Using EARLY-STAGE Analysis to Avoid Pitfalls in Microgrid Design

1. Using EARLY-STAGE Analysis to Avoid Pitfalls in Microgrid Design The Business of LOCAL ENERGY SYMPOSIUM JUNE 21, 2019 Rick Bolton Measure Twice, Cut Once

2. Disclaimer Notice Regarding Presentation This presentation was prepared by Compass Energy Platform, LLC (Compass) and Navigant Consulting, Inc. (Navigant) for informational purposes only. Compass and Navigant make no claim to any government data and other data obtained from public sources found in this presentation (whether or not the owners of such data are noted in this presentation).  Compass and Navigant do not make any express or implied warranty or representation concerning the information contained in this presentation, or as to merchantability or fitness for a particular purpose or function. This presentation is incomplete without reference to, and should be viewed solely in conjunction with the oral briefing provided by Compass. No part of it may be circulated, quoted, or reproduced for distribution without prior written approval from Compass. 

3. Compass Energy Platform Perspective Compass focuses on financially sustainable energy infrastructure development. • Need to work at scale to counteract climate change, to protect communities, and help them prosper. • Need to modernize the electric grid via distributed generation. • Need to help businesses and others save money. • Need for a collaborative development process that includes officials, utilities, businesses and community. • Need to derisk complicated energy projects. • Need to build energy projects that are financially attractive. • Need to focus initially on commercial models and define engineering accordingly.

4. Early-Stage Analysis Metrics Optimizing Value Conclusions Q&A

5. Early-STAGE ANALYSIS Early-stage analysis is used to assess the economic feasibility of energy infrastructure projects, setting the stage for technical design. • Early-Stage Analysis: What is it? • Focus on the economic feasibility of a technical asset or service. • Holistic thinking in early stages, detailed precision in later stages. • Commercial Model: Defining value • Early stage focus on project economics instead of engineering. • Who will the project serve? What services will it provide? How are these services valued? Who will pay? • Investor perspective: Is the project attractive? What sort of cash flows will it generate? • Development Path • Using project economics to define the assets to be developed.

6. A TYPICAL PROJECT A microgrid with distributed generation, serving multiple loads, with additional microgrid services. • Variety of services envisioned • Power and microgrid services (including resilience) to multiple off-takers. • Avoided distribution utility capital investments (VDER). • Interaction with wholesale energy market. • Private capital required • Need to demonstrate financeability to equity investor(s). • Need to demonstrate project viability to grant and tax incentive providers. • Need to address multiple community stakeholders • Environmental groups and residents interested in local and regional emissions impacts. • Local government and residents interested in jobs and economic development, along with code enforcement. • Utility interested in distribution services, but concerned about impact on system and costs.

7. Early-Stage Analysis Metrics Optimizing Value Conclusions Q&A

8. Tailoring Metrics to Stakeholders Metrics Microgrids are complex commercial ecosystems that require effective engagement and buy-in from a wide variety of stakeholders. Microgrid • Microgrids must offer compelling value propositions to a broad set of stakeholders in order to: • Secure funding. • Secure revenue. • Obtain permits and approvals. • Reduce costs. • Shorten development timeline. • Stakeholders vary in their perspectives, objectives, and priorities. • Early-stage approach and metrics should be tailored for each stakeholder Off-takers Social Stakeholders Investors

9. Off-takers Metrics Off-takers seek to receive services at a competitive cost without interfering with their core businesses. Wholesale Markets End Customers Utilities

10. FINANCIAL INVESTORS Metrics Financial investors seek financial returns that are aligned with their risk tolerance. Public Investors Equity Investor Debt Investor

11. Social Stakeholders Metrics Social stakeholders work on behalf of their constituents to represent societal interests. Local Community Government NGOs

12. Early-Stage Analysis Metrics Optimizing Value Conclusions Q&A

13. Questions By Stage / Stakeholder Optimizing Value The questions that need to be answered depend upon both stakeholder and stage. Ideation Design Origination Viability Implementation

14. Tailoring AnALYSIS to Development Stage Optimizing Value Tools and approach should vary with development stage in order to align with development priorities. Ideation Design Origination Viability Implementation

15. EARLY-STAGE Tools Optimizing Value Early-stage tools should be utilized to meet the needs of the development stage and stakeholder. Ideation Design Origination Viability Implementation Advanced analytical tools Spreadsheet tools Vendor-specific tools Rules of thumb Back of theenvelope Benefit-Cost Analysis Pro Forma Pro FormaModel Screening Tool Asset OptimizationModel

16. Avoiding Common Pitfalls Optimizing Value Careful consideration of approach can help to avoid common pitfalls in microgrid design. Issue Example Consequence

17. Early-Stage Analysis Metrics Optimizing Value Conclusions Q&A

18. Key Takeaways Conclusions Early-stage analysis can help to derisk a microgrid project for all parties. • Early-Stage Analysis - It is particularly critical in early stages of development to understand economic drivers that will make or break a project. • Metrics– Microgrids are highly complex commercial ecosystems engaging multiple stakeholders with varying interests that require different metrics to communicate value propositions. • Optimizing Value – Value optimization requires balancing and aligning the value propositions to produce a profitable, viable project. Optimization is incremental and varies by development stage.

19. Early-Stage Analysis Metrics Optimizing Value Conclusions Q&A

20. Contact