C-PACE: CEFIA’s Commercial Efficiency Financing Product

Jessica Bailey, Director of C&I Programs, CEFIA

February 6, 2014

Washington, D.C.

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202.777.7700 Agenda

• What’s the Situation?

• What’s the Complication?

• What’s the Resolution?

• What have we learned?

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202.777.7700 What’s the situation? From whose perspective?

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Building Owner Wants property value to go up, not focused

on energy savings

Traditional Investors

Offering short terms and high rates

Building Tenant Wants to save

electricity costs, but won’t invest to do it

Green Banks Wants to reduce

demand for energy to curtail GHG emissions

ESCO/Installer Installers limited by

building owner’s lack of capital

Energy Efficiency

Project

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202.777.7700 Barriers for building owners

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202.777.7700 What’s the Complication?

• Repossessing collateral too difficult

– Means banks must give unsecured loans

– More like a credit card than a mortgage, short terms and high rates

• Building owners change faster than payback

• Owners want to leverage property as high as possible, paying for EE means more equity investment

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202.777.7700 What’s the Resolution?

• Somebody other than the owner funds most, if not all, of the upfront cost

• Property itself has to be part of collateral in order to have commercial entity fund any of the upfront cost

• Pass a law that allows the building to be collateral for the loan = PACE

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202.777.7700 Property Assessed Clean Energy

• An innovative financing structure that enables commercial, industrial, and multi-family property owners to access financing for qualified energy upgrades and repay through a benefit assessment on their property tax.

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Private capital provides 100%

upfront, low-cost, long-term funding

Repayment through property taxes

A senior PACE lien is put on the property and stays regardless

of ownership

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202.777.7700 C-PACE addresses key barriers

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Near term plan to sell? Lack of funding? Cannot assume more debt? Insufficient payback/ROI? Split incentives? Uncertain savings/technical expertise?

Tax obligation fixed to property 100% upfront, 20 year financing Assessments may qualify as OPEX Positive cash flow in year 1 Assessment/savings pass to tenants Technical underwriting / SIR>1

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202.777.7700 PACE is around the country, but little is happening

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202.777.7700 Connecticut Special Session

Public Act 12-2 (June 2012)

• Commercial, industrial & multi-family property

• Requires the consent of the existing mortgage lender

• Requires SIR>1

• Single statewide program with CEFIA as named administrator

• Renewable and energy efficiency – and soon micro grids!

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202.777.7700 Critical that CEFIA is central administrator

• Under CT law, towns must sign up individually – nobody would do this except a green bank

• Efficiency measures are low priority among real estate developers – need a specific institution dedicated to this

• Need consistent underwriting standards – both financial and technical

• Scale problem – no single developer can attract a commercial bank, green banks aggregate demand

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202.777.7700 CEFIA’s Role in C-PACE

• Publish Program Guidelines November 2012 • Bring on Technical Administrator • Onboard Municipalities • Launch website (www.c-pace.com)

Design Program

• Financial and Technical Underwriting • Marketing & Outreach • Work with Existing Mortgage Lenders

Administer Program

• Qualify Capital Providers • Secure internal warehouse of capital to originate and finance

deals • Sell-down portfolio (close Feb 2014)

Attract Private Capital

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202.777.7700 The C-PACE Process

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• 1. Building owner engages contractor to develop scope of work; works with utilities (CEEF) to incorporate incentives

• 2. Owner applies to C-PACE program at www.c-pace.com

• 3. Third party review of technical and financial details

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202.777.7700 The C-PACE Process

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• 4. C-PACE alerts municipality; lien is placed on property

• 5. CEFIA offers 100% upfront financing to owner

• 6.Project commences

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202.777.7700 The C-PACE Process

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• 7. Owner remits payment to municipality as benefit assessment charge

• 8. Municipality remits PACE assessment to CEFIA

• 9. CEFIA “sells down” transaction to capital provider to replenish funds

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202.777.7700 CEFIA Sources Capital

Construction and Term Financing from CEFIA

• CEFIA authorized $40M short term facility for construction and term financing

• Sells down transaction through bid process

Qualified Capital Providers

• CEFIA qualified 14 capital providers through a RFI.

