The Financial Sell: Coordinating Smart Ideas Incentives and Other Funding Sources for Your Customer Bill Beattie, KEMA

What We Will Cover with Today Overview of the Smart Ideas program Where are the incentive opportunities? How can I better help my clients? Takeaway Opportunities Is financing something my customer really needs? To whom and where can I turn for assistance? Would financing options make a difference for missed opportunities, past proposals or large system applications?

Where Smart Ideas Started... Provides incentives for energy efficiency upgrades and equipment Part of Illinois energy legislation passed in 2007 Program implemented by ComEd, Ameren Illinois and the Illinois Department of Commerce and Economic Opportunity Now in third year of program Ratepayer funded program

How Ratepayer Funding Works Energy Efficiency Programs charge on your monthly bill Based on kWh usage How much is your customer contributing?

Where the Smart Ideas Program Energy Savings Come From Smart Ideas kWh Savings Lighting 76% Other 9% Refrigeration 2% Motors 6% VSD 5% HVAC 2%

Grocery 2% Heavy Industry 17% Hotel / Motel 2% Light Industry 22% Medical 6% Miscellaneous 7% Office 14% Restaurant 0% Retail/Service 12% School/College 2% Warehouse 16% Who Receives Incentives from Smart Ideas for Your Business? By kWh, 2008 to Present

Smart Ideas Helps You Become More Energy Efficient Prescriptive and custom incentive program New construction program Retro-commissioning program –Commercial building –Compressed air Incentives Services

Prescriptive and Custom Incentives Prescriptive Measures “Off-the-shelf” equipment retrofits, replacements and upgrades: –Lighting –HVAC –Refrigeration –Motors –Commercial kitchen/food service equipment –Controls and sensors Custom Measures Tailored-for-you energy efficiency upgrades, such as: Energy management systems Industrial process improvements And other efficiency improvements not captured by the prescriptive program Incentives

New Construction Small buildings track Less than 20,000 square feet Focus on daylighting Systems track Over 20,000 square feet Focus on later stages of design Comprehensive track More than 50,000 square feet Focus on early design stages Whole building modeling provided Incentives Services

Commercial Building Retro-Commissioning Incentive is the cost of engineering study and M&V Study performed by ComEd- approved service provider 500 kW and larger 150,000 sq ft and larger Measure implementation deadline Customer implementation requirement of $10,000 or $20,000, depending on project size Services

Compressed Air Retro-Commissioning Two tracks –100–499 HP Incentive pays for portion of study Customer leak-fix requirement (50% by volume) –500 HP and larger Incentive is the cost of engineering study and M&V Customer is paid $0.01/ M&V kWh Services

How to Cash In… The Customer’s Perspective

Financing Energy Efficiency Why financing? Types of financing Barriers Solutions Leveraging financing options with utility programs like Smart Ideas for Your Business Where do we go next?

Why Financing? Capital required for major investment in energy efficiency improvements Recent severe economic conditions Avoid cost of delay and missed savings potential To complement other energy efficiency programs offered by Smart Ideas incentives Combine with EECBG, EPACT and other options Positive cash flow – net savings to customer – should be a win-win

Traditional Types of Financing According to the SBA, there are four primary funding options: –Internal funds –Debt financing –Lease or lease financing (buck out lease) –Venture capital –Angel financing (friends and family)

Traditional Types of Financing for Energy Efficiency According to the DOE and Small Business Review, there are two more options for energy efficiency –Internal funds –Debt financing –Lease or lease financing (buck out lease) –Venture capital –Angel financing (friends and family) –Energy performance contracts –Utility incentives

Barriers to Commercial Financing (and not always just tied to financing) Confusion — complexity tied to take-up rate (more than interest rate) Transaction cost — paperwork, paperwork, and more paperwork Lack of customer knowledge — audit driven results in more savings, with more complexity Lack of confidence — will the savings materialize? Split incentives Debt classification Utility objections to tie financing to utility bill Bank objection to tie financing to property tax  The reality of regulatory constraints for utility programs and state lending laws

What Holds Customers Back Availability of capital –Cost of capital –First cost –Credit and collateral issues Payback/ROI requirements –Payback period of less than three years typical

