these issues.

Improving the efficiency of buildings and using renewable sources can temper these challenges

As more buildings become efficient, more capacity is available for others to use.

The Benefits of EE and RE

1. Reduce energy costs2. Reduce fossil-fuel energy use3. Reduce greenhouse gas emissions4. Preserve finite resources5. Shave peak electricity use6. Local jobs, recirculate energy dollars7. Economic development8. Improve building stock

Core EE/RE Motivators for Businesses

1. Doesn’t interfere with core business efforts2. Recover the investment3. Improve the building’s value4. Reduce maintenance costs5. Improve occupancy rates6. Reduce energy costs7. Maintain warrantees8. Integrate with other building upgrades and deferred

maintenance9. Improve occupant comfort; reduce complaints10.Marketing and branding

Other EE/RE Motivators and Outcomes

11. Local economic development: recirculate $$$ and jobs12. Improve Health: reduce energy-related asthma, cancers, allergies13. Improve indoor air quality: VOCs, toxins, CO2, CO14. Address national security and energy independence15. Embrace Yankee frugality

More Motivators

Improve the resiliency of buildings 16. Reduce Power outages: • Buildings stay warmer in winter;

pipes less likely to freeze• Buildings stay cooler in summer;

AC demand is reduced

17. Better withstand extreme weather events 18. Protect core business, inventory, operations

Priorities of Commercial Building Owners

1. Core business, assets and inventory, continuity of business2. Positive cash flow3. Full occupancy of buildings4. Strong balance sheet – manageable debt5. Flexibility to sell property with limited complications6. Occupants who pay their rent7. Occupants who do not complain8. Good tenants who renew lease agreements9. Low maintenance costs and easy maintenance tasks10. Low/stable operational costs11. Addressing deferred maintenance issues12. Stable energy bills: electricity, heating, process, water13. Being good neighbors and community members

Addressing energy upgrades from the perspective of commercial building owners

1. Often seen as a low priority or a luxury2. Energy projects are addressed in emergency situations3. Fast payback / Return on Investment4. Capital projects reflected on balance sheet5. May not improve the appraised value of the building in

the short term6. Building owners avoid loans whenever they can7. Claim that occupants don’t demand EE/RE8. No budget for capital projects – or energy projects9. Wariness of promises made by the contractor community10. Rebates and incentives change all the time11. EE/RE projects often require significant up-front costs

“Old Way” – not motivating

1. Many Commercial Real Estate Building Owners flip their buildings every 5-7-10 years

2. Most loans are for 5-7 years3. Most loans are repaid out of capital budgets4. Most “low-hanging fruit” energy projects have payback

periods of 3-5-7 years5. That means building owners rarely get to experience the

cost savings from the upgrades they undertook6. Not many “comps” so appraisers and assessors rarely

truly value those upgrades; therefore investment is not usually recaptured at time of sale

7. Historically, EE projects may not have met expectations

Building Owners Need Advocacy

• Information – where to start• Competing priorities – core

business or EE project?• Who to trust? Uncle Jim?

Salesman?• Energy audit and benchmarking –

how bad is the building?• Where to access funding?• Will the project actually perform

the way it was designed?

Priorities of Lenders and Investors

1. Avoid risk or address risk through terms and conditions

2. Recoup the investment - on time and as proposed3. Make a good return on the investment4. Expand the customer base5. Support projects that align philosophically6. Add a new lending product to their offerings7. Be a good neighbor8. For banks: comply with the Community

Reinvestment Act

Conventional energy projects have financial risks

Most lenders are wary of financing comprehensive energy projects and need assurances to reduce risk.

• NH doesn’t license/certify construction professionals• Building code compliance and energy code compliance

is less than robust in many municipalities• Building owners sell properties every 5-7 years• Tenants move every 3-5-10 years• Projects are rarely cash-positive

Investors want to recover their money and want a good return

Market-driven ways to reduce risks:

• High interest rate• Large down payment• Short term of loan• Don’t fund projects

Publicly funded ways to reduce risks:

• Grants and Rebates to reduce capital costs• Interest Rate Buy Down• Loan Loss Reserve

C-PACE is different from other “loans”:

1. Tied to the property, not the property owner 2. Non-accelerating payments, next owner makes subsequent

payments - “Pay for the energy efficiency you use”3. No down payment required4. Can be off balance sheet – repayment as part of tax bill5. Addresses split incentive between building owner and tenants --

building owner can “share” loan repayment (ie triple net lease)6. Cash Positive from DAY ONE, Savings to Investment Ratio >17. Value added ensures a quality project – baseline benchmarking,

commissioning, Monitoring & Verification8. Longer term repayment, not 5-7 years, but up to 30 years9. Encourages comprehensive projects, not just fast ROI10. Financial & energy project vetting/oversight, improves trust11. C-PACE lenders understand the reduced risk of these projects

