BALTIMORE METROPOLITAN COUNCIL SEPTEMBER ENERGY MEETING

Transcription

1 BALTIMORE METROPOLITAN COUNCIL SEPTEMBER ENERGY MEETING FINANCING SUSTAINABLE ENERGY AS INFRASTRUCTURE JOHN BYRNE BAIRD BROWN TRENTON ALLEN September 17, 2015

2 PURPOSE & EXPERIENCE FREE provides analysis, evaluation, and policy advice to cities, states, higher education institutions, and non-governmental organizations on ʻbest practiceʼ methods of building and implementing sustainable energy infrastructure. Its team has experience in the design and execution of sustainable energy financing programs which use tax-exempt & taxable bonds, renewable energy service purchase agreements and other leading-edge tools for sustainable community development. EXAMPLES PennSEF: The Pennsylvania Treasury Department has partnered with FREE to develop a prudent, market-based investment vehicle that promotes energy and water efficiency, renewable energy generation, economic development and environmental improvement. FREE and Seoul Metropolitan Government have signed an MOU to design and implement climate-sensitive, sustainable and equitable energy programs using the foundation s experience in large-scale investment in energy conservation, energy efficiency and renewable energy solutions.

3 TRUSTED ADVISORS Dr. John Byrne is Chairman and President of the Foundation for Renewable Energy & Environment (FREE); and Distinguished Professor of Energy and Climate Policy and Director of the Center for Energy and Environmental Policy (CEEP) at the University of Delaware. He has contributed since 1992 to Working Group III of the Intergovernmental Panel on Climate Change (IPCC), and shares the 2007 Nobel Peace Prize with the Panel s authors. His specialties include: sustainable energy technology assessment and economics, carbon impact measurement, policy design and analysis, and monitoring & verification of sustainable energy performance. C. Baird Brown leads the Energy and Sustainability Practice at Drinker, Biddle & Reath. He serves as Program Counsel to FREE. His practice includes the development and financing of energy and sustainable infrastructure projects. Mr. Brown represents agencies promoting renewable energy, energy efficiency and green infrastructure, and has pioneered pooled energy efficiency financing techniques. He has worked extensively on public/private partnerships and privatization of public services. Trenton Allen is President and Founder of Sustainable Capital Advisors where he develops renewable energy and energy efficiency financing solutions for clients domestically and internationally. He serves as a Financial Advisor to FREE. Prior to founding Sustainable Capital Advisors, Mr. Allen was a Director at Citi responsible for $17 billion in tax-exempt and taxable financings. Dr. Job Taminiau is FREE s Research Principal. He currently leads projects on best practice energy efficiency policy, green technology investment, climate-sensitive economic development, and energy conservation awareness for public sector clients in and beyond the U.S. He also manages the FREE Policy Brief Series. He completed his doctorate on climate change governance at the Center for Energy and Environmental Policy (CEEP).

4 Is energy sustainability economically feasible?

5 Unsubsidized Levelized Cost Comparisons Alternative Energy Conventional Energy Solar PV Rooftop Residential Solar PV Rooftop C&I Solar PV Crystalline Utility Scale Solar PV Thin Fim Utility Scale Solar Thermal with Storage Fuel Cell Microturbine Geothermal Biomass Direct Wind Energy Efficiency Battery Storage Diesel Generator Gas Peaking IGCC Nuclear Coal Gas Combined Cycle $0 $72 $72 Data Source: Lazard Investment Bank Levelized Cost of Energy Analysis. Version 8.0.

6 Negawatts(not consuming) Cheaper than Megawatts

7 The Sustainable Energy Finance Gap Current utility programs rely mostly on ratepayer funds and annually realize only 3% of the self-financing potential. 60 $Billions MUSH Residential Commercial Industrial Investment Potential Ratepayer funded programs Source: McKinsey Global Institute. The Case for Investing in Productivity. Consortium for Energy Efficiency. The State of the Efficiency Program Industry: Budgets, Expenditures and Impacts.