Now the Quagmire…

The Challenge: Energy efficient solutions often cost more than their inefficient equivalents. Although the people who purchase them will benefit over the life cycle from the energy savings, the incremental, up-front costs of energy efficiency can make the efficient purchase unattractive to many business customers. Solutions: Funding sources that cover these up front costs and allow people to pay back principal and interest from energy savings, rebates that cover incremental costs, and tax incentives that do the same can overcome this first-cost hurdle. Since energy bills are lower for energy efficient buildings, net operating costs for efficient buildings (mortgage plus utility bills) are usually lower, making energy efficiency a smart economic decision if financing is available. Source: Eight Approaches to Enable Greater Energy Efficiency: The National Council on Electricity Policy

Where Do We Go from Here? First Steps to Help Your Customer Help them set goals for targeted, short-term wins (i.e. highlighting projects with quicker payback periods) and for enduring approaches. Encourage leveraging Smart Ideas incentives to fund additional capital projects. Help them with creative ways to leverage these funds as “below line” budget line items, for example. Develop multiple project opportunities from the “short-term wins” to lock you in for long run solutions with your customer.

Trade Allies that Are Successful with this Program: Help the customer reserve their project Complete the project on time and to program specification Do everything possible to ensure that the check is in the mail for the customer! 1 2 3

How to Cash In… The Contractor’s Perspective

What Other Funding Sources Should You Present to Your Client? Have a basic working knowledge of the EPACT program and the difference between tax deductions and tax credit opportunities. Consider proposal templates that include estimated EPACT credits and deductions. Always encourage deferral to a tax professional. Check for any applicable grant programs available to your client. Look for EECBG (federal block grants) in communities you serve. Network with economic development contacts in your community. Consider association-based funding sources. Check with your suppliers, manufacturers and distributors for project funding sources.

Develop Yourself as a Resource Expert for Your Clients Consider developing accounting firm business development contacts. Network with other contractors that you know and trust. Develop your personal “document library” to leverage current and readily-available industry data … and share this knowledge. Help your customer overcome any “unrealistic” return-on-investment requirements that may be an internal hurdle. Develop “bundled” solutions versus “one and done” opportunities. Qualify your prospects well. Be choosy about where you spend your time.

How Do I Develop a Financing Resource Base? Start with people and companies in this meeting today. Work with your ownership and their knowledge. If you are an owner, share your knowledge and contacts! Pursue training events provided by ECW/ComEd and others. Leverage the knowledge at your client’s company: CFO, business analysts, facilities directors... they all know people that you need to know. Talk to other business professionals in your community. Ask those you trust about who they trust: your attorney, your accountant, your investment advisor. Ask us! Your Smart Ideas outreach staff knows hundreds of companies and contacts who can help you get the answers you need!

Next Steps... Some Simple Questions! What can I do to help you leverage Smart Ideas for Your Business to get some of your projects done? If relevant financing options were available, would this help justify this energy-efficiency system purchase for your company?

Need Help Getting Started with a Large Account? Ask for a Smart Ideas Opportunity Assessment What is an Opportunity Assessment? –Identifies energy efficiency projects at the client’s facility that may qualify for Smart Ideas incentives How long does it take? –A ComEd energy engineer will spend about two hours with them on-site to assess opportunities What will I receive? –Within two weeks of the assessment, the client will receive a letter with energy efficiency opportunities with the estimated savings and potential incentives. How do I get started? – Suggest an Opportunity Assessment — the client’s ComEd Account Manager will do the rest

Additional Helpful Resources for Financing Assistance Click on Illinois for available resourceswww.dsireusa.org These websites will provide you with financing descriptions and options.

Sell your role as a Smart Ideas Trade Ally to your customers! I am an independent contractor with Smart Ideas experience and training. Mr/Ms. Customer, I can help you: –Identify opportunities –Select, purchase and install equipment –Manage your project –Complete and submit your paperwork

For general program information and application forms: Questions about eligibility, specifications, how to fill out applications, finding a trade ally, and anything else: (888) Fax: For Answers to Your Questions...

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