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Clean/Green:
Show me the Money!
Economic Backdrop: Is the World Recovering?
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IMF’s “World Economic Outlook” forecasts
4.2% global growth vs -.6% in 2009
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China to grow at 10%
India to grow at 8.8%
U.S. growth at 3.1% implies continued
unemployment rate of 10% or more
Europe and Japan are lagging
Economists still worry about double dip
recession
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PIGS credit crisis still threatens global
economy
Sovereign risk could prolong the credit crisis
State and local government contraction will fuel
further run up in U.S. unemployment
Is U.S. Economy Strengthening?
Real GDP Growth (% change, Quarter-on-Quarter)
Unemployment Rate
8.0
12.0
6.0
10.0
4.0
8.0
2.0
6.0
0.0
-2.0
2004
2005
2006
2007
2008
2009
2010
4.0
-4.0
2.0
-6.0
0.0
2004
-8.0
2005
2006
2007
Inflation (% change, Month-on-Month)
1.50%
1.00%
0.50%
0.00%
-0.50%
-1.00%
-1.50%
-2.00%
-2.50%
2004
2005
2006
2007
2008
2009
2010
2008
2009
2010
What’s Happening with State Finances?
Are States as Bad Off as it Seems?
State Budget Deficits vs. Total Budgets
$14
70%
$12.8
$12.3
59.8%
$12
60%
$10.0
$10
50%
$8.2
$8
40%
34.3%
34.0%
26.7%
$6
$4.7
26.4%
$4.7
$4.4
23.2%
$4.1
$4.0
26.7%
24.6%
$4.0
$4
$3.4
21.0%
24.1%
$3.2
$2.7
18.1%
$2.6
13.3% 14.5%
$2.1
15.4%
14.8%
$2
30%
12.5%
11.8%
$2.0
9.7%
$2.0
$1.8
$1.8
NV
CO
20%
10%
8.8%
$0
0%
IL
CA
NJ
NY
CT
FL
NC
PA
MN
Shortfall
GA
WI
OH
% of FY10 Budget
MA
AZ
WA
MD
MI
Translation for Financing
Economic paradox
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Government spending is quickest, strongest stimulus we have
Sustainability of government balance sheets is the central crisis in the world
Interest rates should remain fairly low in coming 12-18 months though concerns on
inflation and deflation remain
Investors will continue on worldwide flight to quality
Volatility will remain with us
Risks are being studied with fine tooth comb
Treasury Bond Yield
7
6
5
Yield
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4
3
2
1
0
Public Bonds are on Sale
Credit Spreads Narrowing
Government Funding Programs for
Clean/Green Energy
Federal Programs
State and Local Programs
Roadmap to ARRA Clean-Green Economy
DOE Renewable Energy Loan Guarantees:
Key Program Provisions
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EPAct Title XVII § 1705 authorizes guarantees for projects that commence
construction by September 30, 2011 to include any of the following:
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DOE program concept is that the state can commit DOE loan guarantee to a project
in its state
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Renewable energy systems, including incremental hydropower, that generate electricity or
thermal energy, and facilities that manufacture related components;
Electric power transmission systems; or
Leading edge biofuel projects (pilot or demonstration scale)
Proposals from states submitted early this year but nothing yet approved
No real progress being seen yet
Primary areas of DOE interest is:
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Ability of state agency to provide credit review and loan processing and management
Requirement that the state have stake in the program, as through direct loan, guarantee,
equity, etc.
