Green Bank and Green Jobs
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Updated February 12, 2010
Green Bank and Green Jobs
Presentation to NARUC
Todd Filsinger Reed Hundt Ken Berlin
Co-Chairman Co-Chairman General Counsel
Coalition for the Green Bank Coalition for the Green Bank Coalition for the Green Bank
todd.filsinger@paconsulting.com rehundt@yahoo.com Kenneth.berlin@skadden.com
303 884 5948 202 494 4111 202 371 7350
1
How does the Green Bank work with state utilities? -We want a Green Bank (or CEDA as it is called in the Senate) to be part of the next round of the Jobs Bill to be passed in the Senate. We want your help. -The reason we think that a CEDA/Green Bank can help you is that CEDA would be or should be authorized to loan to the efficiency programs and the RES programs that state regulators would authorize. Whatever you would decide, the CEDA/Green Bank’s funds would be there to help your firms— ESCOs or utilities—comply. This could make it easier for your rules to be accepted by industry; it could make it easier for you to pass the rules you might want. -We know that the Federal Government often issues mandates and expects states to comply. The CEDA/Green Bank is a way to help states enforce their own mandates and effect the changes that they choose to make. -State regulators know as much or more about how to effect change in energy markets than anyone on the Hill. Let us help you and work with you to effect that change-where and when you wish.
To put millions to work, we have to finance retrofit and clean
energy generation by a Green Bank and favorable tax treatment
! Making Large Progress Against A Nine Million Jobs Goal Requires
Large Scale Retrofitting of Buildings
– A Large Jobs Goal Requires a Significant Replacement of Carbon –
Intensive Electricity Generation with Clean Alternatives
– Achieving Large Scale Retrofit and Clean Energy Replacement Without
Harming Consumers and With Profitability for Investors Requires Low-
cost Financing As Well As Favorable Tax Treatment
3
Making Large Progress Against A Nine Million Jobs Goal Requires
Large Scale Retrofitting of Buildings
• We are at least nine million jobs short of full employment
• Efficiency: Why have the Green Bank provide for energy efficiency projects?
• The Green Bank should create incentives for willing utilities to pay for
retrofits…without harming consumers
• The Green Bank alternatively could create incentives to cause Energy Service
Companies (ESCOs) to pay for retrofits at no up-front cost to the homeowners
• Why are we here?
• The Green Bank would use existing programs for guidance as well as for
immediate dispersal of funds
• Almost all retrofit programs to date have been small scale
4
The gap between actual and full employment is at least 9 million
jobs
" Sector August 2008 employment (in 000s) August 2009 employment (in 000s)
" Total Private 114,497 108, 736
" Mining 787 707
" Construction 7,177 6,093
" Manufacturing 13,387 11, 771
http://blogsandwikis.bentley.edu/themoneyillusion/?p=2473
5
Efficiency: Why have the Green Bank provide for energy efficiency
projects?
• One of the biggest barriers to comprehensive residential retrofits is the up-front cost
to homeowners.
• The adoption of a federally financed loan program with short timelines for loan
disbursement will create jobs in the near term because it will give contractors and
ESCOs the confidence they need to start hiring and training workers in preparation
for a greatly expanded retrofit market and to manufacturers to increase production
capacity for efficiency products.
• A robust loan program is a unique opportunity to create jobs, put more money in the
hands of consumers through reduced electricity bills while increasing their comfort,
and increase the value of existing residential properties.
• Last year, according to the Department of Energy, only 20,000 homes¹ were
comprehensively retrofitted in the United States, out of 76 million residential buildings.
¹Department of Energy: Building America DE-FOA-0000099 6
The Green Bank should create incentives for willing utilities to pay
for retrofits….without harming consumers
Green Bank
6. After the loan is repaid, the consumer sees the full
benefit of the efficiency measures, the utility has saved
1. The Green Bank money and created local jobs, and the taxpayer has
loans 125% of the cost been repaid in full.
of an energy efficiency
project to a utility at a
low rate.
5. The utility uses the extra 25% financing to
Utility/Co-op make their operations and facilities more
2. The utility disperses the
funds to install energy efficient.
efficiency measures in
homes and small 4. Through on-bill financing, a
businesses, creating jobs portion of the savings shows up on
in the local community. the consumer’s bill, and the rest is
transferred to the utility, which uses
the money to repay the initial loan
Residential property/ Small business from the Green Bank over an
extended tenor. (For example, if
there is a savings of $100/month,
the consumer receives a $25
discount on the bill and the utility
Energy Bill charges $75 for electricity that is
not being provided in order to re-
3. The owner of the residence/small pay the loan). The utility will also
business pays no up-front cost to have their have the right to place a lien on the
building retrofitted, and sees a reduced property in order to obtain
energy bill. payment. 7
The Green Bank alternatively could create incentives to cause
Energy Service Companies (ESCOs) to pay for retrofits at no up-
front cost to the homeowners
Green Bank 5. After the loan is repaid, the consumer sees the full
benefit of the efficiency measures, the ESCO has
1. The Green Bank created local jobs and the taxpayer has been repaid in
loans the cost of an full.
energy efficiency
project to an ESCO at
a low rate of interest.
