J A N U A R Y 2 0 2 0

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• ESCOs• Utility Program Management• Building Optimization• Energy Management

Systems• LED and Smart Lighting

Systems• Energy Storage• Electric Submeters

• Demand Response/Smart Grid

• Billing & Workforce Management

• Distribution Automation• Microgrids/Asset

Management• EV Charging

• 16 professionals based in Richmond, VA

• 15+ closed transactions in the last 24 months

Energy Management

Luke SempleManaging Director

lsemple@harriswilliams.comOffice: (804) 915-0158

2017

Vertical Focus AreasEnergy, Power & Infrastructure (“EPI”) group

• Energy Management• Renewables and

Distributed Energy• Industrial and

Infrastructure Services• Outsourced Utility Services

• Oilfield Services• Engineering and

Construction• Environmental Services• TIC & Integrity Services

has been acquired by

Provider of integrated software, data and analytics solutions to the global energy market including financial services, capital markets, and trading and risk professionals

has received a minority

investment from

Leading cloud-based provider of energy services management software and behavioral energy efficiency solutions

has been acquired by

Provider of demand response capabilities, energy efficiency projects and distributed generation assets to identify, optimize and monetize across distributed energy assets

has been acquired by

Leading independent ESCO serving the federal, MUSH, and commercial and industrial end markets

has been acquired by

Provider of integrated cloud-based demand response, energy efficiency and customer engagement solutions for utility customers

has been acquired by

Leading designer of smart submeter systems and integrated energy intelligence software

has been acquired by

Develops and markets transportation analysis software for improving traffic flow

has been acquired by

Leading provider of energy efficiency and renewable energy services in the Southwestern U.S.

has been acquired by

Leading implementer and administrator of energy efficiency programs

has been acquired by

Leading provider of demand-side management (“DSM”) solutions to utility clients

Energy, Power & Infrastructure

Drew SpitzerManaging Director

aspitzer@harriswilliams.comOffice: (804) 915-0174

Select Energy Management Transactions

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The ongoing shift towards more sustainable energy represents a more than $4 trillion opportunity over the next several decades. Energy service companies (ESCOs) are on the leading edge of this shift, helping a wide range of organizations boost efficiency and cut energy costs.

Understanding the ESCO landscape

Where are we today?

Where are we headed?

Key considerationsfor investors

Introduction to the sector

Key characteristics and drivers of value

Current market landscape

Historical strategic and private equity investment in the sector

Focus areas for strategic players

Private market participants

ESCO landscape scorecard

Key considerations for investors

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Our goal is to provide an overview of the North American ESCO landscape and framework for investment opportunities in the context of the ongoing energy transition.

Purpose

Provide an overview of the North American ESCO market

Explore trends and areas of focus in the M&A market

Provide a framework for exploring investment opportunities in the sector

Scope

For the purposes of this discussion, we have focused exclusively on the North American market

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Direct benefitDirect benefit

An ESCO is a professional services business providing a broad range of comprehensive energy efficient solutions, including design and implementation of energy savings projects, energy infrastructure outsourcing, power generation and energy supply, including the design and installation of DERs, and risk management.

ESCOs perform in-depth analyses of physical properties, design energy efficient solutions, install proper elements and maintain the systems to ensure energy savings. The savings in energy costs are often used to pay back the capital invested in the project over a five- to 20-year period, or reinvested into the building to allow for capital upgrades that may otherwise be unfeasible. These energy efficiency projects are executed through a variety of financing structures (as outlined on page 8 herein).

Municipal

The Problem

Schools Hospitals Universities C&I

Aging plant and equipment

Rising electricity costs

Sustainability initiatives

ESCOs Provide Customers with a Compelling Value Proposition

Municipal

The ESCO Solution

Schools Hospitals Universities

Upgrade and replacement of existing plant/equipment

Lower energy costs

No or limited up-front capital investment

Increased resiliency

Enhanced occupant satisfaction, health and safety

C&I

Rising Electricity Prices1

(cents per kilowatt-hour)

1.) U.S. Energy Information Administration

$0.04

$0.06

$0.08

$0.10

$0.12

$0.14

$0.16

$0.18

2018 2020E 2022E 2024E 2026E 2028E 2030E

Residential Commercial Industrial

Service Commitment

Current energy costs

25%+

Analysis

Collection of data and evaluation of savings potential

Concept

Design of the measures and definition of the baseline

Implementation

Execution of the various measures and verification of savings

Service

Inspection, maintenance, repair and ensuring of savings

Renewal

End of the contract period

Reduced energy costs

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Federal projects typically have many facilities and are comprehensive retrofits

Public policies have enhanced and influenced the increased development of ESCO projects at the state and local levels

K-12 schools have started to install capital-intensive, low-energy savings measures to address maintenance backlogs

Universities have the highest median project investment levels of any market with a median project investment level of ~$7M

Major HVAC retrofits account for over 50% of project investment on healthcare facilities

Underserved market that is seeing rising energy costs and new technologies improving economics of energy efficiency

Historically, ESCOs have primarily concentrated on projects for municipalities, universities, schools and hospitals (the “MUSH” market) and the federal government. Increased adoption of energy efficiency measures and DERs by commercial and industrial (C&I) represent a significant market opportunity for ESCOs in the years ahead.

