April 30, Connecticut Microgrid Program Overview

Connecticut Microgrid Program –

Overview

Agenda

▪ What is the Connecticut Microgrid Program? ▪ CEFIA Overview

What is the Connecticut

Microgrid Program?

What is the Connecticut Microgrid Program?

The purpose of the Connecticut Microgrid Program is to solicit proposals to build

microgrids in order to support critical facilities (as defined by Connecticut General

Statutes, Section 16-243y, as modified by Public Act 13-298, Section 34) during times

of electricity outages.

The Program was developed in response to the recommendation of the Governor’s Two Storm Panel regarding the use of microgrids

as a method for minimizing the impacts to critical facilities associated with

emergencies, natural disasters, and other events when these cause the larger

CEFIA Overview

Who is CEFIA?

Help ensure Connecticut’s energy security and community prosperity by

realizing its environmental and

economic opportunities through clean energy finance and investments.

Support the Governor’s and legislature’s energy strategy to achieve cleaner, cheaper and more reliable sources of

energy while creating jobs and

CEFIA is Connecticut’s “Green Bank”

…transitioning programs away from

government-funded grants, rebates, and other subsidies, and towards deploying private capital …CEFIA was established in 2011 to develop

CEFIA Structure

EVP and CIO

Bryan Garcia

President and CEO

Financing Challenges for

Microgrids

Financing Challenge for Microgrids

▪ Microgrids are small, self-contained electricity, heat, and/or cooling distribution systems that coordinate and distribute energy supplied from one or more generation sources to a network of one or more users in a spatially defined area.

▪ Existing incentives, financing tools, and rate structures for distributed, clean energy resources generally operate on an individual generator, individual customer basis. Microgrids link one or more generators to multiple users.

▪ Existing incentives and financing tools for distributed, clean energy resources are designed categorically around customer building types (e.g. municipal/ commercial/ residential). Microgrids serve all

Financing Challenge for Microgrids (cont)

customers, including reduced energy costs, reduced GHG emissions and/or increased energy security and reliability. Some benefits, such as cleaner energy resources or enhanced energy security and

reliability, may be achieved only at a cost premium.

▪ Financing implies a project will earn a lender a return on investment.

Microgrids are challenged where energy savings cannot carry investment and financing costs.

▪ Making microgrids economical is a demand and supply side equation.

CEFIA’s Role in Financing Microgrids

Outreach / Application

Evaluation Selection /

Documentation Construction Operation

DEEP Applicant Support

CEFIA’s Role in Financing Microgrids

Sources

Uses

CEFIA Direct Financing $5M Available CEFIA Programs >$100M Available DEEP Grants $15M Available

• EPC Cost for Generation Assets • Balance of System Costs

• Interconnection Costs

• Engineering & Design Costs

Proforma Requirement (1/2)

Sources

• DEEP grant

• Upfront utility incentives • CEFIA debt

• Subordinated debt • Senior debt

• Tax equity

• Developer and / or owner equity

Uses

• Equipment & Labor

• Design & Engineering Fees • Grid & end user integration • Siting & Permitting

• Warranty/Insurance CEFIA will assist in

Proforma Requirement (2/2)

– Direct offset to energy purchases

– “Reliable Power” payments

▪ Public sources

– Federal, state & local incentives

– Other grants

▪ Regulatory/Energy Markets

– Renewable energy credits

– Net metering/Virtual net metering

– Demand response

– Other (i.e. capacity payments, ancillary grid services, etc.)

CEFIA seek projects where

revenue less cost over time

(max. financing period of

useful life of equipment) is

sufficiently valuable to attract

Project Finance

How is $$ coming back over time?

– ESA/PPA

– ESPC

– C-PACE

– Tax exempt lease purchase

– Bonds

▪ Risk

How sure are the Capital Providers that the $$ will come back over time? – Performance guarantee

– Equipment warranties

– Other insurance

– Operational history of developers, contractors, and operators

– Creditworthiness of obligor(s)

– PACE lien

Financing Website

www.energizect.com/microgrids

 Links to CEFIA Financing Program Pages

 Review microgrid financing Frequently Asked

Questions

 RFQ for Capital Providers

CEFIA Contacts

Genevieve Sherman, Senior Manager, C-PACE

860.257.2889

[email protected]

Alexandra Lieberman, Senior Manager, Clean Energy Finance

860.257.2177

C-PACE

Commercial & Industrial Property-Assessed Clean Energy

▪ Commercial Property Assessed Clean Energy is 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.

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

Financing Options & Tools: C-PACE

▪ Existing, low cost, long-term financing tool

▪ Can finance all costs, including end-user efficiency improvements, DE/microgrid ‘readiness,’ interconnection, and ‘soft costs’.

▪ Financing is secured by a lien on the benefitted property (as opposed to an ESA with a customer) and is transferrable regardless of ownership. This provides microgrid developer secure recoupment of fixed costs.