Energy Service Company (ESCO)
2. The ESCO disperses 4. The ESCO then negotiates with
the funds to install energy the utility for the utility to obtain
efficiency measures in online payment of the bill through
homes and small on-bill financing, and transfer funds
businesses, creating jobs to the ESCO, or the ESCO agrees
in the local community. with the consumer that the ESCO
will receive direct payment from the
consumer. (For example, if there is
Residential property/ Small business a savings of $100/month, the
consumer receives a $25 discount
on the bill and utility charges $75
for electricity that is not being
provided to re-pay the loan). The
Energy Bill
ESCO will also have the right to
3. The owner of the residence/small place a lien on the property in order
business pays no up-front cost to have their to obtain payment.
building retrofitted, and sees a reduced
energy bill.
8Why are we here? -We are looking for your (NARUC's) feedback on whether or not we have constructed our proposal correctly -We are proposing that a Green Bank be chartered to finance clean energy generation and energy efficiency projects -We are here today to discuss the method with which the Green Bank would execute financing energy efficiency projects in homes and small and large businesses on a massive scale across the country -The Green Bank would lend to utilities, energy service companies (ESCOs), and other pre-existing mechanisms on a state level (PACE programs, etc) at a very low rate (25-100 basis points over Treasury rates). -The Green Bank would loan 125% of the total cost of the project to the service provider; the utility could use the extra money loaned at a low-rate to improve the efficiency of their own operations, therefore saving money for themselves - The Green Bank would lend 100% of the cost of the retrofit and repayment would be limited to the amount of energy efficiency savings. We would work with utilities to develop protocols to measure the energy efficiency savings and and to develop very clear disclosure language to explain the savings to ratepayers - For example, if a retrofit produced a monthly savings of $100 in energy savings to an occupant, the occupant bill would be reduced by let's say $15 -$25, but the bill would not be reduced by the remaining savings and the remaining $75 - $85 would be used to repay the Green Bank loan and, where permitted, to cover the utilities monitoring and verification costs. When the loan was repaid, the occupant would realize the full $`00 benefit of the savings brought by the retrofit - The loan could be secured by a lien with the same type of restrictions as in PACE liens (but the lien would not be a tax equity lien as in PACE) - In states with decoupling, no lien would be necessary -Ideally , the money would be repaid to the Green Bank through on-bill financing. As described above the consumer would see a decrease in his rates immediately after the retrofit is completed.
The Green Bank would use existing programs for guidance as well
as for immediate dispersal of funds
• The program which the Green Bank is proposing is very similar in structure to PACE (Property
Assessed Clean Energy) retrofit finance proposals.
• PACE programs provide 100% long term financing for retrofits financed by municipal bonds and
secured by liens (tax liens in the case of PACE).
• The PACE program places tax liens on property to ensure that the long term loans allowed by the
program are repaid. In 2008, the program was authorized in only 2 states. 14 more states
authorized the program in 2009 and many more are expected to follow this year.
• In many ways the Green Bank program is identical to the PACE program, but the Green Bank
program has significant advantages. The PACE programs will be implemented locally by creating
special local municipal taxing districts which will issue local bonds so it looks like it will take a very
long time to set up and fund these programs and they thus won't be implemented in a systematic
way. The Green Bank program could be implemented much more efficiently and with much more
flexibility. For example, where PACE programs are in place, the Green Bank could help fund
those programs.
• Utility retrofit programs are also critical to bringing energy efficiency programs to scale.
• The Green Bank proposal would fund and strengthen many different types of retrofit programs,
including PACE programs and utility retrofit programs, and by providing 100% of the funding
needed by utilities to implement these programs, will enable implementation without raising utility
rates.
• In states where efficiency is not easily done through utilities, we would implement the program
through ESCOs, state programs, etc. so we will be able to implement the program in all 50 states.
10Almost all retrofit programs to date have been small scale
• Of 76 million residential buildings, according to the Department of Energy only 20,000
buildings were retrofit in 2008
• Most of these programs have failed because of resistance by homeowners and small
business owners to making up front payments that are not recovered for several
years.
• Programs that do not address this issue are likely to fail with implementation limited
mostly to high income, immobile homeowners.
• Programs that address this issue by providing 100% financing for retrofit projects like
the PACE programs and the Green Bank retrofit program will be able to be brought to
scale quickly
• The Green Bank program would supplement and make the Home Star program far
more effective.
