Profiting from Connecticut’s C-PACE Financing Program Presented by: Brian McCarter CEO March 19, 2013

1. Profiting from Connecticut’s C-PACE Financing ProgramPresented by:Brian McCarterCEOMarch 19, 2013

2. Overview • Connecticut Commercial Property Assessed Clean Energy (C-PACE) Program Background • Power of C-PACE in Commercial Real Estate (CRE) • Benefits to ESCOs, Energy Auditors, Project Developers, Contractors • Underwriting Energy Efficiency Financing • Financial • Technical • Conclusion

3. Program Background • July 2011 – CT passed statewide enabling C-PACE legislation • Clean Energy Finance & Investment Authority (CEFIA) directed to establish & administer the program • Municipalities that “opt-in” are authorized to place a benefit assessment on a property whose owner has secured financing through C-PACE

4. Program Background Nov 2012 – CEFIA selected 3rd party program administration team to support technical underwriting process • Buonicore Partners (BP): energy & CRE advisory firm provides C-PACE project management & technical oversight for CEFIA • Celtic Energy: energy engineering consultancy provides BP team’s 3rd party technical reviews • Sustainable Real Estate Solutions (SRS): software firm powers CEFIA Data Management Platform providing all stakeholders transparent access to technical & financial underwriting data

5. C-PACE provides an innovative financing structure enabling commercial, industrial, & multi-family property owners to access financing for qualified energy upgrades and repay through a benefit assessment on their property. Program Background

6. Taxes, to repay assessment, collected in normal course by municipality Process is entirely consistent with other benefit assessments The PACE assessment has priority over existing mortgages The owner must secure written consent from the mortgage holder prior to project approval Program Background

7. The goal: Attract private capital to fund EE & RE initiatives Owners may recruit their own capital providers 8 capital providers have been pre-approved to fund projects Program Background

8. Anything that saves from baseline High efficiency lighting HVAC upgrades New automated building and HVAC controls Variable speed drives (VSDs) on motors fans and pumps High efficiency chillers, boilers, and furnaces High efficiency hot water heating systems ECM Upgrades: What’s Eligible? • … as long as it isn’t going anywhere • Combustion and burner upgrades • Fuel switching (e.g., oil to gas) • Water conservation • Heat recovery and steam traps • Building enclosure/envelopeimprovements • BMS • Renewable energy systems

9. Appliances, e.g., refrigerators, dishwashers, etc. Plug load devices Vending machine controls Any package of measures with a weighted average effective useful life (EUL) that does not meet or exceed life of the loan Any package of measures that does not achieve an energy savings to investment ratio > 1 ECM Upgrades: What’s Not Eligible? • Any measure that is easily removed/not permanently installed • Any measure that does not result in improved energy efficiency • Extending natural gas lines to a property line to enable a PACE-eligible gas conversion project.

10. Capital improvements without capital expense 100% of project cost covered Engineering and construction costs Energy audits Renewable energy feasibility studies Post-construction measurement & verification of energy savings PACE assessment is an obligation of the property, not the owner Repayment made through property tax bill The Power of C-PACE Financing

11. Property tax payments may qualify as an operating expense Obligation not accelerated at the time of sale Tax payments may be passed through to tenants who enjoy the benefits Long-term financing Energy savings will exceed investment cost Well-developed projects can achieve positive cash flow from day one Increases building value Enhances building’s competitive position in the marketplace The Power of C-PACE Financing

12. The Power of C-PACE Financing • CEFIA: • Acts as a conduit for private investment • Encourages CRE owners to arrange their own financing • Can connect owners to capital providers • CRE owners: • Negotiate rate, terms, conditions & schedules with capital provider • Can undertake deeper more capital intensive retrofits with greater savings potential & longer payback periods

13. Deeper energy retrofits with longer payback times can be pursued Facilitates new energy efficiency projects or re-activates projects that had been put on hold due to the “Great Recession” Market expansion beyond MUSH market to the much larger multi-tenant CRE market where turnover is more frequent and property owner credit quality may not be investment grade (single purpose LLCs) Whole building or targeted ECM retrofits (“pent-up demand”) Cost of up-front energy audits, renewable energy feasibility studies and M&V costs can be bundled into the financing Win-win for everyone! Benefits to Auditors, ESCOs & Prj Developers