C-PACE Standards Reduce Risk to Lenders

• C-PACE projects are tied to the property through a lien• C-PACE projects have been vetted by impartial energy

and finance professionals• Projects must have a Savings to Investment Ratio >1,

meaning that repayment of the project is LESS than the energy savings and that the project is CASH FLOW POSITIVE

• Quality Control Standards are part of every project• pre-project benchmarking/energy audit• commissioning during project• monitoring and verification post project

NH C-PACE Quality Control Standards

• Energy Audit – ASHRAE Level II• Building Commissioning• Energy Monitoring and Verification

• Savings to Investment Ratio >1

• Financial information about project owners and buildings

• Other requirements may apply

Investor Confidence Project by EDF

• Jordan Institute and Resilient Buildings Group selected as Allies

• Like a Good Housekeeping Seal

ICP reduces transaction costs by assembling existing standards and practices into a consistent and transparent process that promotes an efficient market, while increasing confidence in energy efficiency as a demand-side resource and resulting cash flows for investors and building owners

No Public Funding in NH C-PACE Program

Live Free or Die• No public funding available to

launch program or to finance projects

• No taxpayer funds• No ratepayer funds• No municipal bonding

C-PACE is completely voluntary• No mandates • Driven by the Private Market

Fee Schedule for each project

Jordan Institute receives no public funding to launch this program.

We are designing this the NH way … with Fees

• Fees are non-refundable• Fees can be applied to the project costs• Savings to Investment Ratio must be >1• Fee Schedule is transparent and will be available soon

Anticipated Fees

Fees:1. Preliminary Application (very simple) will be FREE2. Project Application and Project Management Fee3. Energy Technical Review Fee4. Financial Underwriting and Review Fee5. Fee to cover costs incurred by Municipality6. C-PACE Database Management License – Fee per project7. Closing Costs on the project

Approach: Recover costs to run the program and keep the financing reasonable

NH C-PACE Program Team

• Jordan Institute, Inc. – Program Administrator, day to day coordination, visibility, education, project management

• Sustainable Real Estate Solutions, Inc. – Data management, training, energy-project origination, development, management

• Resilient Buildings Group, Inc. – Energy Project Vetting, commissioning, M+V

• NH Community Development Finance Authority – Financial vetting, warehousing of smaller projects, energy-project repayment coordination

• Hannon Armstrong Sustainable Infrastructure Capital, Inc. – energy finance house is backstop to ensure that projects can get financing

Eliminate any perception of Conflict of Interest

If Resilient Buildings Group or CDFA are working with a client who may participate in NH C-PACE, then SRS will step in to vet the project

“Unlimited” financing available for projects

• Private investors are very interested in this opportunity• But… projects must adopt and follow program standards

and protocols• Junior lien position• Reduced risk, instills confidence• Quality control• Energy and financial vetting• benchmark, commissioning, M&V

• Consistency across projects, municipalities• Improves lender competition which will lead to more

competitive rates• Must be in a C-PACE municipality• Jordan Institute is coordinating efforts

NON-EXCLUSIVE Project Financing

• Large Energy-Project Finance House• Will finance large projects and smaller aggregated projects• Act as a default/back stop if other lenders not interested

• Traditional lenders, local banks, small-medium-large lenders are encouraged to participate

• Groups of private individuals• Investment, retirement, and other funds• Divest-Invest Groups• NH Community Development Finance Authority• Warehouse smaller projects and financing• Individuals, institutions, Divest-Invest, etc.

NH Municipalities

1. Municipalities must adopt the statute to enable C-PACE in that jurisdiction

2. Average size of a NH municipality: 5,600 residents3. Limited bandwidth to take on a new complex initiative4. Technical energy, building-science, and financing

expertise required for successful C-PACE projects5. This program will only work in NH if there is program-

design continuity across municipalities

Priorities of Municipalities and Officials

1. Manage growing list of urgent responsibilities under limited staffing and budget constraints

2. Provide access and transparency to residents, businesses, State and Federal officials, media, et cetera

3. Elections – Town Meeting – Planning Board – School Board – Select Board – Zoning Board – Assessments – Taxes – and more

4. Maintain municipal infrastructure: Roads – Schools – Town Offices – Emergency Services – Cemeteries – Libraries – more

5. Advocate for vulnerable citizenry: Elderly – Disabled – Sick – Low-income6. Manage demands of high-maintenance citizenry7. Balance needs and wants of various constituencies8. Retain and woo businesses and residents9. Plan for resiliency – economic, extreme weather, energy prices and energy

projects, et cetera10. Develop a reputation as a business-friendly community11. Develop and implement sustainability goals12. And others – the list seems to be endless

