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These "Make it Rain" slides show how California's growers and agribusinesses can use PACE (Property Assessed Clean Energy) financing to generate positive cash-flowing, off-balance sheet projects that secure water supplies and reduce energy costs.
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Make it Rain!
Courtesy of:
New approaches toWater and Energy Independence
• Energy
• Water
• PACE Financing
• Q&A
Overview
• Food, Water & Energy security are inextricably linkedo Two greatest users of freshwater are agriculture and power plants
o We consume massive quantities of energy to deliver clean water
o We consume massive quantities of water to generate energy
o Rising energy prices are curtailing efforts to supply more clean water
o Water restrictions are hampering solutions for generating more energy
The Food–Water–Energy Nexus
Coal – cheap, but California won’t buy it
Natural Gas – unsustainably low prices, competes for water
Nuclear – Mothballed reactors, competes for water
Hydro – aging dams, permitting, climate change, competes for water
Failing Infrastructure - future costs
Energy - Utilities face rising & deferred costs
Energy – Growers face rising, volatile retail prices
2006 2007 2008 2009 2010 2011 2012 2013 CAGR
-5%
0%
5%
10%
15%
20%
Large Ag Pricing% change vs YAGO
20052007
20092011
20132015
20172019
20212023
20252027
20292031
20332035
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
Forecast Large Ag Pric-ing
$/kWh - optimistic$/kWh - pessimisticSolar $/kWh*
$/kWh
Energy - Diesel: An Unnecessary Evil?
Characteristics Reliable, on-demand High fuel costs High NOx Emissions
Tips & Traps Ongoing fuel costs NOx Limit usage to on-peak Plan on changing!
Energy - Natural Gas Engines
Characteristics Reliable, on-demand Cheap fuel cost Accessibility NOx Emissions
Tips & Traps? Nice work if you can get it Emissions regs Rising fuel costs
Electricity
Natural Gas
Diesel
Propane
Relative Irrigation Fuel Costs
Energy - Solar PV is the Long Term Winner
Characteristics Sustainable, no fuel Low ownership costs Incentives, financing Large capital investment Not “power-dense”
Tips & Traps• Finance & Policy are as
important as engineering Got Taxes?PACENet Meter: Buy low, sell highMeter Aggregation: Got space!
• Net Metering – Permits you to “bank” and
utilize 100% of solar production and
investment. Benefits decline for projects
completed after 7/1/17
• Meter Aggregation – Permits system owner
to allocate solar energy to various loads on
existing or adjacent parcels… whether
leased or owned.
Energy – Policy Wins
2014• Meter Aggregation Implemented• Contract by June for 30% 2014 Tax Credit• Include in Fiscal Year budget for 2015
completion
2015• Contract by June for 30% 2015 Tax Credit• Include in Fiscal Year budget for 2016
completion
2016• Net Metering Cap risk – benefits may decline• Tax Credits will decline by 20% on Dec 31 • Expect a Utility backlog for inspections &
interconnections
2017 • Net Metering benefits will decline on July 1
Energy – Policy Window: Plan now
• Consistent & stable long-term return on Assets & Invested Capital.o Equal or better than alternative investments
• Annual Income + LT capital appreciation
• Grow the balance sheet
• Manage risk
Goals for the Ag Enterprise
• Quality
• High production
• Lowest cost / unit of production
• Operational efficiencies
• Low debt service
• Branding & Marketing
What is Your Long-Term Competitive Advantage?
Current Scenario:
$3,500 / ac – Annual Net $ BT
Future Scenario:o Almond Price: $2.10/lb
o Bees: + $100/ac
o Energy: + 50/ac
o Water: + 400/ac
Sensitivity Analysis (changes in revenue – production costs – additional capital)
Double-Line PC Drip Micro-Jets
Limited Water: How do you select an emission device?
Manage moisture & fertilizers in root zone
Distribution Uniformity Every plants gets the same amount of water & fertilizers
Irrigation System Distribution Uniformity (DU)
Tools for measuring soil moisture
Monitor crop growing conditions
System Design: Know what is inside the black PE tubing
System Design: Match up irrigation zones & soils
Water Quality & Treatment Program
Build in well capacity now……..
• Manage risks – protect the capital investment
• Measure every aspect of the enterprise & benchmark - Improve
• Achieve Operational efficiencies
• Solidify your LT competitive advantages
“Take Home” Messages
Tulare County PACE
• PACE, property assessed clean energy, was passed into law in California in 2008 and approved by Tulare County in the Fall of 2013
• Financing is in the form of a property assessment
• Provides 100% non-recourse term, (no personal or corporate guaranty) financing
• Terms are for up to 20 years and fixed rates of interest
PACE Improvements
100% Financing for:
Water – Sprinklers, pumps, weather stations, software, controls – any type of water conservation
technology
Renewable Energy – Solar, fuel cell, micro turbine
Tulare County PACE Description
Security: PACE is a tax assessment; payment is made with the property taxes. There is no deed of trust or UCC-1 filing.
Term: Up to 20 years Rate: Rate depends on quality of property and the
ownership Accounting Treatment: PACE is off-balance sheet financing.
Tulare County PACE Description
Recourse: PACE is non-recourse and looks only to thevalue of the property. No guaranty
Sale or Transfer: PACE transfers with the property. There is no
prepayment or approval of the buyer.
Underwriting: 80% LTV; 1.25x debt service coverage
Benefits – Tulare County PACE
• Property acquires capital improvements and reduces operating expenses. (No cost to the owner - 100% financing)
• Increase in operating income and cash flow net of cost of PACE• PACE financing is non-recourse – no guaranty• PACE is off balance sheet – Does not affect future
borrowing• PACE transfers with the sale of the property. Owner only
pays for the improvements during ownership period.
Reduced Operating Expenses – Increase in Cash Flow
Tom Millhoff – Ag/Food Practice Leader, HelioPower
E: [email protected] C: 775.830.0448
Twitter: @tmillhoff www.LinkedIn.com/in/FoodEnergy
Jeff Bradshaw – District Sales Manager, RainBird
E: [email protected] C: 559.593.9814
Jean Dunn – CEO, Structured Finance
E: [email protected] P: 760.304.4371
Thank You!