Financing Energy Efficiency Projects: Thinking Outside the Box

Transcription

1 Financing Energy Efficiency Projects: Thinking Outside the Box CA-NV-AWWA Fall 2013 Conference Sacramento, CA Presented by: Shahid Chaudhry California Energy Commission Oct

2 O&M Costs Distribution at W&WW Utilities Water Wastewater 2

3 Main Barriers in EE Projects* Lack of Funding (33%) Insufficient ROI (32%) Lack of EE Resources (10%) Savings Uncertainty (7%) Lack of Tech Expertise (5%) Lack of Opportunities Awareness (5%) Landlord/Tenant Split Incentives (5%) Other (4%) 100% Up-Front Financing Off-Balance Sheet Solutions Clarity of Financing Accounting & Options Increased Education on Energy Savings Potential Increased Transparency on Savings through M&V *Johnson Controls: 2011 Energy Efficiency Indicator 3

4 Financing Mechanisms for EE Projects 1. In-House Energy Management (with Internal/External Funding) Grants Rebates Municipal / State General Budgetary Funds Revolving Fund Municipal Bonds Partial Loan Guarantee Soft & Commercial Bank Loans Leasing Vendor Credit Cap and Trade Revenue Potentially in Future; Not Sure though. 2. Energy Performance Contracting, and 3. Public-Private Partnerships 4

5 Implementing EE Projects In-House Provided In-House Technical Expertise are Available Using Internal Capital Funds or Operating Budget Using External Resources Loans - Most Appropriate for Smaller Projects with Relatively Short Pay-back Periods; and Quick and Significant Returns. Less Cash Left for Other Projects / O&M Activities, Increases On-balance Sheet Debt, and Increased Financial Risk. 5

6 Potential Risks with External Financing Projects Credit Risk Likelihood of Paying Back to the Financing Institution by the Utility. This Risk is Estimated through Financial Statements & Other Sources like Dun and Bradstreet Reports. Asset Risk Assesses the Change in Value of the Building Before & After Retrofit. This Risk is Mitigated by Disclosure and Benchmarking Policies. Performance Risk Likelihood of Achieving the Predicted Savings. Impacts of Calculation Errors, Changing Energy Prices, Weather Variables, etc. 6

7 Energy Performance Contracting (aka 'Third Party Financing' / 'Contract Energy Management', Borrowing Money Against Future Energy Savings Energy Performance Contractor ESCO One Stop Shop Utility vs. ESCO Borrowing ESCO Reimbursement : Guaranteed Savings vs. Shared Savings (Linked with Energy Savings) ESCO s Ongoing Role in M&V Contract Period: Generally 4 5 yrs. 7

8 Some Well Known ESCOs in the U.S. Ameresco, Inc. Chevron Energy Solutions Honeywell International Johnson Controls Lockheed Martin NORESCO Siemens Trane U.S. FPL Energy Services Pepco Energy Services McKinstry Essention TAC Energy Solutions The Benham Companies Consolidated Edison Solutions Constellation Energy Projects & Services 8

9 Public-Private Partnership (PPP) Is this Privatization? No By Definition, Privatization Typically Involves Sale of Publicly-Owned Assets or Goods to Private Sector. Traditionally W & WW Treatment Less of a Focus for PPPs. Relatively a New Concept for W/WW Sector. Skills, Assets, & Rewards/Risks are Shared In EE Projects, PPP May be Considered an EPC, Where: ESCO Implements the Project & Is Involved in M&V Process to Verify Savings. Neither Owns, Nor Operates the Facility. PPP/Concession Becoming Attractive Model for Public W/WW Utilities Utility Retains Ownership of the System, Private Sector Takes Over Full Operational and Investment Responsibilities, & Associated Commercial and Financial Risk * Energy Performance Contract 9

10 Public-Private Partnership (PPP) Successes and Failures Partnership between the City of Indianapolis & Veolia Water in Managing 143 MGD Water Treatment System Marriage Made in Heaven. City of New Orleans & Veolia An other Success Story. PPP Between Seattle Public Utilities Board and CH2M HILL under a15-year Contract achieving Operational Savings of $50 million A Win-Win Deal Partnership Between the City of Atlanta & United Water - written as a 20- Year Deal - Failed in 2003 when Atlanta Reclaimed Control of its Water Utilities. In 2003, The City of Stockton & OMI-Thames Water inked a $600 million, 20-Year Contract for Operating City s W & WW Systems. It Failed in Lessons: Due Diligence is Utmost Important before Inking Such Deals & Devil is in the Details. 10