11
Source: Building America DE-FOA-0000099To put millions to work, we have to finance retrofit and clean
energy generation by a Green Bank and favorable tax treatment
– Making Large Progress Against A Nine Million Jobs Goal Requires
Large Scale Retrofitting of Buildings
! A Large Jobs Goal Requires a Significant Replacement of Carbon –
Intensive Electricity Generation with Clean Alternatives
– Achieving Large Scale Retrofit and Clean Energy Replacement Without
Harming Consumers and With Profitability for Investors Requires Low-
cost Financing As Well As Favorable Tax Treatment
12A Large Jobs Goal Requires a Significant Replacement of Carbon
Intensive Electricity Generation with Clean Alternatives
• The existing structure and function of the energy sector does not produce
significant new investment and thus does not lead to new job creation
• To put millions to work in the energy sector, we must aim to…
• The requisite investment can be driven by a renewable standard
• Wind, sun, biomass and natural gas are the most immediate alternatives for job
creation in next three years
13The existing structure and function of the energy sector does not
produce significant new investment and thus does not lead to new
job creation
• Hard truths:
– Electricity demand will rise slightly in only a few state in next few years, and will stay flat or
fall in most
• Therefore new clean energy generation and transmission will find new demand only in a
limited area
• Any truly large scale clean energy generation/transmission must depend on replacing
existing carbon-intensive energy sources by means of some governmental intervention
– Efficiency gains reduce electricity demand if successful or fail because of agency problems
• Therefore sellers (merchants and utilities) need incentives to support efficiency
measures that offset reduced demand, such as PACE programs
– Electricity consumers do not distinguish between clean and carbon-intensive electricity and
prefer the lower priced version of these identical electromagnetic waves
– Even under Waxman-Markey, regulation does not cause the price of carbon-intensive
electricity to rise significantly until 2020 or beyond
– Few if any innovation-driven cost reductions in clean energy generation/transmission will
reduce the sector-specific (not including externalities such as pollution) economic cost of
clean electricity below the similar cost of carbon-intensive electricity until 2012-2020.
14To put millions to work in the energy sector, we must aim to:
•Replace carbon-intensive electricity with clean electricity
This is where we get electricity from now, and we need 20 GW of clean
electricity generation every year for 20 years in order to transition “from
carbon to clean”
http://www.eia.doe.gov/cneaf/electricity/epm/epm_sum.html 15
Current as of July 2009The requisite investment can be driven by a renewable standard
• We estimate that natural demand requires 10-20 GW of new capacity by 2015, and 60-70 GW by
20201.
• Current state RES call for approximately 25 GW of renewable capacity are needed by 2015 and
64 GW by 20201,2. Temporary low cost financing will accelerate and assure compliance. Capital
costs from compliance would probably be $60 - 100B by 2015 and $150-250B by 2020.
• A national 20% RES with annual required steps could approximately double these estimates, and
create more than an incremental one million jobs over the next three years. With low cost
financing of retrofits and generation, compliance can be obtained and also electricity prices need
not rise.
• Utilities and regulators in different states should have flexibility in choosing among efficiency
measures and types of generation.
• Also, the renewable premium is the price
of energy independence and a hedge
against dollar devaluation relative to hard
assets (oil).
1Source: PA Consulting
2 RES is usually a generation (MWh) target. GW estimates are based on assumptions regarding types of generation built 16Four major clean energy industries (in addition to efficiency measures)
offer the most immediate job creation potential in the US…nuclear and
other advanced technologies would follow in 2012-22
Wind Solar
The Four Horsemen of Clean Energy
Natural
Gas Biomass 17To put millions to work, we have to finance retrofit and clean
energy generation by a Green Bank and favorable tax treatment
– Making Large Progress Against A Nine Million Jobs Goal Requires
Large Scale Retrofitting of Buildings
– A Large Jobs Goal Requires a Significant Replacement of Carbon –
Intensive Electricity Generation with Clean Alternatives
! Achieving Large Scale Retrofit and Clean Energy Replacement Without
Harming Consumers and With Profitability for Investors Requires Low-
cost Financing As Well As Favorable Tax Treatment
18Achieving Large Scale Retrofit and Clean Energy Replacement
Without Harming Consumers and With Profitability for Investors