Benefits to the Municipality

1. Nominal payment to cover costs of being conduit for funding2. Can market the program as a business-friendly benefit –

economic development and community revitalization3. Improved commercial buildings – more efficient, resilient,

occupied4. Occupied buildings = improved employment base = improved

tax base5. Vast majority of efforts handled by others6. Lead economic development initiative7. Consider this part of the municipality’s sustainability program8. Provide an ongoing project for the Local Energy Committee

C-PACE Responsibilities of Municipality

1. Municipality must adopt “the program” – RSA 53-F2. Municipality “should” designate administration of the program to

Jordan Institute3. Jordan Institute and Sustainable Real Estate Solutions will train tax

collector and Registrar of Deeds (and others as necessary) about program and best practices

4. Municipality updates tax assessment software to allow for special C-PACE assessment

5. Register lien with County Registrar of Deeds6. Send tax bills with special assessment to participating C-PACE

borrower/s7. Receive C-PACE repayment funds from borrower/s8. Forward Assessment repayments to CDFA9. Notify CDFA if Assessment has not been paid in full

NH and the National C-PACE Scene

31 states have adopted PACE financing tool

PACE enabled states• Early stage PACE program development• Launched PACE programs • PACE programs with funded projects

To date, 305 projects funded, $105M, 1080 jobs

Courtesy PACENow

C-PACE Building Types Can Include:

• Office buildings • Hotels & convention centers• Apartment buildings (5+ Units)*• Manufacturing facilities• Heated warehouses• Agricultural buildings• Retail: grocery, malls, big box, Mom & Pop• Health clubs & athletic facilities• Private Schools• Non-profits • BUT NOT PUBLICLY OWNED BUILDINGS• NOT RESIDENTIAL

* Some Restrictions Apply

C-PACE Projects Can Include:

Comprehensive projects or individual energy measures• Airsealing & Insulation - Walls, basements,

crawlspaces, attics, roofs, piping, ducts• Heating, Ventilation, AC Systems• Biomass Heat — pellets or chips• Ground-Source and Air-Source Heat Pumps• Controls and heat distribution• Lighting• Solar – electric, hot water, hot air• Combined heat and power

• Can include non-energy project work that is connected to the energy project, as long as the SIR>1 (ie roof replacement with solar project)

Ideal C-PACE Building Candidates:

1. Willing project owner & municipality2. Project MUST have a Savings-to-Investment Ratio >13. Inefficient buildings and equipment4. Existing construction5. Fossil fuel heating, electric heating6. Municipality has numerous “ideal” C-PACE buildings7. Uncomplicated ownership8. Early phase: Project costs >$250,0009. Candidate for RE system------ 2015: City Council Municipalities 2016: City Council & Town Meeting Municipalities

C-PACE is not about the interest rate

Although C-PACE rates will be competitive (~6%, your results may vary)

C-PACE IS about: 1. Positive cash flow from Day One2. No down-payment required3. Sharing project costs/ repayment with tenants

(split incentive)4. Off balance sheet5. Being able to sell the property without escalating

payments6. Address deferred maintenance

CT - C-PACE Case Study – Shagbark Lumber

C-PACE Financing: $485,000 Energy Upgrade: 157 kW PV system Building Size: 35,950 Square FeetIncentives: ZREC (Zero-emissions RECs)C-PACE Financing: $485,000, 100% project cost

Term: 10 yearsAnnual Interest Rate: 5.0%Annual C-PACE Assessment: $61,325Annual Energy Cost Savings: $61,325Lifetime Energy Cost Savings: $1,215,205

Courtesy of www.cpace.com

CT - C-PACE Case Study – Bushnell Theater

C-PACE Financing: $384,000 Energy Upgrade: Hot water heater, 3 high- efficiency boilers and replacement of a single, inefficient steam boiler Building Size: 95,000 SF; Year Built: 1919Total Project Cost: $650,000Incentives: $266,000C-PACE Financing: $384,000; Term: 20 yearsAnnual Interest Rate: 5%Annual C-PACE Assessment: $30,411Annual Energy Cost Savings: $30,411Lifetime Energy Cost Savings: $1,173,479

Courtesy of:

“Old Way” vs “New Way” 5-Year Cash Flow

Case Study, Courtesy Energize CT and Sustainable Real Estate Solutions

New Way: C-PACE Lien

Down payment amount $52,500 (15%) $0Loan amount $297,500 $350,000Loan term 5 yrs 20 yrsInterest rate 5.0% 6.0%

5-Year Net Cash Flow:Annual debt service $67,370 $30,090Annual energy savings $36,000 $36,000

Net annual cash flow ($31,370) $5,910Cash flow over 5 years1 ($156,852) $29,549

Down payment cash flow ($52,500) $05-Year Net Cash Flow ($209,352) $29,549

1Assumes no util iy cost esca lation or performance degradation in

_order to s impl i fy the case s tudy.