Owner Arranged Financing

• Property owner is free to choose their capital provider from the private market. There is no government financing required.

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202.777.7700 CEFIA can sell-down loans to recycle funds

• After CEFIA lends money to customers, it can sell loans to replenish cash, increase scale

• Avoid holding notes and tying up funds for long time

• Bundle loans, sell in tranches

• Recycling funds accelerates deployment

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Step 1: CEFIA

lends to customers

Step 2: CEFIA

bundles loans

Step 3: CEFIA sells loans, gets

cash

Step 4: CEFIA

makes new loans

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202.777.7700 Setting C-PACE deal terms

• Conversation with capital providers: 300-400 basis points over the relevant LIBOR swap (had to solve for 20 year rates)

• Our initial rates (4.5% for 10 years ... 5.5% for 20 years) = 300bps over the amortizing 10 year LIBOR swap

• Sell-down auction process last fall confirmed pricing

• Adjusted our rates for late 2013/early 2014 based on an amortizing 10 year LIBOR and moved our range up 50 bps to 5.0% for 10 years ... 6.0% for 20 years.

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202.777.7700 What are the challenges

• Need adequate staff for acquiring customers

• Educating state mortgage industry about C-PACE, consent

• Mandate to get dollars flowing means internal processes built in real-time

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202.777.7700 What have we learned

• No substitute for senior lien

• Work with banks early on consent – get creative

• Need to be managed out of Green Bank

• Green Bank needs to have $ to be taken seriously

• Get deals done – proof of concept

• Write the law that works for your state (ex: including water

in Texas, resiliency in Florida)

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Appendix

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Jessica Bailey, Director C-PACE Clean Energy Finance and Investment Authority 860.257.2888 Jessica.Bailey@ctcleanenergy.com www.c-pace.com

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202.777.7700 C-PACE Timeline: 2012-13

June 2012

Sept 2012

Dec 2012

Jan 2013

Feb 2013

Mar 2013

Apr 2013

Aug 2013

Sept 2013

Nov 2013

Dec 2013

• Public Act 12-2 signed by Governor, enabling C-PACE financing in CT

• Bridgeport & Norwalk become first 2 municipalities to opt into program

• Qualified capital providers join C-PACE

• C-PACE program launches; website & application go live

• CEFIA Board approves $20M warehouse

• C-PACE program trains 150+ contractors

• First C-PACE project closes

• CEFIA releases details for capital providers to sell the initial portfolio

• C-PACE total approved deals reach $20M • CEFIA approves increase of warehouse to

$40M

• Capital provider selected to purchase first $27M of C-PACE transactions. Closing anticipated 2/14

• 70 towns and 80% of C&I market eligible for C-PACE in CT

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202.777.7700 Case Study: Solar and Lighting Upgrade Norwalk Shopping Center

Project

▪ $550,000 exterior LED lighting upgrade and solar parking canopy.

Financing

▪ $185,000 of lighting upgrade financed through 13 year C-PACE assessment. CEFIA providing construction financing.

▪ $365,000 solar parking canopy received a ZREC

▪ Savings of $55,000 plus 30% ITC

Impact

▪ 741k kBTUs saved

▪ Produces 5.8M kWh in clean energy

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Project

▪ $1,990,000 energy efficiency measures, ranging from the installation of variable frequency drives to chiller replacements to new energy efficient windows to new cooling towers.

Financing

▪ Save owners $241k per year versus $166k in annual C-PACE

assessment. Net savings of $80k.

Case Study: Energy Efficiency Upgrade 855 Main Street Bridgeport

Impact

▪ 133M kBTUs

saved over life of

project

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Washington, D.C.

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Project

▪ $650,000 boiler replacement

Financing

▪ $384,000 of replacement

financed through 20 year C-PACE

assessment.

▪ $250,000 covered with grant

from Department of Economic

and Community Development.

Impact

▪ Annual savings of $48,000

Case Study: Boiler Replacement Bushnell Center for the Performing Arts

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202.777.7700 Case Study: Solar and Energy Efficiency Upgrade in Middletown

Project

▪ $2,535,766 including

– the installation of air units, variable frequency

drives, high efficiency lights, occupancy sensors,

air leakage improvements, an upgraded energy

management system,

– and a 260 kW ground-mounted photovoltaic

system.