Requires Low-cost Financing As Well As Favorable Tax Treatment
• With low-cost financing, the wholesale price of electricity can be maintained
at 5-8 c/KWh in the US, whereas current market conditions produce
wholesale electricity at a non competitive level of 11 c/KWh
• Solar projects see a 60% drop in required price due to low-cost financing
• Any debt financing has to vary state by state as prices vary radically state
by states
• If job creation is the target, the size of the job creation effort varies
significantly state by state
• The formula of job creation is simple and daunting
• We need both energy efficiency and clean electricity generation in order to
create the most jobs immediately, sustain those jobs in the long term, and to
produce our own energy
• The Coalition for the Green Bank is a group of businesses that support the
creation of a Green Bank
19With low-cost financing, the wholesale price of electricity can be maintained at
5-8 c/KWh in the US, whereas current market conditions produce wholesale
electricity at a non-competitive level of 11 c/KWh
Assumptions: Case 2. High CapEx Green Bank Case 5. 2009 Bank Financing
Capital Expenditures - $2,750/KW - $2,750/KW
Tenor - 20 Years - 10 Years
Wind Case / Coverage - P90 Wind @ 1.0x Coverage - P99 Wind @ 1.0x Coverage
Prepared by a private
Revenue Assumptions 1. $0.072 / KWh PPA @ P90, 1. $0.112 / KWh PPA @ P90, equity firm based on data
3.5% escalator 3.5% escalator from a major independent
wind company
2. $0.072 / KWh Merchant @ P50 - P90, 2. $0.112 / KWh Merchant @ P50 - P90,
1.0% escalator 1.0% escalator
Balance @ Maturity - Balance repaid in full - Balance repaid in full Notes:
-Assumes that all EBITDA from
Interest Rate - 4.5%; 30yr Treasury + 25bps - 8.5%; 30yr Treasury + 425bps the project is financeable
Amortization Schedule - No paydown year 1-9; then - Full Cash Sweep -All cases except case 5 assume
20% project cost net of
increasing over time all tax benefits is paid in
IRR to Equity Holder - 15.5% - 15.2% equity
-CAPEX costs do not include
Debt to Equity Ratio - 4:1 - 3:2 transmission
1. Monetizable tax
$2,750/KW Estimated CapEx $2,750/KW Estimated CapEx attributed (such as the
Interest % of Total Interest % of Total 1603 cash grant or a
refundable ITC) does not
Debt Security Amount Rate Costs Amount Rate Costs include MACRS
Project Costs $165.0 $165.0 2. Model assumes
monetizable tax
attributes can be
(1)(2)(3) monetized in year 1 of
Monetizable Tax Attributes 44.6 27.0% 44.6 27.0%
loan, without cost
3. MACRS is assumed to
Bank Debt / Green Bank: be utilized in the form of
NOLS that are carried
Bank Debt 72.0 8.5% 43.6% forward
Green Bank 96.4 4.5% 58.4% 72.0 8.5% 43.6% 4. The IRR to equity holder
is higher than the ~15%
due to the non-
financeable revenue
Total Debt $96.4 4.5% 58.4% $72.0 8.5% 43.6% streams
Monetizable Tax Attributes $44.6 27.0% $44.6 27.0%
Total Equity $24.1 14.6% $48.5 29.4% 20Solar projects see a 60% drop in required price due to low-cost financing With Green Bank Financing: -CAPEX reduction a result of Green Capital Expenditures: $2,400/kW Bank providing tax credits to Tenor: 20 years manufactures Min. Coverage Ratio: 1.1 PPA price: $0.08/kWh for 20 years escalated at 3.5% -Cost of tax credit can be recouped Balance @ maturity: Balance repaid in full through interest on loan to project Interest Rate: 4.85% Amortization Schedule: Mortgage -Longer maturities and lower IRR: 15% coverage ratios will increase project Debt to Equity: 4:1 viability Without Green Bank Financing: Capital Expenditures: $4,000/kW Tenor: 10 year Min. Coverage Ratio: 1.2 PPA price: $0.20/kWh for 20 years escalated at 3.5% Balance @ maturity: Balance repaid in full Interest Rate: 7.25% Amortization Schedule: Mortgage IRR: 15% Debt to Equity: 1:1 Prepared by a major solar project developer
Any debt financing has to vary state by state as prices vary radically
state by states
State by state electricity prices
WA NH
MT ND VT ME
OR MN
ID WI MA
SD NY
WY MI RI
IA PA CT
NE NJ
NV OH
IL IN DE
UT CO WV VA MD
CA
KS MO KY DC
NC
TN
OK
AZ NM AR SC
MS AL GA
Below 8 cents/kWh
TX LA
Between 8 - 9
cents/kWh
FL
AK Between 9 – 10
cents/kWh
HI Between 10 – 11
cents/kWh
Above 11 cents/kWh
Source: EIA. Retail rate represents all sectors (Residential, Commercial, Industrial and Transportation) Current as of 2007
22…And if job creation is the target, the size of the job creation effort varies
significantly state by state
WA NH
VT ME
MT ND
OR MN
ID MA
SD WI NY
WY MI RI
PA CT
NE IA NJ
NV IN OH DE
UT IL
CO WV MD
CA KS VA
MO KY DC
NC
OK TN
AZ
NM AR SC
MS AL GA
Unemployment Rate
TX LA
10.1% HI
23
Source: Bureau of Labor Statistics: http://www.bls.gov/web/laumstrk.htmThe formula of job creation is simple and daunting
• E dollars of investment in efficiency measures or G dollars in generation replacement
equals J new jobs: E plus G = J.
