Utilizing ESPC to Develop
Renewable Energy Projects
Peter Y. Flynn, September 16, 2014
FIFTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 2
About Bostonia
–
Founded in 1998, Bostonia Partners is a full-service investment bank with primary market focus in energy and
real estate, and additional services in structured finance and advisory
–
Bostonia Global Securities, the broker/dealer affiliate, provides direct access to investors and daily participation
in the capital markets
–
Bostonia ranked seventh among all banks for domestic private placements in 2009 – 2011
Domestic Private Placement Summary 2011 - 2013
FIFTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 3
Agenda
•
Renewable Energy Contracting Options – focus on ESPC
•
ESPC Financing Structures for Renewable Projects
•
OMB Memoranda – Challenges
•
Case Studies
•
Conclusions
FIFTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 4
Financing and Contracting Options
Utilization:
Term:
Key
Considerations:
PPA
ESPC
UESC
ENABLE
• Power Purchase with
secure fixed, long
term pricing
• Achieve energy savings
and ancillary benefits
through installation of
ECMs - may Include
renewable energy
• Utilities provide
energy improvement
projects and demand
reduction services
• Facilities under
200,000 Sqft
• 10 years (EAB Part
41), DOD up to 30
years (10 USC 2922a)
• Up to 25 Years
• 10 years for Army
• Up to 25 Years for
Non-DOD
• Target 10 – 15 Years
• PPA pricing may need
to be higher than
‘brown’ power
• ESCO provides savings
and performance
guarantees
• UESC, utility may
provide projects on a
streamlined basis.
• Taxable entity
required to own the
project in order to
utilize tax incentives
• M&V is required
• Partner with local
servicing utility or gas
company
• Provides standardized
and streamlined
process for quick
award
• Easement, site
license, lease or EUL
• Experience with ESA
structure
• Allows for 3d party
ownership
• Savings and
performance
guarantees not
required
• Limited ECMs
• Five standard ECMs
• Simplified M&V
• Renewable energy
component may be
‘subsidized ’ by
energy
efficiency
FIFTH ANNUAL FEDERAL
ENERGY
WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 5
ESPC Financing Structure
FINANCIER
FIFTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 6
ESPC Renewable Energy Structure
FIFTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 7
CEQ/OMB Memorandum 8/16/11
• ESPCs can incorporate purchase of on-site renewable energy –
if lower energy consumption and costs to the Government
• Complexity of PPAs require special consideration and agencies
must submit PPAs entered into under ESPC for OMB review
FIFTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 8
OMB Memorandum 10/3/12
• For an “onsite energy source” to qualify as an ECM, the arrangement
must:
–
–
–
–
be “applied to a Federal building”;
“improve energy efficiency”;
be “life cycle cost effective”; and
involve energy conservation, cogen, renewable energy sources, improvements in O&M
efficiencies, or retrofit activities.
• Conditions for annual scoring
– ESPCs including onsite energy generation – “the Federal government must retain title to
the installed capital goods at the conclusion of the contract.”
– ESPCs and UESCs may not be used for the purchase of “off-site new renewable
generation or to build merchant scale power generating facilities on federal land.”
FIFTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 9
White Sand Missile Range, NM
•
•
Project Overview
–
$18 million ESPC for US Army in White Sands, New Mexico – largest
military installation in the US
–
ESPC includes 4.5 MW Solar PV array (ground mount and carport)
and an Energy Management Control System
–
Solar array will produce 10.4 million kWh and contribute
approximately 10% of total energy consumption at the installation
–
Project will create total cost savings of approximately $44 million
over the 25-year contract term based on escalation of electricity
rates
–
Siemens Government Technologies selected to construct and operate
the system
Financing Overview
–
Unlike a traditional ESPC, private ownership of the energy assets
allowed the project to monetize federal tax credits
–
Long-term Energy Services Agreement (ESA) allows Government to
acquire solar power without upfront capital or a buy down of project
capital cost
–
Title to non-solar ECMs will vest with the Government at acceptance
–
Government will pay same utility rate it currently pays and will own
the RECs
FIFTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 10
Hill Air Force Base, UT
•
•
Project Overview
–
$5 million ESPC financing at Hill AFB - 1st DOE Biomass Super Project
–
Main parties include DOE, Ameresco, Bostonia, Hill Air Force base,
Davis County Landfill, Utah Power utility
–
Large electrical demand and steam load at Hill AFB; large waste
disposal in place and daily disposal rate at Davis County Landfill
–
Biomass and Alternative Methane Project included : 1.2 MW IC
engines, 20 year contract, 2 mile pipeline, conventional ECM’s in other
buildings
–
Reduction of 5,000 tons of greenhouse gases, 5.5 tons of Nitrogen
Oxide, 4.8 tons of Carbon Monoxide, 19 tons of Sulfur Dioxide
Financing Overview
–
Structured as securitization for ECMs, including biomass and
alternative methane fuel energy savings project that
generates electricity for the Government to sell to utility for
credit
–
Total cost savings of $16+ million over the 20-year contract
–
Overall simple payback under 10 years
–
No Capital investment required by Hill AFB
–
Monthly credit received by Hill AFB for Green Power
generation
FIFTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 11
Conclusions
•
ESPC is an important tool for meeting Federal energy goals and achieving
energy security
–
–
–
–
–
•
RE projects are complex with steep learning curves
–
–
–
•
Long-term contracting authority up to 25 years
Established program with proven contracting partners
Traditional ECMs can subsidize renewable energy projects
Government or a private entity can own assets
ESCO operates and maintains the project
Important to assemble the team early
Projects need a “champion” at the installation
Work with a public/private mentality and remain adaptive and flexible
Markets, incentives, and technologies drive projects
–
–
Important to understand federal and state incentives, standards, and energy prices in
order to determine complete revenue picture
Important to determine what technologies are best suited to specific geographic
conditions
FIFTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 12
Contact Information
Peter Y. Flynn
Executive Vice President
617-226-8103 Direct
617-437-0150 Main
pflynn@bostonia.com
FIFTH ANNUAL FEDERAL ENERGY WORKSHOP & DEFENSE ENERGY PARTNERSHIP FORUM | PAGE 13