Old Way: Bank Loan

SIR Calculation Example

Case Study, Courtesy Energize CT and Sustainable Real Estate Solutions

Building Type OfficeOccupancy OwnerGross square feet 40,000Baseline annual utility costs $144,000Estimated savings percentage 25.0%Estimated annual savings $36,000Project Cost $350,000ECMs estimated useful life (EUL) 20Estimated Savings Over Finance Term1 $720,000Amount Financed (100%) $350,000Annual interest rate 6.0%Loan term in years 20Interest Cost Over Finance Term $251,802

SIR Calculation Example

Case Study, Courtesy Energize CT and Sustainable Real Estate Solutions

Savings InvestmentSavings:

Energy savings over the finance term $720,000Recurring incentives (e.g. ZRECs) $0Cash value of Investment Tax Credit $0Cash value of MACRS depreciation $0

Investment:Installed cost net of one-time utility incentives $350,000Loan interest (20 year term, 6.0%) $251,802

Total $720,000 $601,802

$720,000$601,802

= 1.2Savings-to-Investment Ratio (SIR):

How the money will move in NH C-PACE

Investor Borrower/Building Owner Municipality

Community Development Finance Authority

Project financing - simplistic

Investor lends $$$ to Building Owner

Municipality attaches C-PACE Special Assessment to the property through the county

Lender, Building Owner, Municipality, Existing Mortgage Holders, Jordan Institute, and CDFA agree to scope, term, _ other details of the project

2. 3.

1.

How the money will move in NH C-PACE

Investor Borrower/Building Owner Municipality

Community Development Finance Authority

Project repayment

Municipality sends C-PACE Special Assessment to Building Owner with tax bill

Building Owner pays taxes, including C-PACE Special Assessment

Municipality sends C-PACE Special Assessment to CDFA

CDFA forwards Payment to Lender of Record

CDFA reports back to Jordan Institute

1.

2. 3.

4.

5.

What happens in Default?

Investor Borrower/Building Owner Municipality

Community Development Finance Authority

CDFA alerts Investor

Investor reaches out to building owner and/or undertakes corrective action or foreclosure proceedings

CDFA Reports to Jordan Institute

Municipality alerts CDFA that C-PACE Special Assessment has not been paid

1.

2.

3.

4.

5.

Next building owner makes late payments and resumes payment schedule

How C-PACE Projects Work

Jordan Institute is administrator of the NH C-PACE program

• Projects will be driven by EE/RE contractors and installers and building owners

• Manage expectations – not all projects will qualify

• Before encouraging C-PACE adoption by municipalities, we want to have at least 3 viable projects percolating

• Be sensitive to other priorities of building owners and their schedules… and that maybe their internal situation isn’t a match for C-PACE

The C-PACE Project Pipeline

• Ambassadors for the program• Encourage contractors/installers to consider

participating – be clear: vigorous oversight• When viable projects are in pipeline, encourage

municipalities to adopt the program• Encourage buildings owners to consider the programBut Remember: • Not all projects or buildings or building owners or

contractors will fit this model• There are times when exuberance undermines efforts

The Role of LECs and other volunteers

2015 • Overhaul to RSA53-F, awaiting Governor Hassan’s signature• Program Launch, fundraising, visibility, team building program

design and document development• Select City Council Cities adopt C-PACE• RFQ for Lenders/Investors; RFQ for Contractors/Installers• Trainings – contractors/installers• Projects get underway• Roll out materials for Town Meeting Towns for 20162016 • Town Meeting Towns adopt C-PACE• More City Council Cities adopt C-PACE• Trainings and Projects – ongoing2017• Statewide adoption and projects

Time Frame

Open Program

• Request for Qualifications coming soon• Contractors and Installers – must be “qualified”

AND “trained” in how the program works before being able to participate

• 3rd parties encouraged to participate for quality-control oversight

• Lenders and Investors• Preliminary Application for Projects coming soon• RFQs will be rolling, no deadlines

Training and Education

Small Group Environment• Town Officials• Tax Collectors• Town Assessors• County Registrar of Deeds• Building Owners• Contractors • ESCOs• Lenders

Visibility and Marketing

• Managing the message• Managing expectations• Case Studies• Data collection & reporting• Social media presence• Materials available at

www.JordanInstitute.org

Raising Funds to Launch the Program

• Foundation support• Private donations• Fundraising events

• www.jordaninstitute.org

Thank you!Laura Richardson, Executive Director

The Jordan Institutelrichardson@jordaninstitute.org

603-226-1009, x2046 Dixon Avenue, Suite 201

Concord, NH 03301