MAKING CENTS OF ENERGY Aggregation Model and Cost Segregation Bobby Clark, Co-founder Midwest Clean Energy Enterprise, LLC July 26, 2017

Financing Energy Efficiency and Sustainability Aggregation Model Energy Efficiency and renewable energy opportunities can help business owners reduce their energy costs and diversify their sources of energy Both energy efficiency, renewable energy and green/cool roofs projects help with cleaner air and improved health benefits

Financing Energy Efficiency and Sustainability Aggregation Model MCEE is developing an energy assessment tool that will allow basic energy data collected from building owners to identify opportunities for energy efficiency upgrade. The tool will assess energy usage and analyze age and efficiency of lighting, HVAC, other building equipment that uses energy.

Financing Energy Efficiency and Sustainability Aggregation Model MCEE will also gather information on roof tops and available land that is currently not used to explore the viability of renewable energy options like solar PV or geothermal and green roofs.   The initial focus will be on the buildings in NuLu but additional buildings in the Central Business District (CBD) will expand the opportunities for additional savings.

Financing Energy Efficiency and Sustainability Aggregation Model HVAC, Lighting and Solar contractors and Energy Services Companies (ESCOs) market their services to customers. Some contractors estimate that the cost paid by customers for their services may include 20-30% for the marketing, customer interaction to gather data for quotes and similar costs. One option to reduce these costs would be providing vendors with warm leads and energy data from multiple customers in the same geographic area.  

Financing Energy Efficiency and Sustainability Aggregation Model The aggregation of multiple customers should reduce these vendor costs and the economies of scale can be passed along to the customer.   MCEE will identify vendors and through a formal Request for Information (RFI) process and through negotiations will develop an "aggregation model" to reduce the cost of energy efficiency and renewable energy opportunities for building owners in Louisville.

Financing Energy Efficiency and Sustainability Aggregation Model Some building owners in NuLu have already provided some building and energy data and other NuLu business owners to provide information. Aggregating building owners needs for cost effective energy efficiency and renewable energy opportunities will provide economies of scale and lower pricing.

Financing Energy Efficiency and Sustainability Aggregation Model After the data has been collected and analyzed, each building owner will be presented with options to save money. Other tax incentives opportunities will also be presented Building owners can add renewable energy (solar or geothermal) for some or all of their energy needs thus diversifying their energy portfolio to operate their building. Adding renewables will help mitigate future energy costs to operate their buildings.

Financing Energy Efficiency and Sustainability Cost Segregation & Tax Incentives Renewable Tax Credits & Tax Deductions for Energy Efficiency Cost Segregation Asset Management Study

Financing Energy Efficiency and Sustainability EPACT 2005 enacted IRS Code 179 D Calculated based on a comparison of benchmark ASHRAE 90.1-2001 Subsystem deductions can be given as follows: HVAC-$0.60 per ft2 Lighting-$0.60 per ft2 Building Envelope- $0.60 ft2 The deduction has expired for the current tax year

Financing Energy Efficiency and Sustainability Federal Business Energy Investment Tax Credit (ITC) Bonus Depreciation - 50% for 2015 – 2017 Qualified Improvement Property – New Qualified Restaurant Property Qualified Retail Improvement Property Qualified Leasehold Improvements Other Tax Incentives

Financing Energy Efficiency and Sustainability Cost Segregation & Asset Management Study Provides increased short-term tax deductions by reclassifying assets to shorter depreciable periods Benefits: Maximize tax deductions in the early years for increased cash flow More detailed study based on focused on long-life assets that will need replacing before end of life of the building Benefits: Allows taxpayers to immediately write-downs of existing assets at the time of disposal like HVAC & roofing

Financing Energy Efficiency and Sustainability Cost Segregation Engineering analysis used to properly allocate construction related costs into the appropriate recovery periods Accelerate depreciation, defer tax, improve cash flow Popular with newly constructed and acquired properties Other applications are often overlooked Excellent asset management tool Support for Tangible Property Regulations and Unit of Property

Financing Energy Efficiency and Sustainability Cost Segregation Property Type Average % Accelerated Apartments 15 – 35% Auto Dealers 35 – 60% Health Care Facilities 20 – 50% Hotels 20 – 40% Industrial Buildings Manufacturing Facilities 30 – 70% Office Buildings 10 – 30% Restaurants 20 – 60% Shopping Centers Tenant Spaces

Success -- with tax-centric design Financing Energy Efficiency and Sustainability Cost Segregation Success -- with tax-centric design $150,000 decorative lighting system Only source of lighting in auto dealer showroom Bedford suggested the addition of 2 x 4 light fixtures to be used as base building lighting Allowed $150,000 decorative lighting system to be classified as 5-year rather than 39-year

Financing Energy Efficiency and Sustainability Cost Segregation Tenant Improvements Commonly overlooked application 30% – 60% in 5-year is typical Important strategy for tenants and landlords Depends on who pays for the improvements Landlord should request reporting by tenant Look-back Study Reallocate costs from 27.5 or 39-year recovery period to 5-year, 7-year, and/or 15-year

Midwest Clean Energy Enterprise, LLC Bobby Clark, Cofounder & Director of Business Development 859-227-0263 clark@mceenterprise.com