Introducing PACE in Texas

1. Introducing PACE in Texas Austin – San Antonio Chapter January 28, 2014

2. About Me • Cliff Braddock • Business Development Consultant Pepco Energy Services • PACE: Technical Standards Committee • Contact me at: cliffbraddock@sbcglobal.net

3. What I’ll Cover, What You’ll Learn Outline Learning Objectives • Energy and Water in Texas • PACE Defined • PACE Process and Details • Problems PACE Solves • Commercial PACE Elsewhere • PACE in Texas/PACE in a Box • Understand the market for energy and water efficiency retrofits in Texas buildings. • Explain how PACE financing works, and describe its advantages relative to conventional financing. • Know the status of development of PACE programs in Texas. • Know who to contact to participate in PACE development or for more information about PACE.

4. The Main Points • PACE enables more attractive financing (lower rate, longer term, tax advantaged, portable) of energy and water efficiency retrofits • Texas PACE is authorized for existing commercial, industrial, and agricultural properties only, but not yet implemented by any local jurisdiction • Keeping PACE in Texas is developing best practice templates (“PACE in a Box”) to encourage consistent, regional, and open market-based approaches to implementation • We hope to see local jurisdictions in Texas establishing PACE programs later in 2014

5. Water and energy are the two biggest issues facing Texans today… Financing has stood in the way of what most recognize as being the right thing to do in terms of efficiency improvements and conservation PACE addresses both!

6. Energy and Water in Texas

7. Energy in Texas Today • Texas leads the nation in energy consumption, accounting for 12% of the nation’s energy use. • Texas is the fifth largest energy consumer in the world. • Demand for electricity has increased 20% since 2000

8. U.S. v. Texas Energy Consumption Texas U.S.

9. Texas Drought Impact

10. Air Quality Macro-level Air Quality (outdoors) Each PACE project that has an energy generation component (solar, CHP, geothermal, wind, etc..) helps outdoor air quality by directly offsetting energy needing to be generated by traditional (fossil fuels) methods which contribute to air pollution. Micro-level Air Quality (indoors) Each PACE project that involves air sealing (ducts and ‘building envelope’) in buildings helps people’s health as enormous amounts of time are spent indoors breathing ‘conditioned’ air.

11. Projected Texas Population “More than 1,000 people…move to Texas every day.” Gov. Rick Perry, 12/29/2012.

12. PACE Defined

13. PACE Legislation PACE: Property Assessed Clean Energy, SB 385 The PACE statute, SB 385, authorizes municipalities and counties in Texas to work with private sector lenders and property owners to finance qualified improvements using contractual assessments voluntarily imposed on the property by the owner.

14. PACE Defined • PACE is a funding mechanism that enables property owners to obtain low-cost, long-term loans for water conservation, energy-efficiency improvements, and renewable retrofits • PACE projects can be financed through loans provided by private financial institutions or local civic bonds

15. PACE Explained • The term of a loan under a local government’s PACE program may extend up to 20 years, often resulting in utility cost savings that meet or exceed the amount of the assessment payment • Improvements financed through PACE can generate positive cash flow upon completion with no up-front, out-of-pocket cost to the property owner • If the property is sold before the full amount of the PACE loan is repaid, the repayment obligation automatically transfers to the next owner because the lien securing the PACE assessment follows title to the property 

16. Who Qualifies • Commercial Building Owners (and residential > 5 units) • Factories • Private Hospitals • Private Schools • Churches • Apartment Complexes • Agricultural Facilities • Barns

17. Example PACE Projects Energy Upgrades Water Upgrades Water conservation systems Wastewater recovery and reuse systems Systems to capture and use alternate, on-site sources of water (A/C condensate, rainwater, Reverse Osmosis reject water, foundation drain water, etc.) On-site improvements to accommodate the use of municipally reclaimed water Water management systems and controls (indoor and outdoor) Switching from water cooled systems to air or geothermal cooled systems High efficiency irrigation equipment • HVAC upgrades • High efficiency lighting upgrades • High efficiency chillers, boilers, and furnaces • Energy management systems and controls • Distributed generation • Mechanical system modernization • Building enclosure/envelope improvements • High efficiency water heating systems • Combustion and burner upgrades • Fuel switching • Heat recovery and steam traps

18. PACE Process and Details

19. The PACE Process A building owner (office building, store, factory, barn, church, apt. complex, etc.): • Finds a contractor • Selects projects and models the savings • Identifies a lender • Applies to the PACE program If the owner, building, and project all meet PACE requirements: • The owners signs a contract with the PACE program, which places a senior lien on the property • The lender provides funding • The contractor completes the project and initiates analysis and monitoring to substantiate actual savings • The PACE program bills assessments to the owner and forwards the payments to the lender

20. The Fine Print • If there is an existing mortgage, the written consent of the mortgagee is required • Projects must be permanent improvements to existing facilities • Projects must conserve water, increase energy efficiency, and/or add renewables or other onsite power generation • PACE legislation requires an independent review of the projected savings to provide confidence in the project’s utility savings for the building owner, lender and community • A PACE annual assessment is less than the annual water and energy savings of the project • The loan/assessment is spread over the number of years necessary for the annual utility savings to pay for the assessments