• If J should be 50,000/month, then E + G must be $5 billion per month.
• E can be no greater than the sum of approximately $2k/household and small
business, or approximately $200 billion for approximately 100 million
households/small businesses.
• G can be no greater than approximately $400 billion, the cost of replacing about one
half of all base load carbon-intensive generation capability, or about 200 gigawatts.
• If E plus G equals $600 billion, then J would be six million jobs. To obtain one million
jobs from efficiency and generation in the next few years will require $100 billion of
private investment. To reach this target would require, then, about 20 million building
retrofits (20m x 2k = $40b) and about 30 gigawatts of clean energy.
• An RES, financed so as to use incentives to obtain compliance, would incentivize
utilities to choose between retrofits and generation substitution to achieve this target.
24We need both energy efficiency and clean electricity generation in
order to create the most jobs immediately, sustain those jobs in the
long term, and to produce our own energy
Utilities Homes and
Small
The utility makes loans to invest in energy Businesses
efficiency in homes and small businesses
in Youngstown, OH
Local manufacturers
Clean Energy Generation will produce parts to be
CEDA will used for retrofitting
provide low homes and small
cost, long The utility will invest in businesses
term financing creating new clean
so the utility energy generating
can invest in sources
energy
efficiency and Locally manufactured
develop new products will be purchased by
resources for clean energy generators
clean energy
CEDA Local manufacturers will obtain low cost loans or loan
guarantees from CEDA, and will be granted funds to 25
purchase or convert to new machinery which will produce
Local Manufacturers
clean energy products.The Coalition for the Green Bank is a group of businesses that
support the creation of a CEDA/Green Bank
A2 Energy Ventures (Mark Bold) Encomia, LP (William J. Eckert) New Cycle Capital (Josh Becker)
Abaris Realty, Inc. (Adam Landsman, Steve Envision Solar International, Inc. (Robert Noble) Nixon Peabody LLP (Rich Cogen)
Landsman) Equilibrium Capital Group (Dave Chen) Pario Capital (Guy Piazza)
AES Corporation First Security Leasing, Inc. (Bryan Ryscavage) Passport Capital (Ravi Anaparti)
AES Solar Energy Ltd. (Robert Hemphill) Free Flow Power Corporation (Daniel Lissner) Patton Boggs (Joshua Greene)
Alston & Bird (Bob Jones, Tom Amis) Gas Turbines International, LLC (Larry Rayman) Peregrine Energy Group, Inc. (Francis Cummings)
AMB International Finance, LLC (John E. GE Energy Financial Service (Steve Taub) Pillsbury Winthrop Shaw Pittman LLP (J. Todd Culwell)
Mullen, Raymond J. Albright) Global Energy, Inc (Harry Graves) PowerPlay Solar (Trevor Ugolyn, Jay Gromek)
American Council on Renewable Energy Global Environmental Outreach & GeoConsult (Gregory Principle Power (Jon Bonanno)
(ACORE) (Michael Eckhart) O'Reilly) PSE&G (Ralph LaRossa)
Amperage Advisory Partners, LLC (Thomas R. Good Energies Inc. (Greg Kats) Ra Power Solutions (Richard P. Benoit)
Rosen) Green Harvest Technology (Dan Carol) RecycleBank (Preston Read)
AMSOLAR Corporation (Joshua Weinstein) Green Partners (George Parker) Renewable Choice Energy (Justin Segall)
Applied Materials (William G. Morin) GreenAtom LLC (Todd Greenhalgh) Renewable Funding LLC (Cisco DeVries)
Boyd Strategies (Steve Boyd) Greencore Capital (Gilbert Barnes) Renewable Ventures (Karin Berardo, Peter Conklin)
Brown Rudnick LLP (Alan N. Forman) GreenWorld Capital, LLC (David W. Elkin, Michael J. Riverstone Holdings (Michael Hoffman)
