NH C-PACE Program Overview:
New Hampshire’s new market-driven
energy solution for businesses
May 13, 2015 - Local Energy Working Group
Laura Richardson
Executive Director
The Jordan Institute
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Who Are We?
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Non-Profit organization
Reduce energy use in buildings
Public policy and program design
Founded in 1995
2013 Strategic Plan
& Reorganization
2014+ Policy and
Program Design
2015+ C-PACE
Program Launch
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For-profit company, majority
owned by The Jordan Institute
Scale-up number of energyefficient buildings
Expand available EE services projects in the field including
energy-centric construction
management
Overview of this presentation
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Defining C-PACE and our approach
Framing the need for C-PACE
How C-PACE works
Timeline
Our team
How volunteers can help
C-PACE Definition
C-PACE = Property Assessed Clean
Energy financing for Commercial
buildings
NH Statute is RSA 53-F, rewritten for 3rd
time in 2015; unanimous support from
NH House and Senate
Jordan Institute and partners are
launching the NH C-PACE program, 2015
NH C-PACE Overview
New Hampshire’s C-PACE Program ties
PRIVATE INVESTMENT for EE/RE projects to
PRIVATELY OWNED COMMERCIAL BUILDINGS
through the conduit of MUNICIPAL TAX ASSESSMENTS
(voluntary LIENS) thereby creating an innovative
financing tool that provides powerful benefits not
otherwise available
Jordan Institute’s Approach
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Understand and respect motivators of stakeholders
Accept that public money will not solve this problem
Build a team that has a deep bench of experience
Build a program – from scratch and without any public
funding – that will be open, accessible, transparent,
easy to navigate, leverage other EE/RE programs, and
have lasting impact
5. Encourage projects statewide – in large and small
municipalities and in all corners of the state – by 2017
6. Focus on projects that are straightforward, especially
to start – clear ownership, obvious project scope,
patience with start-up bumps
Anticipated Outcomes of NH C-PACE
1. Reduce the amount of energy used in commercial buildings,
associated greenhouse gas emissions, and outflow of energy
dollars from the state.
2. Enable municipalities to encourage site-appropriate EE/RE
projects in commercial buildings.
3. Building owners improve the operational costs, energy
performance, resiliency, comfort, and occupancy of their assets.
4. Create a sustainable stream of EE/RE project work for EE/RE
professionals – JOBS!!
5. Develop a new financing product for lenders and investors.
6. Normalize EE/RE projects so that they are not seen as
philosophical pilot projects, but rather practical steps that make
good economic sense.
The Talk: Cost – Cost – Cost
1. Energy rates are volatile
2. Capacity and availability are dynamic
3. Transition as big generators retire and others and
infrastructure projects are under consideration to be built
Users of energy do not have control over these issues.
Improving the efficiency of buildings and using
renewable sources can temper these challenges
As more buildings become efficient, more capacity is available
for others to use.
The Benefits of EE and RE
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Reduce energy costs
Reduce fossil-fuel energy use
Reduce greenhouse gas emissions
Preserve finite resources
Shave peak electricity use
Local jobs, recirculate energy dollars
Economic development
Improve building stock
Core EE/RE Motivators for Businesses
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Doesn’t interfere with core business efforts
Recover the investment
Improve the building’s value
Reduce maintenance costs
Improve occupancy rates
Reduce energy costs
Maintain warrantees
Integrate with other building upgrades and deferred
maintenance
9. Improve occupant comfort; reduce complaints
10.Marketing and branding
Other EE/RE Motivators and Outcomes
11. Local economic development:
recirculate $$$ and jobs
12. Improve Health: reduce energyrelated asthma, cancers, allergies
13. Improve indoor air quality: VOCs,
toxins, CO2, CO
14. Address national security and
energy independence
15. Embrace Yankee frugality
More Motivators
Improve the resiliency of buildings
16. Reduce Power outages:
• Buildings stay warmer in winter;
pipes less likely to freeze
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Buildings stay cooler in summer;
AC demand is reduced
17. Better withstand extreme weather events
18. Protect core business, inventory, operations
Priorities of Commercial Building Owners
1. Core business, assets and inventory, continuity of business
2. Positive cash flow
3. Full occupancy of buildings
4. Strong balance sheet – manageable debt
5. Flexibility to sell property with limited complications
6. Occupants who pay their rent
7. Occupants who do not complain
8. Good tenants who renew lease agreements
9. Low maintenance costs and easy maintenance tasks
10. Low/stable operational costs
11. Addressing deferred maintenance issues
12. Stable energy bills: electricity, heating, process, water
13. Being good neighbors and community members
Addressing energy upgrades from the perspective of
commercial building owners
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Often seen as a low priority or a luxury
Energy projects are addressed in emergency situations
Fast payback / Return on Investment
Capital projects reflected on balance sheet
May not improve the appraised value of the building in
the short term
6. Building owners avoid loans whenever they can
7. Claim that occupants don’t demand EE/RE
8. No budget for capital projects – or energy projects
9. Wariness of promises made by the contractor community
10. Rebates and incentives change all the time
11. EE/RE projects often require significant up-front costs
“Old Way” – not motivating
1. Many Commercial Real Estate Building Owners flip their
buildings every 5-7-10 years
2. Most loans are for 5-7 years
3. Most loans are repaid out of capital budgets
4. Most “low-hanging fruit” energy projects have payback
periods of 3-5-7 years
5. That means building owners rarely get to experience the
cost savings from the upgrades they undertook
6. Not many “comps” so appraisers and assessors rarely
truly value those upgrades; therefore investment is not
usually recaptured at time of sale
7. Historically, EE projects may not have met expectations
Building Owners Need Advocacy
• Information – where to start
• Competing priorities – core
business or EE project?