Financing

▪ Energy savings of $224,272 annually

Impact

▪ 51M kBTUs saved

▪ 8.5M kWh clean energy produced

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202.777.7700 Case Study: Solar Project in Hartford

Project

▪ $325,000 solar installation

Financing

▪ ZREC award of $164.22 / MWh from CL&P,

▪ With ZREC and energy savings, owner expected to see revenue of

$49,916 per year

Impact

▪ 2,8M kWh clean

energy produced

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Washington, D.C.

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202.777.7700 Deal Status FY 2014 (July through December)

Project Type Estimated Annual

Savings

Installed

Capacity

Amount

Financed

Financing Terms Building Size

Closed

41 Walnut Street Renewable 221 MMBtu/yr 55 kW $145,000 5.5% for 20 years 34,500 sqft

1841 Broad Street Renewable 491 MMBtu/yr 100 kW $325,000 5.5% for 20 years 40,000 sqft

100 Roscommon Both 3,339 MMBtu/yr 260 kW $2,513,915 5.5% for 20 years 81,368 sqft

86 Hopmeadow Energy Efficiency 1,021 MMBtu/yr -- $674,566 5.5% for 18 years 42,456 sqft

855 Main Street Energy Efficiency 6,650 MMBtu/yr -- $1,992,683 5.5% for 20 years 100,000 sqft

228 Route 81 Renewable 275 MMBtu/yr 71 kW $259,000 5.5% for 20 years 20,000 sqft

80 Lamberton Both 5,965 MMBtu/yr $1,818,486 5.5% for 20 years 165,000 sqft

Larsen Ace Hardware Renewable 188 MMBtu/yr 45 kW $148,500 5.5% for 20 years 25,000 sqft

Danbury YMCA Energy Efficiency 929 MMBtu/yr -- $87,938 5.5% for 20 years 17,107 sqft

Insports Trumbull Both 1,160 MMBtu/yr 252 kW $1,001,298 5.5% for 20 years 110,000 sqft

NPB Assets Norwich Renewable 367 MMBtu/yr 150 kW $350,000 5.5% for 20 years 50,000 sqft

290 Pratt Energy Efficiency 7,123 MMBtu/yr -- $1,790,847 5.5% for 20 years 459,292 sqft

22 Waterville Road Avon Energy Efficiency 2,361 MMBtu/yr -- $419,346 5.5% for 14 years 53,577 sqft

CLOSED TOTAL - 13 30,090 MMBtu/yr 933 kW $11,526,578 1,148,300 sqft

Approved

Meriden YMCA Both 489 MMBtu/yr -- $372,466 5.5% for 20 years 38,000 sqft

Quality Inn Renewable 883 MMBtu/yr 200 kW $850,000 5.5% for 20 years 30,000 sqft

Bourdon Forge Renewable 2,038 MMBtu/yr 500 kW $1,500,000 5.5% for 15 years 65,000 sqft

255 Bank Street Energy Efficiency 1,311 MMBtu/yr -- $517,590 5.7% for 17 years 40,000 sqft

1095 Dayhill Road Both 1,207 MMBtu/yr 206 kW $829,399 6% for 20 years 29,290 sqft

Shagbark Renewable 517 MMBtu/yr 157 kW $478,000 5% for 10 years 36,000 sqft

Sofia East Windsor Renewable 1,019 MMBtu/yr 250 kW $750,000 5.5% for 20 years 30,000 sqft

Sofia East Windsor Renewable 982 MMBtu/yr 250 kW $750,000 5.5% for 20 years 60,000 sqft

Signature Advertising Renewable 467 MMBtu/yr 122 kW $386,345 5.5% for 20 years 50,000 sqft

Bridgeport International Academy Energy Efficiency 836 MMBtu/yr -- $410,009 5.5% for 15 years 55,000 sqft

APPROVED TOTAL - 10 9,749 MMBtu/yr 1,685 kW $6,843,809 433,290 sqft

CLOSED AND APPROVED TOTAL - 23 39,839 MMBtu/yr 2,618 kW $18,370,387 1,581,590 sqft

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Green Bank Academy

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