Biogas Projects & Compressed Natural Gas (CNG) use in Over the Road Fleets

1. Biogas Projects & Compressed Natural Gas (CNG) use in Over the Road Fleets Cory Wendt, Senior Manager

2. Agenda • Biogas Project Drivers • Biogas Business Models • RNG/CNG Economics • RNG/CNG Case Study • Themes of successful biogas and CNG projects

3. Baker Tilly at a glance • Baker Tilly is the 8th largest accounting network worldwide • One of the top 20 largest firms accounting and advisory firms in the U.S. consisting of more than 2,500 professionals. • Established in 1931 • Offices throughout the Midwest and East Coast • Connecticut • Delaware • Illinois • Maryland • Michigan • Minnesota • New Jersey • New York • Pennsylvania • Texas • Washington DC • Wisconsin

4. Diverse clients served • We serve our clients through our industry teams Manufacturers and Food & Beverage • Seventy-five years serving manufacturers: We serve more than 2,300 manufacturers and wholesale/distributors with over 230 in the Food and Beverage industry. • State and Local Government • Work closely with municipalities and other non profits: Experience with municipal/government leaders allows us to understand diverse perspectives. We work with more than 150 higher education and research institutions across the United States. • Energy and Utilities • Nationwide energy practice: More than 40 years experience and over 300 energy and utility clients nationwide - electric, water, waste water, storm water, and gas utilities • Dedicated Renewable Energy Group: Focused on development and financial solutions to get projects to the finish line in a way that maximizes client value and minimizes risk. We work with more than 40 active projects representing over 1,000 MW.

5. Biogas experience We have been involved with 15+ biogas projects that are either operating or under construction involving more than $220 million of funding with roles in: • Development Support • Feedstock agreements, PPA’s, heat sale agreements, etc. • EPC, O&M and Technology procurement agreements • Accessing State & Federal Incentives • Financial Advisory and Capital Procurement Common Biogas Project Development Themes: • Not easy to bridge varying perspectives that exist between engineers, energy, financial and agricultural professionals. • Without clearly defined goals of each party known up front, predevelopment expenses can become very costly for the project developer. • CNG/RNG is new for lenders relative to traditional electrical power purchase agreements

6. Assessing the business case– biogas project viability Current Growth Constraints • Primary Issues • Increasing expenses for: • Disposal of waste • Energy • Landfill or land application • Environmental • Regulatory compliance • Community impact • So how are these things coming changing with new energy and infrastructure planning?

7. Assessing the business case – Integrated planning is required to obtain the highest value biogas project Growth Potential for Industry or Municipalities Drivers for Business Case • Local disposal of organic materials • Food waste landfill diversion laws • Long-term pricing stabilization for locally managed: • Waste Disposal • Electrical Costs • Transport Fuels • Industry’s ability to expand on existing footprint • Resilancy for Critical Infrastructue • Renewable Natural Gas Vehicles • Avoidance of waste hauling & disposal costs

8. Assessing the business case - biogas project viability • Conceptual Model = Business Case vs. Construction Phase = Financial Model • Get the business case right at the conceptual phase to convince yourself the planned project is a solid opportunity. • Determine how financeable is it? • “Feasible” means different things to different project stakeholders, or project “Funders” • Once you understand your business case(s), it’s time to work through the project level revenue/expense drivers.

9. Define your primary drivers of the biogas business case • Important to perform an initial assessment of revenue/expense drivers from various feedstocks to determine what drives profit. • Within the model there are “tabs” for each area of primary project drivers: • Feedstock Types (farm – factory) • RNG, CHP, wastewater management • Project Cost Estimates • Sources of Funds (Grants, Debt, Equity) • Financial Review – DSCR, NPV, IRR • Goal is to identify major gaps prior to seeking capital from outside parties. • Understand what your potential funding sources expectations are. Resource: http://www.bakertilly.com/insights/biogas-economic-model-and-toolkit/

10. Sample Biogas Project Economics Before RNG • What is a driving a biogas project? • Revenues: Avoided disposal costs/tipping fees and energy values • Expenses: Interest Expense - Debt Service Coverage requirements (DSCR)

11. Private vs Public Capital Structure • Private projects obtain less debt, and can typically attract credits and incentives to buy down the debt and equity requirements • Municipalities can typically have more “debt” and longer tenure • Non-Recourse Debt vs Bonds • Debt will have a Debt Service Coverage Ratio (DSCR) which is tied to contracted revenue • Equity return typically tied to both contracted and non-contracted revenue

12. Private Debt vs. Bonds on Biogas & RNG Projects • Balancing the flow of cash over time is what ultimately makes a project “bankable” • DSCR = EBITDA/Principal & Interest Payments • Typically 1.1-1.2x (bonds) to up to 2.0x (Non Recourse Debt) • DSCR typically tied to contracted revenue • Equity return typically tied to both contracted and non-contracted revenue • Role of RINs vs Retail off take

13. Sample Biogas Project Economics Before RNG • What is a driving a biogas project? • Revenues: Tipping fees and energy values? • Expenses: Cost of money and Debt Service Coverage requirements (DSCR)?

