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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
Negawatt hours (not consuming) – Cheaper than Kilowatt hours
Visit PennSEF at:
freefutures.org/pennsef
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
Visit PennSEF at:
freefutures.org/pennsef
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:
freefutures.org/pennsef
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:
freefutures.org/pennsef
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:
freefutures.org/pennsef
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:
freefutures.org/pennsef
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
Visit PennSEF at:
freefutures.org/pennsef
• 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:
freefutures.org/pennsef
Indenture
Visit PennSEF at:
freefutures.org/pennsef
• 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
Visit PennSEF at:
freefutures.org/pennsef
ESCO guarantee is not the
principal credit, and is
evaluated on an operational
rather than a financial basis
Financing Solar and other Generation
Visit PennSEF at:
freefutures.org/pennsef
• 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:
freefutures.org/pennsef
• 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
(212) 705-8758 / (215) 494-7383
One Logan Square
Philadelphia PA 19103
C. Baird Brown
(215) 988-3338
Suite 134, The Sanctuary
100 Riversedge Drive
Atlanta, GA 30339-2949
Kenneth Becker
(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.
18
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
19
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.
21
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
22
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
23
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
April 21, 2016
Regional Streetlight Procurement Program
For More Information
Liz Compitello
Office of Smart Growth
215.238.2897
26
• 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?
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
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)
36
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
215.238.2897
38
www.dvrpc.org/EnergyClimate/SolarReady.htm
www.narc.org/solarready
For More Information About Solarize