Clean/Green:Show me the Money!

Economic Backdrop: Is the World Recovering?

IMF’s “World Economic Outlook” forecasts 4.2% global growth vs -.6% in 2009 China to grow at 10% India to grow at 8.8% U.S. growth at 3.1% implies continued

unemployment rate of 10% or more Europe and Japan are lagging

Economists still worry about double dip recession PIGS credit crisis still threatens global

economy Sovereign risk could prolong the credit crisis State and local government contraction will

fuel further run up in U.S. unemployment

-2.50%

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2004 2005 2006 2007 2008 2009 2010

Inflation (% change, Month-on-Month)

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2004 2005 2006 2007 2008 2009 2010

Real GDP Growth (% change, Quarter-on-Quarter)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2004 2005 2006 2007 2008 2009 2010

Unemployment Rate

Is U.S. Economy Strengthening?

What’s Happening with State Finances?

Are States as Bad Off as it Seems?

State Budget Deficits vs. Total Budgets

$12.8$12.3

$10.0

$8.2

$4.7 $4.7$4.4

$4.1 $4.0 $4.0$3.4 $3.2

$2.7 $2.6$2.1 $2.0 $2.0 $1.8 $1.815.4%

8.8%

14.5%

24.6%26.4%

21.0%18.1%

14.8%12.5% 11.8%

9.7%

26.7%

34.0%34.3%

23.2%

13.3%

24.1%

59.8%

26.7%

$0

$2

$4

$6

$8

$10

$12

$14

IL CA NJ NY CT FL NC PA MN GA WI OH MA AZ WA MD MI NV CO

0%

10%

20%

30%

40%

50%

60%

70%

Shortfall % of FY10 Budget

Translation for Financing Economic paradox

Government spending is quickest, strongest stimulus we have Sustainability of government balance sheets is the central crisis in the world

Interest rates should remain fairly low in coming 12-18 months though concerns on inflation and deflation remain

Investors will continue on worldwide flight to quality Volatility will remain with us Risks are being studied with fine tooth comb

Public Bonds are on Sale

Credit Spreads Narrowing

Government Funding Programs for Clean/Green Energy

Federal Programs

State and Local Programs

Roadmap to ARRA Clean-Green Economy

11

DOE Renewable Energy Loan Guarantees: Key Program Provisions EPAct Title XVII § 1705 authorizes guarantees for projects that commence

construction by September 30, 2011 to include any of the following: Renewable energy systems, including incremental hydropower, that generate electricity or

thermal energy, and facilities that manufacture related components; Electric power transmission systems; or Leading edge biofuel projects (pilot or demonstration scale)

DOE program concept is that the state can commit DOE loan guarantee to a project in its state Proposals from states submitted early this year but nothing yet approved No real progress being seen yet

Primary areas of DOE interest is: Ability of state agency to provide credit review and loan processing and management Requirement that the state have stake in the program, as through direct loan, guarantee,

equity, etc.

DOE Loan Guarantee ConsiderationsFinancial Attributes Third party supply or off-take agreements EPC contracts with liquidated damages Detailed construction contracts and bids Permitting and environmental review Intellectual property rights must be secure Equity commitments need to be secured before applications Project site control essential Working financial models showing assumptions, reserves and sensitivity analysis Favorable market and competition review

Technical Attributes Engineering reports Technological advantages Mitigation of technology risk

IFA Loan Guarantee Program Guidelines SB 1906 and SB 390 together authorize up to $3 billion in moral obligation support for

renewable, clean and efficient energy projects General terms

Preference for 7 year term Commercially available technology Verifiable, quantifiable savings 1.05x coverage Up to 100% financing may be available

Process: Generally 1-2 months from application Application and review IFA Energy and Credit Committee review Inducement resolution Final resolution

Sample projects: Efficient lighting, appliances, HVAC Insulation Efficient boilers and refrigeration Occupancy sensors

14

Qualified Energy Conservation Bonds

$3.2 billion of QECBs authorized in Stimulus Bill

Eligible QECB uses include: Energy efficiency capital expenditures in public

buildings Renewable energy production Various research and development applications Certain mass commuting facilities Several types of energy related demo projects Public energy efficiency education campaigns Renewable energy

QECB Program Mechanics

Tax Credit Treatment

Tax credit is treated as income Unused credits may be carried over, but

not refunded 70% of tax credit rate set daily by U.S.

Treasury Credits can be stripped (same rules as

stripping of interest from T-E bonds, expanding flexibility of program and investor base)

Direct Interest Subsidy for Bonds Issued After December 31, 2009

Lesser of interest rate on bonds or 70% of interest on bonds at tax credit rate

15

New Clean Renewable Energy Bonds Additional $2.2 billion (in addition to $1.2 billion that has already been allocated) of new CREBs awarded to 805 projects in October 2009

Eligible Purposes: To finance qualified renewable energy facilities that produce electricity – solar, wind, closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, marine renewable and trash combustion facilities

Allocation1/3 to state/local/tribal governments1/3 to public power projects1/3 for electric cooperatives

New CREB Program Mechanics

Tax Credit Treatment

Tax credit is treated as income Unused credits may be carried over, but

not refunded 70% of tax credit rate set daily by U.S.

Treasury Credits can be stripped (same rules as

stripping of interest from T-E bonds, expanding flexibility of program and investor base)

Direct Interest Subsidy for Bonds Issued After December 31, 2009

Lesser of interest rate on bonds or 70% of interest on bonds at tax credit rate

16

Energy Performance Contracting Still Growing

Source: Introduction to Energy Performance Contracting. Prepared by ICF International and National Association of Energy Services Companies, October 2007

• 20% annual growth from 1990 to 2000

• 3% annual growth from 2000 to 2004

• 22% annual growth from 2004 to 2008

• Factors attributing to diminished growth

from 2000 to 2004 include:• Collapse of Enron• Suspension of the federal ESPC program• Uncertainty about the deregulation of the electric utility industry

17

EPC Market Characteristics

MUSH (municipals, universities, schools and hospitals) market and the federal market account for about 80% of the total EPC projects. Commercial building projects comprise about 9%, industrial projects about 6%, and residential and public housing projects the remainder

58%

22%

9%

6%

2%3%

MUSH Market

Federal Market

Commercial BuildingProjects

Industrial Projects

Public Housing Projects

Residential Projects

Source: Introduction to Energy Performance Contracting. Prepared by ICF International and National Association of Energy Services Companies, October 2007

Property Assessed Clean Energy (PACE) Berkeley led the way and now 16 states have some PACE efforts approved and 10

more evaluating it Voluntarily impose special assessment on property tax bill that is used to finance

selected clean energy and efficiency projects Property tax remains with property, not owner and are therefore generally a prior

claim to mortgage payments Nonprofit banking organization emerging to fund the improvements against future

incremental tax receipts Large scale roll out will depend on ability of sponsoring government to enhance and

homogenize the credit for investors (e.g. Boulder County moral ob backing their $10 million debt – 600 residential properties )

Banks remain skeptical that the improvements translate to higher home values Efforts underway for PACE legislation and programs around the country How rest of nation responds remains to be seen

How secure is the revenue stream supporting the debt?Will banks let this debt come ahead of their mortgage rights?