Using Public Funds to Finance Energy Efficiency Projects Dan Clarkson Vice President Energy Efficiency Finance Corp.

Why Invest in Energy Efficiency? Govt. facilities: save energy costs & meet deferred maintenance needs Residential, commercial, industrial & non-profit facilities Target EE measures that pay for themselves via energy cost savings Policy rationale:  Local economic development; sustainable economy  Job growth in the trades -- Green Jobs  Reduce emissions; achieve climate goals  Energy security in face of volatile energy prices

Market Segment Loan ProductTypes of Financial Institutions (FIs) Residential Single Family loans, both secured and unsecured commercial banks credit unions specialized non-bank FIs & CDFI Multi-Family loans, both secured and unsecured tax-exempt bond debt possible for qualifying low-income housing ESCO commercial banks credit unions leasing companies bond purchasers Commercial Small  loan/lease are typical  commercial banks  credit unions Large (as well as industrial)  loan/lease  Energy Savings Performance Contracting (ESCO)  QECBs possible  Tax-exempt industrial development bonds for industry  commercial banks  credit unions  specialized EE FIs  contractors/ESCOs  private equity investors Institutional Government  tax-exempt bond  tax-exempt lease  ESCO  Tax-exempt & lease purchasers  capital markets transactions possible 501C (3)  tax-exempt bond  loan/lease  QECBs possible  Commercial banks  credit unions  bond purchasers  specialized EE FIs

Credit Enhancement Overview Goals: pioneer new finance products, expand risk horizons, broaden access to finance, extend tenors, reduce rates Risk sharing: instrumental to support Financial Institution (FI) energy efficiency (EE) & renewable energy (RE) lending Credit enhancements can support a range of finance models: FI loan facilities, bond issues, utility on-bill financing, etc. Credit enhancement structures include: – Loan Loss Reserve Funds – Debt Service Reserve Funds – Subordinated Debt Structures

Bellingham-Whatcom Community Energy Challenge Goal: How do we simplify the complex process of investing in energy efficiency for home and business owners?

Loan Loss Reserve Funds “Portfolio approach” to credit structuring Achieve significant leverage of public funds, e.g. ARRA and other grants As a % of total loan portfolio principal = 2-10% Cover first losses on a portfolio of EE/RE loans EECBG & SEP funds can be used for LRFs

Loan Loss Reserves Leverage Commercial Finance Escrow Account Loss Reserve Fund $1,000,000 EECBGs & WA EECE Grant Financial Institution Loans Borrowers Municipalities Total Target Number of Loans: 900 Residential & 75 Small Commercial

Community Energy Challenge Use City & County EECBGs and WA State SEP Credit Enhancement Grant for LRF and interest rate buydowns RFP process conducted for FI Partner Implementing Agreements with FI Partner: – LRF Agreement: account definitions, risk-sharing formula, event of loss, recoveries, etc. – Program Agreement: marketing, loan origination

…….. Customers MECS MMFS Turnkey project & services & equity Energy Services Agreement (ESA) for turnkey EE project development, implementation, services & financing Long-term steam supply; green energy Seattle Steam Steam & ESA payments EE project payments; Escrow services agreement Senior Lender Investor Loan & debt service Equity & returns Seattle Steam Company & MMFS: Energy Efficiency Project Development & Finance Program State DOC Sub- loan Seattle City Light elec. savings incentives Wells Lock box acct

Washington State Housing Finance Commission EE Finance Program Diagram USDOE WA Dept of Commerce ARRA SEP funds WSHFC: SEF MMFS, Contractor End-Users/ Borrowers: 501c3’s; Multi-family housing Bond Purchaser EECE Grant Agreement Marketing; project development; Turnkey EE projects & services Program Agreement Financing Agreements ( deal-by-deal) Program Agreement DSRF Notes: 1. EECE Grant Agreement & Program Agreements executed at Program start. 2. Financing agreements done case-by-case. Stream-lined documentation developed with bond counsel 3. Grant funds deposited with Bond Purchaser for use as debt service reserve fund or subordinated 0% co-financing. John MacLean, EEFC,

Tax-exempt Lease Purchase Financing for Energy Efficiency Projects in Local Government Facilities Typically 10 year tenors at fixed rates in the 4% range currently; longer tenors possible Lease-purchase can be entered into expeditiously; includes “non- appropriations” clause; voter bond approval not required Eligible Borrowers: local governments and political sub-divisions; EE projects in publicly-owned facilities are eligible Local governments can do individual transactions or participate in WA State Treasurer “LOCAL” pooled lease purchase finance program Can be combined with ESCO project implementation; often used with the Dept. of General Administration’s Energy Service Performance Contracting program

Energy Efficiency Finance Corp. EEFC is a financial advisory firm that assists its clients to design and implement energy efficiency and renewable energy finance programs that: Sustain funds over time Leverage private capital Innovate

Thank You Dan Clarkson

Proposal Outline Loan Terms LRF Terms Approach to Credit and Underwriting Guidelines Loan Marketing, Origination and Administration Qualifications & Experience, Officers and Staffing Technical Assistance & Training Needs Additional Statements & Materials