• Who to trust? Uncle Jim?
Salesman?
• Energy audit and benchmarking –
how bad is the building?
• Where to access funding?
• Will the project actually perform
the way it was designed?
Priorities of Lenders and Investors
1. Avoid risk or address risk through terms and
conditions
2. Recoup the investment - on time and as proposed
3. Make a good return on the investment
4. Expand the customer base
5. Support projects that align philosophically
6. Add a new lending product to their offerings
7. Be a good neighbor
8. For banks: comply with the Community
Reinvestment Act
Conventional energy projects have financial risks
Most lenders are wary of financing comprehensive
energy projects and need assurances to reduce risk.
• NH doesn’t license/certify construction professionals
• Building code compliance and energy code compliance
is less than robust in many municipalities
• Building owners sell properties every 5-7 years
• Tenants move every 3-5-10 years
• Projects are rarely cash-positive
Investors want to recover their money and want a good
return
Market-driven ways to reduce risks:
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High interest rate
Large down payment
Short term of loan
Don’t fund projects
Publicly funded ways to reduce risks:
• Grants and Rebates to reduce capital costs
• Interest Rate Buy Down
• Loan Loss Reserve
C-PACE is different from other “loans”:
1. Tied to the property, not the property owner
2. Non-accelerating payments, next owner makes subsequent
payments - “Pay for the energy efficiency you use”
3. No down payment required
4. Can be off balance sheet – repayment as part of tax bill
5. Addresses split incentive between building owner and tenants -building owner can “share” loan repayment (ie triple net lease)
6. Cash Positive from DAY ONE, Savings to Investment Ratio >1
7. Value added ensures a quality project – baseline benchmarking,
commissioning, Monitoring & Verification
8. Longer term repayment, not 5-7 years, but up to 30 years
9. Encourages comprehensive projects, not just fast ROI
10. Financial & energy project vetting/oversight, improves trust
11. C-PACE lenders understand the reduced risk of these projects
C-PACE Standards Reduce Risk to Lenders
• C-PACE projects are tied to the property through a lien
• C-PACE projects have been vetted by impartial energy
and finance professionals
• Projects must have a Savings to Investment Ratio >1,
meaning that repayment of the project is LESS than
the energy savings and that the project is CASH FLOW
POSITIVE
• Quality Control Standards are part of every project
• pre-project benchmarking/energy audit
• commissioning during project
• monitoring and verification post project
NH C-PACE Quality Control Standards
• Energy Audit – ASHRAE Level II
• Building Commissioning
• Energy Monitoring and Verification
• Savings to Investment Ratio >1
• Financial information about project
owners and buildings
• Other requirements may apply
Investor Confidence Project by EDF
• Jordan Institute and Resilient
Buildings Group selected as Allies
• Like a Good Housekeeping Seal
ICP reduces transaction costs by assembling
existing standards and practices into a
consistent and transparent process that
promotes an efficient market, while increasing
confidence in energy efficiency as a demandside resource and resulting cash flows for
investors and building owners
No Public Funding in NH C-PACE Program
Live Free or Die
• No public funding available to
launch program or to finance
projects
• No taxpayer funds
• No ratepayer funds
• No municipal bonding
C-PACE is completely voluntary
• No mandates
• Driven by the Private Market
Fee Schedule for each project
Jordan Institute receives no public funding to launch
this program.