14. C-PACE Underwriting Standards • Financial • Technical

15. Benefit assessment holds a senior (priority) position Consent of property mortgage holder required Total savings over the financing term must exceed the total project investment (SIR > 1) C-PACE may not be ideal for highly leveraged properties where existing debt plus a C-PACE assessment is greater than the property value CEFIA conducts review, including building’s debt, equity, income, & occupancy C-PACE Financial Underwriting

16. Property must have clear title with no encumbrances Property taxes should be current There should be no outstanding tax liens or notices of default Mortgage payments must be current No easements or subordination agreements that would conflict with PACE assessment Project useful life must be longer than the financing term C-PACE Financial Underwriting

17. Key challenge: “Will the projected energy savings be realized?” Problem #1: Energy savings can’t be measured directly Problem #2: No standard methodology to underwrite energy efficiency Problem #3: Without a solution to #1 & #2, EE Financing cannot become a mainstream financial asset class with a high degree of standardization, predictability and scale that attracts capital providers No longer true today! C-PACE Technical Underwriting

18. C-PACE Technical Underwriting Nationally recognized technical standards define the process from data collection to energy savings measurement and verification • Energy savings can be forecast with a high degree of confidence • Actual energy savings performance can be measured and verified in a reliable, consistent and fully-transparent manner • Risk of underperformance is low

19. C-PACE Technical Underwriting • Rely on three established industry protocols: • ASTM Building Energy Performance Assessment Standard E2797-11 Methodology for collecting & analyzing baseline energy data • ASHRAE Level I, II, III Energy Audit Guidelines Methodology to identify energy conservation measures (ECMs) & project energy savings with high degree of confidence • International Performance Measurement & Verification Protocol (IPMVP) Methodology for energy savings measurement & verification • Underwriting methodology is technically sound, standardized, reliable & fully-transparent

20. Project data are entered & tracked in CDMP for use by all deal stakeholders across the entire project life cycle Project development through M&V Powered by SRS’s cloud-based software platform Facilitates consistency & transparency Compliance with 3 industry protocols CEFIA Data Management Platform (CDMP)

21. All deal stakeholders have access to CDMP CEFIA Building owner Capital provider Auditor, ESCO, Project Developer, Contractors Insurer (where Energy Savings Insurance is used) CDMP follows the project post-installation through M&V CDMP meets reporting needs of multiple interdependent stakeholders CEFIA Data Management Platform (CDMP)

22. Calculate Baseline Performance • CDMP enables auditor upload of utility bill data in excel format • Normalize for calendar month, weather, occupancy, etc.

23. Recommend ECMs • CDMP enables auditor upload of ECM data in excel format • Create scenarios to determine optimized bundle of ECMs

24. Project Energy Savings Scenarios

25. Calculate Key Financial Metrics • CDMP enables capital provider financial underwriting

26. Project Cash Flows over C-PACE Term • CDMP enables capital provider financial underwriting

27. Financials establish loan amount & term CEFIA facilitates interest from capital providers, where needed Provide CDMP technical & financial underwriting data access Include credit enhancements (performance guarantees, insurance) Owner secures most “commercially-attractive” financing Existing mortgage holder 3rd party capital provider ESCO arranged Secure “Commercially-Attractive” Financing

28. Measure & Verify Energy Savings

29. Municipalities Opting in to C-PACE (as of Mar 2013) • Simsbury • Stamford • Stratford • West Hartford • Westport • Wilton • Windham • Beacon Falls • Bridgeport • Durham • Hartford • Middletown • Norwalk • Old Saybrook • Southbury • Coming soon: Waterbury, East Granby, Fairfield, Manchester, Wethersfield, New Haven, Meriden, Plymouth, Cheshire, Putnam

