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This presentation given by CEFIA's Director of Commercial and Industrial Programs gives an overview of C-PACE characteristics critical to a successful commercial energy efficiency program.
Citation preview
C-PACE: CEFIA’s Commercial Efficiency Financing Product
Jessica Bailey, Director of C&I Programs, CEFIA
February 6, 2014
Washington, D.C.
202.777.7700
Washington, D.C.
202.777.7700
Washington, D.C.
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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Washington, D.C.
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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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Washington, D.C.
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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.
7
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
Washington, D.C.
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202.777.7700 PACE is around the country, but little is happening
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Washington, D.C.
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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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Washington, D.C.
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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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Washington, D.C.
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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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Washington, D.C.
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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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Washington, D.C.
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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
21
Jessica Bailey, Director C-PACE Clean Energy Finance and Investment Authority 860.257.2888 [email protected] www.c-pace.com
Washington, D.C.
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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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Washington, D.C.
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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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Washington, D.C.
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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
Washington, DC February 6-7, 2014
www.greenbankacademy.com