We are designing this the NH way … with Fees
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Fees are non-refundable
Fees can be applied to the project costs
Savings to Investment Ratio must be >1
Fee Schedule is transparent and will be available soon
Anticipated Fees
Fees:
1. Preliminary Application (very simple) will be FREE
2. Project Application and Project Management Fee
3. Energy Technical Review Fee
4. Financial Underwriting and Review Fee
5. Fee to cover costs incurred by Municipality
6. C-PACE Database Management License – Fee per project
7. Closing Costs on the project
Approach:
Recover costs to run the program and keep the financing
reasonable
NH C-PACE Program Team
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Jordan Institute, Inc. – Program Administrator, day to day coordination, visibility,
education, project management
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Sustainable Real Estate Solutions, Inc. – Data management, training,
energy-project origination, development, management
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Resilient Buildings Group, Inc. – Energy Project Vetting, commissioning, M+V
NH Community Development Finance Authority – Financial vetting,
warehousing of smaller projects, energy-project repayment coordination
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Hannon Armstrong Sustainable Infrastructure Capital, Inc. – energy
finance house is backstop to ensure that projects can get financing
Eliminate any perception of Conflict of Interest
If Resilient Buildings Group or CDFA are working with a
client who may participate in NH C-PACE, then SRS will
step in to vet the project
“Unlimited” financing available for projects
• Private investors are very interested in this opportunity
• But… projects must adopt and follow program standards
and protocols
• Junior lien position
• Reduced risk, instills confidence
• Quality control
• Energy and financial vetting
• benchmark, commissioning, M&V
• Consistency across projects, municipalities
• Improves lender competition which will lead to more
competitive rates
• Must be in a C-PACE municipality
• Jordan Institute is coordinating efforts
NON-EXCLUSIVE Project Financing
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Large Energy-Project Finance House
• Will finance large projects and smaller aggregated projects
• Act as a default/back stop if other lenders not interested
Traditional lenders, local banks, small-medium-large lenders
are encouraged to participate
Groups of private individuals
Investment, retirement, and other funds
Divest-Invest Groups
NH Community Development Finance Authority
• Warehouse smaller projects and financing
• Individuals, institutions, Divest-Invest, etc.
NH Municipalities
1. Municipalities must adopt the statute to enable C-PACE
in that jurisdiction
2. Average size of a NH municipality: 5,600 residents
3. Limited bandwidth to take on a new complex initiative
4. Technical energy, building-science, and financing
expertise required for successful C-PACE projects
5. This program will only work in NH if there is programdesign continuity across municipalities
Priorities of Municipalities and Officials
1.
Manage growing list of urgent responsibilities under limited staffing and
budget constraints
2. Provide access and transparency to residents, businesses, State and Federal
officials, media, et cetera
3. Elections – Town Meeting – Planning Board – School Board – Select Board –
Zoning Board – Assessments – Taxes – and more
4. Maintain municipal infrastructure: Roads – Schools – Town Offices –
Emergency Services – Cemeteries – Libraries – more
5. Advocate for vulnerable citizenry: Elderly – Disabled – Sick – Low-income
6. Manage demands of high-maintenance citizenry
7. Balance needs and wants of various constituencies
8. Retain and woo businesses and residents
9. Plan for resiliency – economic, extreme weather, energy prices and energy
projects, et cetera
10. Develop a reputation as a business-friendly community
11. Develop and implement sustainability goals
12. And others – the list seems to be endless
Benefits to the Municipality
1. Nominal payment to cover costs of being conduit for funding
2. Can market the program as a business-friendly benefit –
economic development and community revitalization
3. Improved commercial buildings – more efficient, resilient,
occupied
4. Occupied buildings = improved employment base = improved