30. Summary • C-PACE technical underwriting enables energy savings to be forecast with a high degree of confidence resulting in a low risk of underperformance • Actual energy savings performance can be measured and verified in a reliable, consistent and fully-transparent manner • C-PACE is enabling EE financing to become a mainstream financial asset class with high degree of standardization, predictability & scale • C-PACE financing structure is very attractive to CRE owners and provides “an offer that is very difficult to refuse” • C-PACE represents a significant opportunity for ESCOs, auditors, project developers, consultants and contractors to increase their CRE business

31. First round of training sessions: March 22, 2013 Berlin, CT March 26, 2013 Norwalk, CT April 1, 2013 Berlin, CT Registration link and application on www.c-pace.com/application/contractor Auditor, Contractor & ESCO C-PACE Training

32. Understanding Connecticut’s C-PACE Technical RequirementsPresented by:Paul PopinchalkDirector of EngineeringMarch 19, 2013

33. C-PACE Program Industry Protocols • ASTM Building Energy Performance Assessment Standard E2797-11 • Methodology for collecting & analyzing baseline energy data • ASHRAE Level I, II, III Energy Audit Guidelines • Methodology to identify energy conservation measures (ECMs) & project energy savings with high degree of confidence • International Performance Measurement & Verification Protocol (IPMVP) • Methodology for energy savings measurement & verification

34. ASTM BEPA Standard to Establish Energy Use Baseline • What was the Problem? • What is the “building’s energy consumption? • Sounds simple, but “the devil is in the details” • Lack of standardization to collect and analyze building energy use ■ No consistent and transparent methodology existed for building energy use data collection to establish baseline conditions!

35. What does the ASTM BEPA “Standardize” in the Baseline? • The time frame over which data needs to be collected • 3 years or back to last “major renovation” if less than 3 years, with a minimum of 1 year of data meeting reliability criteria • What constitutes a “major renovation” ■A renovation involving expansion (or reduction) of a building’s gross floor area by 10% or more, or any renovation impacting total building energy use by more than 10%) • What weather data needs to be collected, from where and how it is to be statistically analyzed to establish baseline conditions (minimum 10 years HDD & CDD data from nearest weather station with historical data) • How the building energy use equation is developed (relating energy use to the independent variables that impact energy use)

36. What does the ASTM BEPA “Standardize” in the Baseline? • What constitutes an appropriate range for building energy use ■An upper limit with independent variables at the 75th percentile ■ A lower limit with independent variables at the 25th percentile • What constitutes the most representative value for building energy use (for benchmarking purposes) ■ Pro forma building energy use (based on mean values for independent variables) • Identifies criteria for collecting reliable building energy use data…

37. Criteria for Collecting Reliable Energy Use Data • No “major renovations” in time period • A minimum of 10 years of weather data from the nearest weather station (with historical data) to the building • Special criteria if only 12 months of energy use data is collected (non-weather independent variables must be within 15% of the monthly average determined over the previous 3 years) • Qualified professionals used for data verification (such as for gross floor area calculation, definition of vacant space, identification of pertinent building characteristics, electric meter box coverage, energy use in parking areas, major building energy use systems, independent variables impacting building energy use, etc.)

38. ASTM BEPA Standard Components Complements the ASHRAE Energy Audit: • Site Visit & Building “walk-through” (already part of the energy audit scope of work) • Interviews(already part of the energy audit scope of work) • Records Collection & Compilation (already part of the energy audit scope of work) • Records Review & Analysis (already part of the energy audit scope of work)

39. Summary of ASTM BEPA Methodology Develops building energy use baseline (energy use (total, fuel, electricity) as a function of independent variables impacting energy use) Can be used to project building energy use without ECMs installed Uncertainty analysis can be incorporated (by evaluating the standard deviation comparing actual energy use against projected energy use and selecting a confidence level) Determines normalized building energy use metrics (such as EUI, kBTU/SF-yr) for benchmarking