California Clean Energy Fund (Dan Adler) Howe) Schwartz Communications (Jason E. Morris)
Carbon War Room (Ann Davlin) Helix Electric, Inc (Ken Emma) Serious Materials, CalStar, ZETA (Marc Porat)
Cavallo/Cross Hudson (Harold Borden) Higher Power Energy, LLC (Mark Patkunas) Sherman & Sterling LLP (Patricia G. Hammes)
Chadhourne & Parke LLP (Kenneth W. International WoodFuels (Steven Mueller) Solar Power Partners, Inc. (Genevieve Nowicki, Phil Henson)
Hansen) Kanepi Innovations (Larry Leete) Solarsa, Inc. (Gregory Hilty, Scott E. Jorgensen)
Chinook Energy, LLC (William Gleason) Konarka Technologies, Inc. (Howard R. Berke) Strategic Energy Advisors, Inc. (Jeanine Hull)
City of Portland (Michael Armstrong) Lane Powell (Karen Williams) Structured Finance International (Jeremiah White)
Clark Energy Group (Bryon Krug) KRM Energy Advisors LLC (Ken Marks) Suntech America (K. Scott Son)
Clean Economy Network (Jeffrey King) Latham and Watkins LLP (Mike Gergen) Sustainable Spaces (Matt Golden)
Coastal Securities (Scott W. Stafford) Lennar Ventures (David Goodfriend) Tessera Solar (Kevin Scannell)
Commonwealth of Kentucky (Paul Kaplan) MAPA Group (Michael Peck) The Roda Group (Dan Miller)
Continental Capital/GCMG (Nalin Meegama) Meridian Circle Advisors LLC (Bryan Green) Tioga Energy (Kristian Hanelt)
CURRENT Group, LLC (Tom Casey) Mesa Power Group, LLC (Monty Humble) Training, Resources and Consulting, Inc. (Kevin Douglas
Diversified Bio-Energy LLC (Marina I. Mesirow Financial Consulting, LLC (John Oates) Moran)
Mercado) Metrus Energy, Inc. (Bob Hinkle) US Mainstream Renewable Power Inc. (Bruce Thompson)
Eagle View Capital Strategies (Andrew Kreig) Mohave Sun Power LLC (Mitchell Dong, Robert Marsh) Wellford Energy Advisors (Harrison Wellford)
EKO Asset Management Partners (Jason National Cooperative Bank (NCB) (Andrew Kho, Romie Williams Mullen (D. Cameron Prell)
Scott) Basra) Wilson Sonsini Goodrich & Rosati (Robert O'Connor)
26Appendix
• By using low cost financing, we will be imitating and competing with China
• China uses low cost long term financing to lower the delivered price of wind electricity
• RES is needed to drive demand for retrofits and clean energy, because only in a few western states is there
natural new demand prior to 2015 and beyond
• Large new capital expenditure in energy is feasible
• By investing in efficiency and RES compliance over the next three years, we can increase emissions abatements
while waiting for the effects of caps in the 2020s
• A national RES with low cost financing will produce more jobs if regulatory flexibility is assured
• Financing Wind Power
• The Coalition believes that low cost long-term financing will help developers and utilities strike PPAs at consumer-
friendly prices
• On one day in October 2009, wind power provided 35 percent of electricity in Texas at 5.5 c/kwh wholesale
• As it happens, unemployment, low electricity prices and carbon intensity tend to concentrate in the same states
• Even CBO’s optimistic unemployment predictions suggest the need for large scale action
• Each type of project, state by state, will create different levels of jobs
• Response to anticipated criticism of PACE program
27By using low cost financing, we will be imitating and competing with
China
# PEs
Equity Capital
Equity
# Public market investors
investors
# Strategic investors
Policy banks/ # ADB
Intl. funds
# IFC
# European Investment Bank (EIB)
# World Environment Facility
Commercial
# AFD
banks
# Industrial Bank
Debt
# ICBC
Asset/ project # CCB
Corporate
# Government deregulation made significant
bonds
issuance possible by listed companies with
# Infrastructure attractive rates (e.g., 5 year bonds at 3.7% vs.
~6.2% lending rates)