14. Biogas uses and values • Relative energy equivalency value for potential uses of biogas:

15. What is driving use of RNG/ CNG in fleets today? • The price of a barrel oil and a million Btus of natural gas, in terms of their relative cost per unit of energy, have separated in the US: (Historically 9 to 1 Oil to Gas) • Domestic natural gas and biogas production are increasing. • Foreign demand for diesel globally keep local pump prices firm. -Oil - Natural Gas $/MM Btu $/Barrel of Oil

16. Is your fleet or fleet management company a candidate for RNG/CNG use? • Ideal Fleet Characteristics: • Large fleets of Heavy Duty Vehicle (HDV), with short and routine routes, had been the early ideal candidates; “the milk route”. • A HDV traveling a total of 350-500+ miles a day from home base each day is now possible with new larger available CNG fuel tank capacity • A minimum of 15 HDV’s driving each more than 100,000 miles per year can warrant a dedicated fueling station = 300,000 gallons of use/year • Some CNG fueling providers also are offering a total fueling infrastructure system benefit. • Companies with 100,000 gallons of HDV fuel consumption in 3 different fueling station markets can get credit for 300,000 Gallons equivalent pricing to offset cost O&M on fueling infrastructure. • This O&M cost is referred to the “compression fee” or the cost to make the natural usable in a vehicle.

17. What are the economics of using CNG in your fleet? • Per gallon economics _ 15 Truck Fleet (WI - April 2014) *10-year price provided by GAIN Clean Fuel, a division of U.S. Oil ** Source: EIA.GOV

18. What are the economics of using CNG in your fleet? • Per Heavy Duty Vehicle economics

19. What are the economics of using CNG in your fleet?

20. Case Study: County Owned FleetCNG Conversion Feasibility Evaluation • 750,000 population county • Critical fleet data lacking and inconsistent data collection methods across departments • 250 of 450 vehicles had sufficient data to include • Focused on the 250 vehicles and created a sophisticated yet user friendly “toolkit” for use in future planning and decision making • Use various Net Present Value calculations of savings to arrive at a “batting average” under various scenarios of fleet conversion

21. Example of NPV Analysis of Fleet Conversion Savings • What are the goals (e.g. break even or X year payback minimum, etc.) • What is the budget (despite economics are we limited by internal budget constraints?)

22. Themes of Successful biogas projects • All relied heavily upon avoided costs of land disposal (tipping fees) as part of the overall economics • Most projects were at substantial scale (e.g. “industrial” versus “on farm”), or adaption of existing municipal infrastructure • Ability to use any existing site infrastructure, municipal or private, has made new projects more successful • Several projects were able to receive above wholesale electrical tariff rates or offset of retail rates • Many projects had used the 30% 1603 Federal Grant • A few industrial parties took advantage of the Federal New Market Tax Credit program as a result of their overall processing facility expansion.

23. CNG Takeaways • Analyze your fleet circumstances to understand the long-term financial impact to your company…or your competitor. • Understand that the state and local costs for delivered energy prices, and any associated fuel taxes, will change the price per gallon of CNG • Natural gas pricing is a moving target, it is important to understand your commodity price risk threshold/strike price prior to taking action for or against implementation and/or the value of your long-term biogas resource • Integration with existing CNG fueling infrastructure, or construction of your own dedicated pumps, needs to align with current operational truck movements. • Long-term pricing stabilization of your transport fuel costs can be obtained, however predefined contract prices are advised to ensure savings are created.

24. Thank you • Cory Wendt • Senior Manager • Energy, Finance, Manufacturing • cory.wendt@bakertilly.com • Office: 608.240.2677 • http://www.bakertilly.com/services/renewable-energy/renewable-energy-services

25. Why are companies considering converting to CNG? • Economics: 20-40% + fuel cost savings • North American fuel - Plentiful domestic supply and reduced price volatility • Reduced noise levels in engine operation • Sustainability: Significant reductions in greenhouse gas emissions • Integration of onsite fast fill stations into your existing routes • US is a net exporter of diesel to the world in recent years

26. RNG/CNG Data Collection Process for Fleet Economic Determination

27. US Exports of Petroleum 2007 vs 2012