Critical Issues in Developing Power Generation Assets on Military Bases

1. Critical Issues in Developing Power Generation Assets on Military Bases Financing Considerations Peter Y Flynn, February 27, 2012

2. Presentation Overview • Financing Background and Basics • State of the Markets • Availability of Capital Sources • Cost of Capital vs. Cost of Electricity • Financing and Contracting Options • Additional Considerations • Conclusions

3. Financing Background and Basics • The economic downturn had a severe effect on financing • Before the crash, most projects could be completed with a rating, (e.g. Fort Detrick EUL) • Quality of cash flows now imperative for successful financing • Banks constrained from lending, particularly long term • Increased use of equity for projects • Construction financing still problematic • Federal and state incentives critical drivers for projects • Tax equity appetite still limited and pricing is expensive • Limited state incentives due to budget constraints

4. Financing Background and Basics • Energy financing is “project finance” • Cash flow driven • Non-recourse debt • Projects are capital intensive (low cash flows vs. high project costs) with important requirements • Investment grade developer and Power Purchase Agreement counterparty • Large projects required to justify tax equity structure / achieve economies of scale • Proven Technologies • Capital stack typically consists of various sources • Debt (supported by PPA revenue) • Tax equity if renewable energy project • Sponsor equity

5. State of the Markets • Securitization • Investors are looking for ESPC model where all risks are mitigated by government or ESCO • Institutional investors very liquid, offering low interest rates • Expect significant appetite in 2012 due to low risk • ProjectFinance • Investors required to take on more risk through PPA and EUL vehicles (project, performance, ownership risk) • More parties involved, drives required returns • Investors seeking returns in low to mid teens • High competition among projects, only best projects will attract investors

6. State of the Markets • Tax Equity • With expiration of Treasury Cash Grant, tax equity is in high demand in order to help qualified projects take advantage of tax incentives • Cost of tax equity is more a function of supply and demand than risk assessment • Unleveraged tax equity • Required after tax return growing from high single digits to low to mid teens in 2012 • Leveraged Tax Equity • Many tax equity investors will not allow debt • Required after tax return in mid to upper teens

7. State of the Markets • Solar REC (SREC) markets • Despite RPS standards or mandates in 37 states and D.C., still very few SREC markets due to the lack of enforcement and compliance penalties • Oversaturation of SREC markets in NJ, PA, and OH creating declining value for these important drivers; market not expected to rebound in some areas until 2013. • Massachusetts has implemented a Solar Credit Clearinghouse as a last resort, fixed-price auction in the last quarter of each year with a fixed price of $300 per SREC less a 5% fee resulting in a floor price of $285. • Investors will typically not take SREC risk

8. Cost of Capital vs. Cost of Electricity Based on 10 MW Solar Project @ $4 / Watt all-in cost PPA - EUL ESPC – no incentives Sponsor Equity 20% yield ESPC w/ Tax Equity ESPC w/ Cash Grant 5% Tax Equity - ITC Monetization 15% yield Securitization Debt 4% yield (No federal ITC / Grant Monetization) Cash Grant Monetization (expired 12/31/11) 30% Tax Equity - ITC Monetization 15% yield 30% 55% Cost of Electricity 100% Debt 5% yield Debt 5% Yield 70% Debt 7% Yield 70% 40% • 5% Cost of Capital • 25 year debt term • 1.0x DSCR • Private Ownership of assets • 9 cents / KWh – 5% escalation • 4% Cost of Capital • 25 year debt term • 1.0x DSCR • Gov’t retains ownership of assets • 11 cents / KWh – 5% escalation • 8% Cost of Capital • 25 year debt term • 1.05x DSCR • Private Ownership of assets • 10 cents / KWh – 5% escalation • 12% Cost of Capital • 15 year debt term • 1.35x DSCR • Private Ownership in a partnership • 15 cents / KWh – 5% escalation 100% Cost of Capital 5.00%

9. Financing and Contracting Options PPA UESC / ESPC EUL

10. Financing and Contracting Options EPC / O & M Fuel Source SPE Partnership Developer GOVT Trustee Equity Power Purchase Agreement PPA Contract REC Purchaser (if renewable) Site Contract RECs Construction Funds/O&M 2nd Transfer Interest EPC/ O&M Return 1st Debt Service Assign Rights Debt

11. Financing and Contracting Options Private Partnership Flip Structure Tax Investor 1-10% Pre-flip 90-95% Post-flip 90-99% Pre-flip 5-10% Post-flip Developer Partnership SPE (30% or 10% ITC and MACRS deductions) Cash and Tax Benefits 5% 1% 5% Construction Contractor/ Operator Renewable Energy or Co-generation Project 99% 95% 95% • Tax investor receives benefits in exchange for equity investment • Key issue - tax appetite • Flip is based on target ROI • ITC vests over 5-year period • MACRS benefits used over 5-year period Power/Steam Purchase Agreement(s)

12. Financing and Contracting Options ESPC Financing Structure ESCO Government IDIQ Contract ESPC Task Order for all ECMs Construction Funds RESA O & M Agreement Installation Agreement RESA Payments Owner / SPE Assignment Trustee Cash Grant

13. Financing and Contracting Options Commercial Off-take [Tax] Equity GOVT Trustee Developer/SPE O&M EPC Fuel Financier Enhanced Use Lease Power Sales PPA Payments Ground Lease Power Sales Debt Service Lender

14. Additional Considerations • Potential issues and challenges: • SPE risks • Termination for convenience • Recapture during tax benefit period • RECs – ownership, price, and value • Potential complexities: • Site control • OMB scoring • Novation/assignment • Procurement method

15. Conclusions • Complexity in technology, ownership structure, and capital raising causes leads to additional costs, fees, time, and higher interest rates, which translates into higher electricity prices for the customer • Development process must be well understood by all stakeholders involved in the project • Projects will face significant development and financing challenges if process cannot be simplified and streamlined for all players involved

16. Bostonia Overview • Bostonia has funded approximately $1B in federal ESPC and UESC projects, and $1.5B in energy projects overall • Bostonia provides sales development and structuring from development to closing. • Bostonia’s industry knowledge, network, and market position create cross-development opportunities (e.g. referral agreements, Virgin Islands Energy Alliance, teaming agreements in the federal sector). Investment Banking Sales & Trading Investment Banking expertise in financing unique and highly structured transactions, with a focus on the following: • Renewable energy project and energy efficiency financings • GSA and other US Government Leases • Credit Tenant Leases • Real estate finance • Public / Private Partnerships • Enhanced Use Leasing Sales & Trading expertise and relationships with institutional clients to buy and sell various types of securities. • Strength in placing non-traditional structures, emphasizing illiquid, non-fungible securities • $1.5 billion in transactions in 2010 • Top tier position of US domestic private placement new issuance in 2008 – 2010 league tables, by Private Placement Monitor

17. Contact Information Peter Y Flynn Executive Vice President 617-226-8103 Direct 617-437-0150 Main pflynn@bostonia.com