tax base
5. Vast majority of efforts handled by others
6. Lead economic development initiative
7. Consider this part of the municipality’s sustainability program
8. Provide an ongoing project for the Local Energy Committee
C-PACE Responsibilities of Municipality
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Municipality must adopt “the program” – RSA 53-F
Municipality “should” designate administration of the program to
Jordan Institute
Jordan Institute and Sustainable Real Estate Solutions will train tax
collector and Registrar of Deeds (and others as necessary) about
program and best practices
Municipality updates tax assessment software to allow for special CPACE assessment
Register lien with County Registrar of Deeds
Send tax bills with special assessment to participating C-PACE
borrower/s
Receive C-PACE repayment funds from borrower/s
Forward Assessment repayments to CDFA
Notify CDFA if Assessment has not been paid in full
NH and the National C-PACE Scene
31 states have adopted PACE financing tool
PACE enabled states
• Early stage PACE program development
• Launched PACE programs
• PACE programs with funded projects
To date, 305 projects funded, $105M, 1080 jobs
Courtesy PACENow
C-PACE Building Types Can Include:
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Office buildings
Hotels & convention centers
Apartment buildings (5+ Units)*
Manufacturing facilities
Heated warehouses
Agricultural buildings
Retail: grocery, malls, big box, Mom & Pop
Health clubs & athletic facilities
Private Schools
* Some Restrictions Apply
Non-profits
BUT NOT PUBLICLY OWNED BUILDINGS
NOT RESIDENTIAL
C-PACE Projects Can Include:
Comprehensive projects or individual energy measures
• Airsealing & Insulation - Walls, basements,
crawlspaces, attics, roofs, piping, ducts
• Heating, Ventilation, AC Systems
• Biomass Heat — pellets or chips
• Ground-Source and Air-Source Heat Pumps
• Controls and heat distribution
• Lighting
• Solar – electric, hot water, hot air
• Combined heat and power
• Can include non-energy project work that is
connected to the energy project, as long as the SIR>1
(ie roof replacement with solar project)
Ideal C-PACE Building Candidates:
1. Willing project owner & municipality
2. Project MUST have a Savings-to-Investment Ratio >1
3. Inefficient buildings and equipment
4. Existing construction
5. Fossil fuel heating, electric heating
6. Municipality has numerous “ideal” C-PACE buildings
7. Uncomplicated ownership
8. Early phase: Project costs >$250,000
9. Candidate for RE system
----- 2015: City Council Municipalities
 2016: City Council & Town Meeting Municipalities
C-PACE is not about the interest rate
Although C-PACE rates will be competitive
(~6%, your results may vary)
C-PACE IS about:
1. Positive cash flow from Day One
2. No down-payment required
3. Sharing project costs/ repayment with tenants
(split incentive)
4. Off balance sheet
5. Being able to sell the property without escalating
payments
6. Address deferred maintenance
CT - C-PACE Case Study – Shagbark Lumber
C-PACE Financing: $485,000
Energy Upgrade: 157 kW PV system
Building Size: 35,950 Square Feet
Incentives: ZREC (Zero-emissions RECs)
C-PACE Financing: $485,000, 100% project cost
Term: 10 years
Annual Interest Rate: 5.0%
Annual C-PACE Assessment: $61,325
Annual Energy Cost Savings: $61,325
Lifetime Energy Cost Savings: $1,215,205
Courtesy of
www.cpace.com
CT - C-PACE Case Study – Bushnell Theater
C-PACE Financing: $384,000
Energy Upgrade: Hot water heater, 3 highefficiency boilers and replacement of a
single, inefficient steam boiler
Building Size: 95,000 SF; Year Built: 1919
Total Project Cost: $650,000
Incentives: $266,000
C-PACE Financing: $384,000; Term: 20 years
Annual Interest Rate: 5%
Annual C-PACE Assessment: $30,411
Annual Energy Cost Savings: $30,411
Lifetime Energy Cost Savings: $1,173,479
Courtesy of:
“Old Way” vs “New Way” 5-Year Cash Flow
Old Way:
Bank Loan
$52,500 (15%)
$297,500
5 yrs
5.0%
Down payment amount
Loan amount
Loan term
Interest rate
5-Year Net Cash Flow:
Annual debt service
Annual energy savings
Net annual cash flow
1
Cash flow over 5 years
Down payment cash flow
5-Year Net Cash Flow
New Way:
C-PACE Lien
$0
$350,000
20 yrs
6.0%
$67,370
$36,000
($31,370)
$30,090
$36,000
$5,910
($156,852)
($52,500)
($209,352)
$29,549
$0
$29,549
1
As s umes no util i y cos t es ca l a tion or performa nce degra da tion i n
_order to s i mpl i fy the ca s e s tudy.