8 How can we do (much) better? Design & finance sustainable energy as infrastructure

9 SNAPSHOT OF THE DELAWARE SUSTAINABLE ENERGY BOND SERIES TRANSACTION: TAX-EXEMPT BOND SOLD ON AUGUST 1, 2011 AA+ by S&P PAR VALUE = $67.45 MIILION WITH PREMIUMS = $72.55 MILLION SERIAL BONDS: maturities from 1 year (borrowing rate = 0.65%) to 20 years (rate = 4.37%) EFFECTIVE BORROWING RATE = 3.7% AVERAGE SIMPLE PAYBACK PERIOD: ~ 14 yrs SIX STATE PARTICIPANTS Department of Children, Youth and Their Families Department of Correction Department of Natural Resources and Environmental Control & Carvel State Office Building Legislative Hall, State of Delaware State Courthouse TWO HIGHER EDUCATION INSTITUTIONS Delaware State University Delaware Technical and Community College (3 campuses) BOND PROCEEDS (incl. Premium) $ million $ million $ million $ million $ million $ million $ million Contracting Companies: Ameresco, Honeywell, Johnson Controls, Noresco, Pepco Energy Services, Trane MAJOR BUYERS: Definitive Capital, Lord Abbott, First New York Securities, Merrill Lynch

10 Cumulative Natural Gas & Electricity Savings As a Percent of Sales (%)* 30% 25% 20% 15% 10% 5% 0% PERFORMANCE COMPARISON OF SUSTAINABLE ENERGY MARKET DEVELOPMENT APPROACHES Program Years Reporting Utilities Efficiency Vermont (EffV) Energy Trust of Oregon (ETO) DE SEU Notes: Reporting Utilities includes electric utilities only; electricity savings are based on U.S. EIA Form 861, for the period EffV and ETO include natural gas and electricity savings ( ). Savings for these organizations are not guaranteed. DE SEU includes electricity and natural gas savings, and is based on the 2011 DE SEU 20-year bond, its rebate programs for , its SREC auctions for , and its Dover SUN Park SREC purchase ( ). Savings from the 2011 bond sale are contractually guaranteed; bond savings by year during the 20-year bond are from Citigroup, Post-Pricing Commentary. SREC transactions of the DE SEU are based on recorded monthly output of PV systems. Savings from its rebate programs are based on the same estimation methods used by reporting utilities. For all organizations, electricity and natural gas sales derived from EIA Forms 176 and 861. See Figure 5 in J. Byrne and J. Taminiau, A review of sustainable energy utility and energy service utility concepts and applications WIREs Energy Environ. doi: /wene.171

11 A SOLAR CITY CASE STUDY Seoul, South Korea

12 Solar City Modeling: The Case of Seoul 40,000 35, MWp 30,000 25,000 20,000 15,000 10,000 5, Roof Area (Million m2) 0 Total Rooftop Area Suitable Area Heliport/Other GCR + Service Area PV Potential Residential Commercial Industrial Education Public/Other 0 J. Byrne et al A review of the solar city concept and methods to assess rooftop solar electric potential, with an illustrative application to the city of Seoul Renewable and Sustainable Energy Reviews. Vol. 41:

13 PV Effects on Electricity Demand & Consumption in Seoul Power from the Grid 12 GW Peak Day in May 10 8 PV Load Shaving (32% of the Rooftop Area of All Public Buildings) 12% of the City s Total Roof Area PV Load Shaving (32% of the Rooftop Area of All Buildings) 32% of the City s Total Roof Area GW Peak Day in August Sources: Load data supplied by KEPCO. Estimates by PV Planner, software developed by CEEP. (

14 PV Effects on Electricity Demand & Consumption in Seoul % of Daylight Hour Electric Use from PV: 66% % of All Hours Electric Use from PV: 31% Sources: Load data supplied by KEPCO. Estimates by PV Planner, software developed by CEEP. (

15 PennSEF An example

16 Key Program Features Prequalification of local and national energy service companies (ESCOs) through an RFQ process Standardized documentation that facilitates pooled financing which lowers costs for all Participants Guaranteed Savings Agreement is a transparent construction contract with a strong guarantee and spells out a monitoring and verification (M&V) plan in detail Guarantee is based on energy and water savings some operational savings & reduced maintenance can be included TRUSTED ADVISOR: FREE s legal, financial and technical team assists throughout negotiations Visit PennSEF at: freefutures.org/pennsef