21. PACE Solves Problems

22. Barriers to Energy Efficiency Source: Institute for Building Efficiency

23. PACE Offers Solutions PACE Solutions Barriers No down payment and costs spread over time w/ savings Scarce internal capital budget No access to, aversion to financing • Repayment security through senior lien position • Backed by property, not by owner or equipment collateral • No investment-grade credit rating • Lack of collateral assets that don’t fall under first mortgage PACE obligation transfers to the new owner upon sale Uncertain holding period Owner / tenant split incentives Qualifies as NNN pass-thru cost ESCO/contractor can guarantee savings – OR - a third party can insure performance Skepticism savings/ROI will be realized

24. PACE is a Win-Win-Win • Property Owners – lower utility bills, energy independence, energy efficiency, property value increase • ESCOs / Contractors – increased business, more local hiring, best practices, keeping up with technology advancements • Lenders – new loans, steady & stable process, fully collateralized, 1st lien position, improved asset value • State of Texas (all citizens, utilities, ERCOT, etc…) – reduced peak demand, improved grid loading, renewables as source, improved air quality, better water conservation • Environment – lower emissions, lower pollution, improved energy independence, renewables as new generation • Community – air quality, fosters private sector participation with other complimentary programs (ex. Better Buildings Challenge) Conservation drives efficiency, efficiency drives profit.

25. PACE Benefits Counties and Municipalities • Economic Development – TEXAScould get is share of a USA investment opportunity estimated at $280 billion over the next 10 years that would translate nationally to: • Over $1 trillion in energy savings, • over 3 million jobs, and • Over 600 million fewer metric tons of carbon emissions* • Improved Building Infrastructure • Voluntary private sector water and energy conservation • Voluntary private sector support for and progress toward local community goals • Admin costs are rolled into loan and handled without impact to taxpayer dollars • *United States Building Energy Efficiency Retrofits: Market Sizing and Financing Models A 2012 Research Study Collaboration between the Rockefeller Foundation and DB Climate Change Advisors

26. Commercial PACE Elsewhere

27. Commercial PACE programs Source: PACENow.org

28. Commercial PACE projects Source: SF PACE program and PACENow.org Nationally, as of November 2013

29. Commercial PACE projects Source: PACENow.org Nationally, as of November 2013

30. Commercial PACE projects Source: PACENow.org Nationally, as of November 2013

31. Commercial PACE projects Source: PACENow.org Nationally, as of November 2013

32. Commercial PACE projects Source: PACENow.org Nationally, as of November 2013

33. PACE in Texas – Introducing “PACE in a Box”

34. Status of PACE in Texas “PACE in a Box” is a toolkit of recommendations and templates for counties and municipalities to: • Create viable, cost effective, user friendly, scalable, and sustainable PACE programs • Encourage and support local discussions about forming regional or multi-jurisdictional programs

35. PACE In A Box • PACE In A Box is designed to be a comprehensive tool that can efficiently allow for any city, county or region to use it as a ‘blueprint’ for creating a local PACE program. • It is designed to create a standard, yet somewhat flexible, ‘framework’ or structure for bringing multiple Texas PACE programs on-line with a high degree of commonality. Its’ purpose is standardization and efficiency. • The goal is to allow regional PACE programs covering all of Texas to be created swiftly with a basic set of tools and a ‘template’ that builds in a solid level of standardization and commonality.

36. PACE in a Box • Technical Standards • Energy Saving M&V • Water Savings M&V • Third Party Review • Program Underwriting • Owner Qualifications • Building Qualifications • Project Qualifications • Savings to Investment Ratio • Funding Platform • Responsible Loan Making • Attracting Capital • Bonding • Program Design • Templates for Municipal Resolution • Application Process • Collection Process • Overview / Flow Chart • Education and Training • Education to Municipalities • Marketing Campaign to Building Owners, Lenders, and Contractors

37. Timeline

38. Keys to Success • Consistency across state and project types • Scalable – initial launch to hundreds / thousands of loans across Texas • Rural v. Urban – consistency and flexibility • Standardized Technical Methodology - critical • Funding availability in all PACE programs in TX • Smooth Process – streamlined, low-cost • Awareness of PACE financing – promote!

39. What You Can Do • Join the Texas PACE Coalition. Sign up on the “Contact Us” page at www.KeepingPACEinTexas.org • Begin conversations about why PACE and its economic development outcomes are good for your community and your businesses • Begin conversations about the best way to develop / create a regional or multi-county program • Look for potential projects with interested property owners wanting to perform energy upgrade work • Continue bringing interested ‘stakeholders’ into the Texas PACE Coalition / Keeping PACE in TX family

40. The Main Points • PACE enables more attractive financing (lower rate, longer term, tax advantaged, portable) of energy and water efficiency retrofits • Texas PACE is authorized for existing commercial, industrial, and agricultural buildings only, but not yet implemented by any local jurisdiction • Keeping PACE in Texas is developing best practice templates (“PACE in a Box”) to encourage consistent, regional, and open market-based approaches to implementation • We hope to see local jurisdictions in Texas establishing PACE programs later in 2014

41. Resources Texas Resource: KeepingPACEinTEXAS.org National Resource: PACEnow.org • My contact info: • Cliff Braddock • cliffbraddock@sbcglobal.net • 512-263-5525