# Energy efficiency
Local treasury
# Waste treatment/ recycle
bonds # Mainly for infrastructure projects
# Renewable energies (e.g.
biofuels, wind, solar, and nuclear) # Several local government approved to issue,
e.g. Xinjiang, Anhui and Sichuan
# Reduced CO2 tonnage can be traded to
Carbon credit developed countries 28
Source: McKinsey and Co. Additional earningsChina uses low cost long term financing to lower the delivered
price of wind electricity
______________________________________________________________ 11.4 c/kWh
US Avg residential price in c/kWh
5.1c/kWh
RMB=Chinese Currency Unit 29
US stats: EIA
Source: American Association for the Advancement of ScienceRES is needed to drive demand for retrofits and clean energy,
because only in a few western states is there natural new demand
prior to 2015 and beyond
21%
16%
35%
31%
21%
15% 15% 2009 2021-
2023
8% NEPOOL
25%
2009 2017- 2009 2014- 17%
2009 2021- 2019 2016
2023 21%
MRO MISO 15%
Northwest 13% 14%
2009 2012-
28% 2014
31%
18% 15% 2009 2013- PJM 2009 2020-
2015 15% 2022
14%
CO-WY 20% New York
15%
18% 48%
2009 2012- 14% 2009 2018-
2014 2009 2017- 2020
2019
California TVA 2009 2013-
2009 2012- SPP 2015
2014 15%
25% VACAR
AZ-NM-NV 19%
13% 15%
2009 2019- 35%
2021
19%
2009 2015-
2017 Entergy 2009 2014-
2016
ERCOT
Southern
2014-
2009
Reserve Margin (%)= (Supply-Demand/Demand) 2016
FRCC
2009 Reserve Margin
Equilibrium: Period when new capacity is needed to
meet target reserve margins required for reliability Source: PA Consulting Group
Represents regional level and does not account for certain locational issues
where generation may be needed sooner or later than what is presented
30Large new capital expenditure in energy is feasible: Private
investment in communications sector averaged approximately
$70 billion a year 1997-2007
• Congressional communications regulatory strategies in $ Revenue for the US communications
the 1990s spurred more than $850 Billion in private industries in 2008 was roughly $500b
sector investment over 10 years, with no federal
appropriations $ Revenue for the US electricity industry in 2008 was $365b¹
• As of October 2009, the telecommunications industry
employed 977,000 American workers according to the
Bureau of Labor Statistics
$000s, 1997-2007
14,612
18,359 16,065
10,624
25,961
10,722
5,611 14,532
6,810 11,368 13,233
14,485 9,509
13,484 10,243 9,043
Cable 95,126 22,880
26,436 25,977 25,272
73,569 71,776 19,916 22,482
Wireless
48,447
43,285
Wireline 34,594 29,363 28,188
26,260 24,588 26,619
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
* 2007
*
* * * * * *
Source: CIBC; SG Cowen; Kagan; CTIA 31 3
¹ Source: EIA
1By investing in efficiency and RES compliance over the next three
years, we can increase emissions abatements while waiting for the
effects of caps in the 2020s
Cumulative Emissions Reductions (2012+)
5,000
4,500
4,000
3,500
MM Short Tons
3,000
2,500
2,000
1,500
1,000
500
0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Prorata Reduction in Emissions Req'd to Meet WM Cap
Source: PA Consulting Group
Assumes electricity sector is responsible for a pro rata portion of target based on electricity sector
emissions as a percent of total emissions for Waxman Markey emission reductions. 32A national RES with low cost financing will produce more jobs if
regulatory flexibility is assured
• Credit ratings need to be bought by the Green Bank so as to facilitate small
projects, especially small retrofits.
• Credit subsidy costs need to be financed as part of the loans/guarantees
from the Green Bank
• A loan/guarantee should not extend the existing reach of NEPA
• A Green Bank should be temporary, targeted, limited in funding, and not
governed by OPM or APA
• Another major issue is long term power purchasing agreements, and that is
something that a loan guarantee can help with
• The utility will give a PPA if there is an RES and if the price of the electricity
can be lowered by Green Bank guarantee
• A Green Bank should be able to make equity contributions to municipal and
rural coops that are debt financed by the Department of Agriculture
33Financing Wind Power
Year Tax Equity ($m) Project Finance
($m)
2007 $4,022 $2,141
2008 $4,217 $2,491
2009 $1,651 $5,781 *
•Tax equity market has contracted 60% from peak
•Substitution effect in favor of project finance lending
•Lower tail risk to lenders due to structure of Treasury
cash grant program (compared to PTC structure pre-
2009) has sustained wind power development
•Combined effect of cash grant program and low-cost
financing through Green Bank can lead again double
financing of wind power, which otherwise will shrink in
2010.
* Includes $2b capital raise by single large developer 34The Coalition believes that low cost long-term financing will help
developers and utilities strike PPAs at consumer-friendly prices
• The all in costs of projects in 2009 ranged from a low of $2 million per MW to a high
of around $2.5 million/MW depending on location. This has obviously been jumping
up over the years as they were down in $1.5 million/$1.7 million back in the 2007 time
frame. Note that we are seeing this number trend lower today as people pick up
secondary market turbines and rework deals with the manufacturers.
• Long term debt is generally sized based on a 1:1 coverage in the P-99 production
scenario (which generally equates to a 1.4 - 1.5 times coverage in the P-50) and
given the current tenor limitations this results in leverage of about 40 - 55% of total
cost. As tenors extend from the currently 10 -12 years out to 15-16 years, depending
on the length of the PPA, this % will increase.
• The biggest issue today in the market both from the developer side and from a
financing side is the ability for projects to get long term PPAs at a price that make the
project economic and financeable.
Source: JP Morgan
35On one day in October 2009, wind power provided 35 percent of
electricity in Texas at 5.5 c/kwh wholesale
Blown Away: Wind Power Keeps Growing in Texas
Can the U.S. produce 20% of its electricity from wind? The U.S. Department of Energy thinks it
can get there by 2030.
Could even this be powered by the wind? That doesn’t sound so far fetched anymore. A couple
weeks ago – October 28th to be exact – wind turbines provided about 25% of Texas’ power
consumption. (See the second page of the Texas electric authority ERCOT CEO’s update here.)