Challenges:

▪ Each property must be individually assessed

▪ Each property must have mortgage lender consent

▪ Municipal facilities are not included

Enabled by Public Act 12-2 (June 2012)

▪ Requires the consent of the existing mortgage lender

▪ Requires SIR>1

▪ Permanently affixed EXCEPT district heating & cooling

– Includes generator and pipe infrastructure

– Potential for microgrids in FY2014

▪ Enables municipalities to opt-in

C-PACE Amendment

▪ (1) "Energy improvements" means (A) participation in a district heating and cooling system by qualifying commercial real property, …or (D)

installation of a solar thermal or geothermal system to service

qualifying commercial real property, provided such renovation, retrofit or installation described in subparagraph (B), (C) or (D) of this

subdivision is permanently fixed to such qualifying commercial real property;

▪ (2) "District heating and cooling system" means a local system

consisting of a pipeline or network providing hot water, chilled water or steam from one or more sources to multiple buildings;

Potential option: C-

PACE “host facility” with power sharing

the microgrid generator ▪ The host facility finances

generator using C-PACE, monetizes tax credits, utility incentives, electric and thermal RECs, sales of thermal energy and power.

▪ Facilities interconnected to microgrid craft ‘power sharing’ arrangement with host facility around islanding and

maintaining of critical loads.

10%

40%

Additional Options

Financing Options & Tools:

CHP and AD PILOT PROGRAMS

The CHP Pilot Program, administered by CEFIA, is a three-year $6 million dollar pilot program to provide grants & loans to CHP projects. The Anaerobic Digestion Program, administered by CEFIA, is an

ongoing, $5 million dollar pilot program to provide grants & loans to AD projects.

▪ Focus is on financing; potentially via C-PACE.

Financing Options & Tools: LEAD BY EXAMPLE

Lead by Example is an Energy Savings Performance Contracting program for public facilities in the State of Connecticut.

▪ Implementation of energy savings measures with no upfront capital ▪ The costs of energy savings measures are paid for by future

guaranteed savings from utility budget

Lead By Example provides a clear, streamlined, transparent process as well as legal, procurement, and financial confidence

▪ Designed to mitigate risk for agencies and municipalities:

– payment is contingent on appropriation of funds

– vendor’s energy savings guarantee must be ≥ total project costs

– vendor pays if there is an energy savings shortfall

▪ Pre qualified vendor list, standard contracts, energy technical assistance and financing technical assistance.

– Honeywell, Trane, Schneider Electric, Ameresco, ConEdison Solutions, Johnson Controls, NORESCO, Pepco, Siemens

Municipalities can finance generators using ESPC

CEFIA can provide advice and support on financing options, introductions to capital providers and financial institutions

– Tax‐exempt municipal lease/loan

– Conventional bank financing

– Tax‐exempt municipal bonds (general obligation, revenue)

Financing Options & Tools: CEFIA Microgrid Pilot

CEFIA will be spearheading a Microgrid Pilot Financing Program in

2013 – 2014 for Round 2 participants. Leveraging its existing programs, CEFIA will offer:

▪ Advice and support on financing options & preparing applications for CEFIA financing programs (e.g. C-PACE, CHP, Lead By Example) ▪ Introductions to capital providers and financial institutions

Financing Options & Tools: Net Metering

Virtual Net Metering

▪ A municipal customer identifies a Host Account (behind whose distribution company

meter a Class I renewable resource is installed) and designates up to 5 Beneficial Accounts (which must be accounts of the same municipal customer) to whom Virtual Net Metering credits shall be allocated

– At the Host Account, during a monthly billing period, the total energy produced is netted against the total energy consumed

– Resulting excess kWh produced at Host Account may be used to calculate a credit to offset the generation portion of the bills for the Beneficial Accounts

On-Site Net Metering

▪ Class I renewables with capacity of 2,000 kW or less and Class III renewables with

capacity of 6,500kW or less can benefit from the excess power their onsite facilities produce.

– Net excess generation (the amount produced less the total kWh used onsite) during a monthly billing period is carried over to the following month as a kilowatt-hour (kWh) credit until the end of the billing cycle year (March 31).

Financing Options & Tools:

Renewable Energy Credits

▪ United Illuminating and Connecticut Light and Power conduct yearly auctions for Solar PV (ZREC) and Fuel Cell (LREC) projects for 15-year per MWh incentive payments, essentially a Feed-in-Tariff

– Next round launches April 2014 NEPOOL

▪ Regional market for Class I and Class III RECs. The Northeast Power Pool (NEPOOL) is comprised of CT, ME, MA, NH, RI, and VT.

Financing Options & Tools: Federal Tax Benefits

ITC

▪ The Federal Investment Tax Credit allows offset their taxes by taking a 30% credit of the build expenditures for Solar, Fuel Cells, small Wind and Geothermal and 10% for Microturbines and CHP plants

– Reducing to 10% for projects placed in service after December 31, 2015

MACRS

▪ The Modified Accelerated Cost-Recovery System allows owners of renewable equipment to take accelerated depreciation discounts.

Additional Potential Funding: U.S. DOE Energy

Storage Program

▪ The U.S. DOE Office of Electricity Energy Storage Program supports state-sponsored electricity storage efforts, including energy storage within microgrids under the CT DEEP Microgrids Program. This support can take various forms:

– Technical support (project engineering) – Financial support (project funding)

– Performance support (project monitoring and analysis) To support state-sponsored energy storage deployment, the

DOE/Sandia energy storage program contracts with Clean Energy

States Alliance (CESA). This is accomplished through CESA’s Energy Storage Technology Advancement Partnership (ESTAP).

For more information, contact Todd Olinsky-Paul at