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DOE Loan Guarantee Considerations
Financial Attributes
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Third party supply or off-take agreements
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EPC contracts with liquidated damages
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Detailed construction contracts and bids
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Permitting and environmental review
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Intellectual property rights must be secure
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Equity commitments need to be secured before applications
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Project site control essential
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Working financial models showing assumptions, reserves and sensitivity analysis
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Favorable market and competition review
Technical Attributes
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Engineering reports
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Technological advantages
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Mitigation of technology risk
IFA Loan Guarantee Program Guidelines
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SB 1906 and SB 390 together authorize up to $3 billion in moral obligation support for
renewable, clean and efficient energy projects
General terms
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Process: Generally 1-2 months from application
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Preference for 7 year term
Commercially available technology
Verifiable, quantifiable savings
1.05x coverage
Up to 100% financing may be available
Application and review
IFA Energy and Credit Committee review
Inducement resolution
Final resolution
Sample projects:
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Efficient lighting, appliances, HVAC
Insulation
Efficient boilers and refrigeration
Occupancy sensors
Qualified Energy Conservation Bonds
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$3.2 billion of QECBs authorized in Stimulus Bill
QECB Program Mechanics
Tax Credit Treatment
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Eligible QECB uses include:
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Energy efficiency capital expenditures in public
buildings
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Renewable energy production
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Various research and development applications
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Certain mass commuting facilities
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Several types of energy related demo projects
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Public energy efficiency education campaigns
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Renewable energy
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Tax credit is treated as income
Unused credits may be carried over, but
not refunded
70% of tax credit rate set daily by U.S.
Treasury
Credits can be stripped (same rules as
stripping of interest from T-E bonds,
expanding flexibility of program and
investor base)
Direct Interest Subsidy for Bonds Issued
After December 31, 2009
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Lesser of interest rate on bonds or 70%
of interest on bonds at tax credit rate
New Clean Renewable Energy Bonds
 Additional $2.2 billion (in addition to $1.2 billion that
has already been allocated) of new CREBs awarded to
805 projects in October 2009
 Eligible Purposes: To finance qualified renewable
energy facilities that produce electricity – solar, wind,
closed-loop biomass, open-loop biomass, geothermal,
small irrigation, hydropower, landfill gas, marine
renewable and trash combustion facilities
 Allocation
1/3 to state/local/tribal governments
1/3 to public power projects
1/3 for electric cooperatives
New CREB Program Mechanics
Tax Credit Treatment
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Tax credit is treated as income
Unused credits may be carried over, but
not refunded
70% of tax credit rate set daily by U.S.
Treasury
Credits can be stripped (same rules as
stripping of interest from T-E bonds,
expanding flexibility of program and
investor base)
Direct Interest Subsidy for Bonds Issued
After December 31, 2009
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Lesser of interest rate on bonds or 70%
of interest on bonds at tax credit rate
Energy Performance Contracting Still Growing
• 20% annual growth from 1990 to 2000
• 3% annual growth from 2000 to 2004
• 22% annual growth from 2004 to 2008
• Factors attributing to diminished growth
from 2000 to 2004 include:
• Collapse of Enron
• Suspension of the federal ESPC
program
• Uncertainty about the
deregulation of the electric
utility industry
Source: Introduction to Energy Performance Contracting. Prepared by ICF International and
National Association of Energy Services Companies, October 2007
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EPC Market Characteristics
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MUSH (municipals, universities, schools and hospitals) market and the federal
market account for about 80% of the total EPC projects. Commercial building
projects comprise about 9%, industrial projects about 6%, and residential and public
housing projects the remainder
22%
MUSH Market
9%
6%
2%
3%
Federal Market
Commercial Building
Projects
Industrial Projects
Public Housing Projects
58%
Residential Projects
Source: Introduction to Energy Performance Contracting. Prepared by ICF International and
National Association of Energy Services Companies, October 2007
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Property Assessed Clean Energy (PACE)
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Berkeley led the way and now 16 states have some PACE efforts approved and 10
more evaluating it
Voluntarily impose special assessment on property tax bill that is used to finance
selected clean energy and efficiency projects
Property tax remains with property, not owner and are therefore generally a prior
claim to mortgage payments
Nonprofit banking organization emerging to fund the improvements against future
incremental tax receipts
Large scale roll out will depend on ability of sponsoring government to enhance and
homogenize the credit for investors (e.g. Boulder County moral ob backing their $10
million debt – 600 residential properties )
Banks remain skeptical that the improvements translate to higher home values
Efforts underway for PACE legislation and programs around the country
How rest of nation responds remains to be seen
How secure is the revenue stream supporting the debt?
Will banks let this debt come ahead of their mortgage rights?