17 Program Benefits Preliminary audit provided at no cost Investment grade audit must offer selffinancing measures based on participant priorities providing at least 90% of the savings quoted in the pre-contract audit All program costs are paid within the bond issue No cross collateralization or risk associated with involvement of other participants Customized and serialized financing optimization Significant local job creation Visit PennSEF at: freefutures.org/pennsef

18 Indicative Borrowing Rates PA Tax-Exempt Revenue Curve 7/31/2015 PA Taxable Curve 7/31/2015 Term AAA AA A BAA Term AAA AA A BAA 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 July 31, 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

19 What Measures Are Included? Many! A wide range of energy & water conservation measures (electrical and thermal) can be financed Distributed generation (including solar PV and combined heat and power), microgrids, smart energy management are important candidates for this Program Major lighting upgrades, HVAC improvements (including boiler and chiller replacement), process and steam redesigns, building envelope upgrades, & motor drive/ pumping systems overhauls are examples the key is that the new equipment creates energy and water bill savings sufficient to finance the investment The most attractive projects integrate deep retrofits with low hanging fruit Visit PennSEF at: freefutures.org/pennsef

20 CASE STUDIES Street Lighting Pooled Solar Microgrids

21 PennSEF DVRPC Street Lighting 45 Municipalities do a common procurement for a single ESCO Gives leverage to get large project pricing for smaller municipalities Use an independent lighting consultant to develop RFP specifications Selected ESCO does a preliminary and then investment grade audit for each municipality Each municipality enters into its own Guaranteed Savings Agreement reflecting its own audit Visit PennSEF at: freefutures.org/pennsef

22 FREE Pooled Solar Pooled procurement of an ESCO is similar to lighting approach Use of federal ITC requires taxable private owner who provides equity investment in single purpose LLC Chosen ESCO provides a guarantee of the LLC s performance Balance of funding is provided by host which prepays for half of the expected electric output (host pays for the balance of the power generated as delivered) Host borrows the prepayment through the pooled bond financing Visit PennSEF at: freefutures.org/pennsef

23 Microgrid Finance Microgrids look 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 If there is a significant generation component, it may make sense to do a companion financing Electric storage may be able to be included in the capital cost of renewable generation.

24 USING FAMILIAR FINANCING TOOLS

25 CONCEPTUAL FRAMEWORK BRCPC GREEN FINANCE A BRCPC Green Finance initiative could be designed as a public, special purpose entity focused on the implementation of energy efficiency and onsite renewable energy generation projects throughout the Baltimore Region. The region has a long history of self supporting enterprises that have issued municipal bonds to fund activities. o By aggregating the capital needs for energy reduction projects, BRCPC Green Finance could have access to low-cost, long term tax-exempt financing for the majority of its projects. o The BRCPC Green Finance can engage potential participants throughout the region focusing, initially, on governmental, educational and not-for profit facilities.

26 Examples of Non-General Obligation Indebtedness in the Baltimore Metropolitan Area Equipment Acquisition Program Parking System Facilities Energy Performance Contract Issuer Baltimore County Baltimore City Baltimore Housing Authority, State of Maryland and others Description Provide tax-exempt bond financing for projects with shortto intermediate-term useful lives Certificates of Participations Provide tax-exempt bond financing for projects with long-term useful lives Purchase and installation of energy conservation measures to realize economic growth through enhanced efficiency and reliability of their energy systems and infrastructure Available Uses Finance capital equipment needs Develop parking facilities Finance energy related improvements and upgrades Financing Amount $83 million $375 million $100 million + Term 5-10 years 7-10 years years Interest Payments Tax-Exempt Tax-Exempt Tax-Exempt Security General Obligation of the Issuer? Conditional Purchase Agreements including a security interests in assets Revenue collected from certain parking taxes, parking fees and charges and fines and other revenue derived parking of motor vehicles No No No Revenue collected from the savings generated by the energy reduction measures

27 FINANCING SUSTAINABLE ENERGY OPTIONS FOR BMC MEMBERS We d like to help