Case Study, Courtesy Energize CT and Sustainable Real Estate Solutions
SIR Calculation Example
Building Type
Occupancy
Gross square feet
Baseline annual utility costs
Estimated savings percentage
Estimated annual savings
Project Cost
ECMs estimated useful life (EUL)
Estimated Savings Over Finance Term1
Amount Financed (100%)
Annual interest rate
Loan term in years
Interest Cost Over Finance Term
Case Study, Courtesy Energize CT and Sustainable Real Estate Solutions
Office
Owner
40,000
$144,000
25.0%
$36,000
$350,000
20
$720,000
$350,000
6.0%
20
$251,802
SIR Calculation Example
Savings
Savings:
Energy savings over the finance term
Recurring incentives (e.g. ZRECs)
Cash value of Investment Tax Credit
Cash value of MACRS depreciation
Investment:
Installed cost net of one-time utility incentives
Loan interest (20 year term, 6.0%)
Total
Savings-to-Investment Ratio (SIR):
Investment
$720,000
$0
$0
$0
$720,000
$720,000
$601,802
Case Study, Courtesy Energize CT and Sustainable Real Estate Solutions
$350,000
$251,802
$601,802
= 1.2
How the money will move in NH C-PACE
Project financing - simplistic
1.
Lender, Building Owner, Municipality, Existing Mortgage
Holders, Jordan Institute, and CDFA agree to scope, term,
_ other details of the project
2.
Investor lends $$$
to Building Owner
Investor
3.
Municipality attaches C-PACE
Special Assessment to the
property through the county
Borrower/Building
Owner
Municipality
Community Development
Finance Authority
How the money will move in NH C-PACE
Project repayment
1.
5.
Municipality sends C-PACE
Special Assessment to
Building Owner with tax bill
CDFA reports
back to
Jordan
Institute
Investor
Borrower/Building
Owner
Community Development
Finance Authority
Municipality
3.
Building Owner pays taxes,
including C-PACE Special
Assessment
2.
4.
CDFA forwards Payment to Lender of Record
Municipality sends
C-PACE Special
Assessment to CDFA
What happens in Default?
Investor reaches out to
building owner and/or
undertakes corrective
action or foreclosure
proceedings
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3.
Municipality alerts
CDFA that C-PACE
Special Assessment has
not been paid
4.
CDFA Reports
to Jordan
Institute
Investor
Borrower/Building
Owner
2.
Municipality
Community Development
Finance Authority
CDFA alerts Investor
5.
Next building
owner makes late
payments and
resumes payment
schedule
How C-PACE Projects Work
Jordan Institute is administrator of the NH C-PACE program
The C-PACE Project Pipeline
• Projects will be driven by EE/RE contractors and
installers and building owners
• Manage expectations – not all projects will
qualify
• Before encouraging C-PACE adoption by
municipalities, we want to have at least 3 viable
projects percolating
• Be sensitive to other priorities of building
owners and their schedules… and that maybe
their internal situation isn’t a match for C-PACE
The Role of LECs and other volunteers
• Ambassadors for the program
• Encourage contractors/installers to consider
participating – be clear: vigorous oversight
• When viable projects are in pipeline, encourage
municipalities to adopt the program
• Encourage buildings owners to consider the program
But Remember:
• Not all projects or buildings or building owners or
contractors will fit this model
• There are times when exuberance undermines efforts
Time Frame
2015
• Overhaul to RSA53-F, awaiting Governor Hassan’s signature
• Program Launch, fundraising, visibility, team building program
design and document development
• Select City Council Cities adopt C-PACE
• RFQ for Lenders/Investors; RFQ for Contractors/Installers
• Trainings – contractors/installers
• Projects get underway
• Roll out materials for Town Meeting Towns for 2016
2016
• Town Meeting Towns adopt C-PACE
• More City Council Cities adopt C-PACE
• Trainings and Projects – ongoing
2017
• Statewide adoption and projects
Open Program
• Request for Qualifications coming soon
• Contractors and Installers – must be “qualified”
AND “trained” in how the program works before
being able to participate
• 3rd parties encouraged to participate for qualitycontrol oversight
• Lenders and Investors
• Preliminary Application for Projects coming soon
• RFQs will be rolling, no deadlines
Training and Education
Small Group Environment
• Town Officials
• Tax Collectors
• Town Assessors
• County Registrar of Deeds
• Building Owners
• Contractors
• ESCOs
• Lenders
Visibility and Marketing
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Managing the message
Managing expectations
Case Studies
Data collection & reporting
Social media presence
Materials available at
www.JordanInstitute.org
Raising Funds to Launch the Program
• Foundation support
• Private donations
• Fundraising events
• www.jordaninstitute.org
Thank you!
Laura Richardson, Executive Director
The Jordan Institute
lrichardson@jordaninstitute.org
603-226-1009, x204
6 Dixon Avenue, Suite 201
Concord, NH 03301