40. Benchmarking ■ Select one or more benchmarking models/databases as appropriate • CBECS (2003) • State-developed Benchmarking Initiatives (e.g., CA) • Energy Star (derived from CBECS) • Consultant’s Internal Benchmarking Data • Building Owner’s Internal Benchmarking Data • Commercial benchmarking services ← Selected by C-PACE ■ Benchmark against “peer” buildings • Building Total EUI • Building Fuel EUI • Building Electricity EUI

41. Energy Audit What’s done in an energy audit? • Establish baseline building energy use • Quantify energy use according to major building function • Benchmark against peer buildings • Recommend ECMs, project energy savings, estimate project cost and determine key financial metrics

42. Energy Audit cont’d ASHRAE provides guidelines for 3 types of energy audits: • Level I– “Walk-through Analysis” or “Preliminary Audit” • Level II – “Energy Survey and Analysis” or “Comprehensive Audit” • Level III– “Detailed Analysis of Capital-Intensive Modifications” or “Investment Grade Audit”

43. ASHRAE Level I Energy Audit • Building description • On-site walk-through (typically one day) • Collect historic building energy use and cost data • Benchmarking analysis • Identify potential ECMs and typical energy savings • Prioritize energy savings opportunities for further investigation (Level II Audit)

44. ASHRAE Level II Energy Audit • More comprehensive on-site survey (up to 1 week) • In depth analysis of historic building energy use and cost data (interval data, if available) • Identify energy savings opportunities (ECMs) • Identify ECM EULs and degradation factors • Project energy savings (building modeling) • Estimate costs (including incentives/rebates) • Recommend ECMs meeting criteria • Investment and cost savings analysis

45. ASHRAE Level III Energy Audit (IGA) • More comprehensive than Level II audit to bring a highest level of confidence • Generally for very capital intensive projects • More detailed field data gathering and more rigorous engineering analysis over a longer period of time (typically up to a month)

46. M&V Plan (C-PACE Requires Upfront) • Goal and objectives • ECM description and operation • Recommended M&V approach (IPMVP?) • Data analysis procedures and algorithms • Field monitoring (data points) • Reporting (CDMP)

47. IPMVP for M&V: Four Options (1) Option A: Retrofit Isolation - Key Parameter Measurement(e.g., a lighting retrofit where power draw is the key performance parameter measured, but where interactive impacts, to heating and cooling loads, can be calculated) (2) Option B: Retrofit Isolation - All Parameter Measurement in the field (e.g., install variable speed drive and controls to a motor, and measure electric power with a kW meter installed on the electrical supply to the motor) (3) Option C: Whole Facility - when a multifaceted energy management program affecting many interrelated systems is installed, and gas & electric utility meters exist to measure energy useat the facility (4) Option D: Calibrated Simulation (e.g., a multifaceted energy management program affecting many interrelated systems is installed, but no meters exist and building simulation model must be developed – such as for a new building or a college campus with central utility metering and no metering at individual buildings)

48. Option C-Usually Best for Commercial Whole Building Energy Retrofits • Multiple ECMs retrofitted in a commercial building (such as an office building, a hotel or a retail building) • ECMs involve activities whose individual energy use is difficult to separately measure (e.g., window upgrades) • Interactive effects or interactions between ECMs can be substantial • Historic energy use data exists (to establish the baseline) • Reasonable correlations can be developed relating building energy use to independent variables

49. IPMVP General Framework for Commercial Buildings: Pre-ECM Installation • Use energy audit to establish baseline energy use profile prior to installation of ECMs • Use baseline to project energy useinto the future (over the “reporting period”) had the ECMs not been installed • Use baseline to project energy useinto the future (over the “reporting period”) with the ECMs installed • Projected savings (“avoided energy use”) is difference between expected energy used assuming ECMs not installed and expected energy use assuming the ECMs installed (with both calculated under the same conditions)

50. IPMVP General Framework for Commercial Buildings: Post-ECM Installation • Determine actual energyuse in the “reporting period” with the ECMs installed • Use baseline to project energy usein the “reporting period” had the ECMs not been installed(calculated under the same conditions experienced while collecting actual energy use data) • Savings (“avoided energy use” in the “reporting period”) is difference between projected energy use had ECMs not been installed and the actual energy use after ECMs installed