Of course, that could have been in the middle of the night when the good people of Flatonia,
Amarillo and Gun Barrel City – not to mention Houston and Dallas – were asleep. (Update: It was
in the middle of the night. Three a.m. to be exact.) Spain topped out at 53% of grid electricity from
the wind earlier this month, but that occurred at about 5 a.m. while most Spaniards were asleep.
But back in Texas, a little before 8:30 p.m. on Wednesday October 28th, the Lone Star State got
about 6,223 megawatts from the wind. That’s a record. At the time, the total load was about
35,000 megawatts. That’s 17.8% of its power from the wind. (That’s not sleepy-time power usage.
Texas power consumption peaked in October at 49,100 megawatts.)
What does this mean for Texans electric bills? They could be headed down. A recent report finds
that wind power is replacing more expensive forms of power generation.
• On Oct. 28th at 3 am, Texas received 25% of its power from wind generation.
• Also on Oct. 28th at 8:30 pm (still in peak load), Texas maxed out wind generation at 6,223 MW,
or 17.8%, of total load.
•http://blogs.wsj.com/environmentalcapital/2009/11/17/blown-away-wind-power-keeps-growing-in-texas/tab/article/
36As it happens, unemployment, low electricity prices and carbon
intensity tend to concentrate in the same states
CO2 Emissions / MWh by State
Electricity Generation Sector
NH: .35 ME
.15 MA
.76 1.09 VT: .00 RI: .44
.74 CT: .33
.18
.06 .87 NJ: .35
.55 .42
.69 MD: .68
1.05
.89 .63 DC: 1.12
.75
.72 .93 DE: .87
.53 1.04
1.04
.91 1.00
.23 .89 .95 .58
1.04
.63
.62
.55 .79
1.01 .58 .43
.61 .65 .69
.51
.64
.54
.64
Short Tons of CO2
.79 Emissions per MWh
>.8
.6 - .8
.4 - .6
0 - .4 37Even CBO’s optimistic unemployment predictions suggest the
need for large scale action….and the relative insignificance of
adding less than $100b in debt guarantees to the national balance
sheet over the next three years
38Each type of project, state by state, will create different levels of jobs
# Sub-utility scale projects (100kW-2MW): # A variety of jobs are created by
! Create jobs at the local and regional level renewable projects, including:
! Have less permitting risk and therefore start ! Electricians, carpenters, roofers, civil
construction sooner, with immediate job engineers, welders, software engineers,
creation truck drivers, construction managers
Direct and indirect jobs created per $1M in output
18
16
14
12
10 Green
industries
8
6
4
2
0
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Source: PERI, “The Economic Benefits of Investing in Clean Energy”, June 2009; Bureau of Labor Statistics
Employment Requirements Matrix 39Response to anticipated criticism of PACE program
• Appendix 1: Anticipation of PACE Criticisms
– “PACE increases risk to GSE’s due to senior status of PACE liens.”
• Response:
– PACE lien seniority in foreclosure represents less than 1% of home value/GSE mortgage
value
– PACE “Best Practices” should require states to have “no due upon sale” clauses for PACE
liens. Essentially, the PACE lien does not accelerate upon foreclosure.
– “PACE” increases risk to borrower’s/GSE’s due to increased leverage”
• Response:
– PACE liens should be either positive net present value or cash flow positive in year 1
• If they are cash flow positive in year 1, this frees up homeowner cash flow to make
mortgage payments and reduces risk of default
• If they have positive net present value, then this should result in increase in the value of
the collateral
– “PACE programs run the risk of consumer fraud”
• Response:
• Best practice and quality assurance programs are being developed in conjunction with
municipality feedback (see best practice handouts) to help ensure the integrity of PACE
programs
Source: http://pacenow.org/documents/Basic_Slide_Intro_to_PACE.pdf 40Response to anticipated criticism of PACE program
• Appendix 2: Analysis of PACE Tax Lien Seniority to Existing Mortgage
• Conclusion: The amount of seniority to the existing mortgage created by a PACE lien
will typically represent less than 1% of home value
– •This is because in most PACE states, upon foreclosure, only the delinquent tax
lien gets paid (not the whole PACE loan) while the homeowner assumes the
remaining balance
• Assumptions:
– Home Value$300,000
– Mortgage250,000
– PACE Lien15,000(5% of home value)
– Annual PACE 1,392(7% rate, 20 year amortization)
• Property Surcharge
– Average Period Between Less than 12 months
• Delinquency and Foreclosure
• Assume 1 year PACE surcharge is delinquent and paid ahead of the
mortgage:
» Senior Payment:$1,392
» % of Home Value:.5%
» % of Existing Mortgage:.6%
Source: http://pacenow.org/documents/Basic_Slide_Intro_to_PACE.pdf
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