11 Economic Analysis of Energy Efficiency Measures To Help Decision Makers in Making Investment Decision / Investment Priorities. Different Ways: Undiscounted Economic Analysis Methods Analyze the Worth of a Project Regardless of the Time Element (Simple Payback Period & Return on Investment) Discounted Economic Analysis Methods Take into Account Time Value of Investment in the Analysis. All Future Cash Flows (Incoming & Outgoing) are Estimated and Discounted to Give their Present Values/Net Present Values (PVs/NPVs) (Net Present Value & Annualized Costs / Life Cycle Cost Methods) 11

12 Evaluation, Measurement, & Verification (EM&V) To Determine Both Program & Project Impacts / Effectiveness Energy Use Data of the Equipment, Process, Project, or Whole Utility after EE Project, & Comparing with the Initial Goals/Objectives, Identify any Necessary Program Improvements, Assess Program Cost-Effectiveness, Estimate impacts and their Persistence/Sustainability over Time, and Incorporate Saving Impacts in Energy Planning. Leading EM&V Protocol - International Performance Measurement and Verification Protocol (IPMVP) 12

13 Searchable Databases to Find Funding for Environmentally Sustainable Projects: Database for State Incentive for Renewables & Efficiency ( Financial Incentives: State, Utility, & Local Grants/Rebate/loan Programs; Alternative Fuel & Vehicle Incentives; and Production Incentive, Property Tax Exemption etc. Rules, Regulations & Policies: Appliance/Equipment Efficiency Standards, Building Energy Code, Energy Standards for Public Buildings; & Green Power Purchasing/Aggregation, Interconnection, Net Metering, Renewable Portfolio Standard, Solar/Wind Permitting Standards etc. Flex Your Power ( Rebates, Incentives & Services Funding Wizard ( 13

14 Financing Alternatives Comparison Tool (FACT) Developed for USEPA Provides a Comprehensive Financial Analysis to Compare Various Financing Options by Considering Financing, Regulatory, & Other Costs. Financing Options FACT Covers include: SRF Loans, Grants, Revenue Bonds, General Obligation Bonds, Bank Loans, etc. Output Includes Side by Side Comparison of Financing Options Using Key Financial Figures such as: Total Cost, Average Annual Cost, Net Present Value Also Tracks Disbursement, Debt Service Payments, & Other Costs Over the Life of the Financing Option. 14

15 Energy Commission s Energy Partnership Program Technical Assistance to Provide a Wide Range of Services for Existing Facilities and Upcoming Projects: Conducting Energy Audits, Reviewing Existing Proposals & Designs, Developing Equipment Performance Specifications, Reviewing Equipment Bid specifications, Assisting in Contractor Selection & Commissioning, etc. New Construction Design Consultation, Comparing Different Technologies, Reviewing Schematics / Construction Plans, Providing Equipment Specification Consultation, Identifying Cost-Effective, Energy-Saving Measures, Developing Computer Simulation Models for the Planned Project, Helping in Selecting Experienced Professionals with EE Expertise, Assistance with Commissioning etc. Eligibility Cities, Counties, Special Districts, Public and/or Non-Profit Hospitals, Public Care Facilities, Schools / Colleges / Universities

16 Energy Commission s Energy Financing Program Low-Interest Loans to Implement Energy-Saving Measures Eligible Projects: Interior & Exterior Lights / Streetlights / LED Traffic Signals, Pumps/ Motors/VFDS, Building Insulation, HVAC Modifications, Automated Energy Management Systems / Controls, Energy Generation including RE Projects & Cogeneration, etc. Financing Amount: Up to 100% of the Cost of EE Projects or $3 million per Application, Which Ever is Less. Current Interest Rate: 1% Fixed Criteria For Loan: EE Projects Must be Technically & Economically Feasible; Projects Must have a Simple Payback Period of 13 Years or Less (@ 1%) Based on Energy Costs Savings; & The Loan Term Can t Exceed Useful Life of Loan-Funded Equipment. 16

17 Other Energy Projects Related Funding Sources Clean Water State Revolving Fund (SWRCB) Loan Funding for Water Quality Protection Programs e.g. Wastewater Treatment, Non-Point Source Pollution Control, and Watershed and Estuary Management. Drinking Water State Revolving Fund (CDPH) Incentive for Public and Private Water Systems to Finance Drinking Water Infrastructure Improvements. 20% $s for Green Projects e.g. Water and/or Energy Efficiency, Innovative Water Quality Improvements, Decentralized Wastewater Treatment, Storm- Water Runoff Mitigation, and Water Conservation. California Public Utilities Commission (CPUC) through IOUs: Energy Audits, Energy Use Benchmarking, Energy Efficient Retrofits/New Construction, Demand Response, Solar and other Self-Generation, On Bill Financing (OBF) 17

18 Questions/Discussion 18