1.) Federal includes housing/other in 2008, 2011, 2014.Source: LBNL, U.S. Energy Service Company Industry: Recent Market Trends (2016), State of the U.S. ESCO Industry (2019)

ESCO Industry Market Segments Overview of Market Segments

(% of investment $)

Federal

State/Local

K-12

Universities

Healthcare

C&I1

0%

25%

50%

75%

100%

2008 2011 2014 2017

Federal State/Local K-12 Universities Healthcare C&I

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ESCOs typically provide a broad scope of services for end users and, in recent years, projects have increased in scope and complexity. For purposes of classification, Lawrence Berkeley National Labs classifies projects into Dominant Retrofit Strategies (DRS), which are summarized below.

Primary ESCO Services1

1.) Source: LBNL, State of the U.S. ESCO Industry (2017)

Dominant Retrofit Strategy (DRS) Representative Examples

DERs

Installation of on-site generation, including solar, natural gas generation, backup generation systems and biomass

gasifiers

Installation of energy storage assets

Facility Management Continuous commissioning, monitoring and preventive maintenance

Lighting-Only Installation, upgrade and replacement of lighting control systems

Lighting retrofits

Major HVAC Major replacement of HVAC equipment, such as boilers, chillers and cooling towers

Minor HVAC Modifications and upgrades to existing equipment

Motors and Drives Repair and replacement of pump systems

Repair and replacement of variable speed drives and electric motors

Non-Energy Non-energy facility improvements such as roof replacements and environmental abatements

System Integration Coordinating the planning and operation of energy systems across multiple pathways and/or geographical scales

Water Conservation Installation of water conservation measures, including low-flow showers, faucets and toilets

Installation of meters and leak detection equipment

Other Installation of other high-efficiency equipment

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$6

$37

$104

$12

$85

$168

$0 $50 $100 $150 $200

Federal

C&I

MUSH

Upside Case Base Case

Over the last several decades, the ESCO industry has generated significant energy savings across the economy through the installation and maintenance of energy efficiency equipment. U.S. ESCO annual industry revenues increased from approximately $2 billion in 2000 to nearly $8 billion in 2017.

As the market has evolved, ESCOs have emerged as key players in the installation of not only energy efficiency initiatives, but also on-site renewables, storage and other distributed energy infrastructure.

1.) Reflects the midpoint of the Base Case and Unfettered Case, respectively.Source: LBNL, Updated Estimates of the Remaining Market Potential of the U.S. ESCO Industry (2017)

Addressable Market1 Key Growth Drivers

~$150 to ~$300 billion in remaining market opportunity

Deployment of New Technologies

• There are a number of large, vertically integrated ESCOs that both develop and deploy emerging technologies that can increase the market potential beyond what was originally estimated based on efficiency technologies that were commercially available during the last 5-10 years

Subsequent Retrofits in Existing Facilities

• Building owners and operators may opt for additional retrofits in a facility that has implemented an ESCO project to capture benefits of additional measures

Project Savings Due to O&M Savings

• It has been reported that public facilities, which are often targeted by ESCOs, have a significant backlog of deferred maintenance. For example, U.S. K-12 schools have a total maintenance backlog of ~$250 billion

Increased Number of ESCO Industry “Champions”

• All 50 states have enacted legislation that enables various types of institutional facilities in a state to engage in ESPC

($ in billions)

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In addition to funding through traditional secured and unsecured lease and loan structures, the energy efficiency market utilizes specialized financing products designed to reduce up-front capital investments and encourage greater adoption of energy efficiency measures.

Representative Financing Sources

Type Description

Energy Service Agreement (ESA) Energy Service Agreements are agreements between a customer and the ESA provider that provides financing for the project and

delivers energy savings (i.e., megawatt hours) at a negotiated price (less than retail rates for energy services).

Energy Savings Performance Contract Under an Energy Savings Performance Contract (ESPC), an energy service company (ESCO) coordinates installation and

maintenance of efficiency equipment in a customer’s facilities and is paid from the associated energy savings. The ESCO typically

provides a savings guarantee.

Commercial PACE (CPACE)

Financing

Commercial property-assessed clean energy (CPACE) is a financing structure in which building owners borrow money for energy

efficiency, renewable energy or other projects and make repayments via an assessment on their property tax bill. The financing

arrangement then remains with the property even if it is sold, facilitating long-term investments in building performance.

On-Bill Financing/Repayment

(OBF/OBR)

On-bill financing (OBF) and repayment (OBR) are financing options in which a utility or private lender supplies capital to a customer to

fund energy efficiency, renewable energy or other generation projects and is repaid through regular payments on an existing utility

bill.

Power Purchase Agreement (PPA) A Power Purchase Agreement (PPA) is an arrangement in which a third-party developer installs, owns and operates an energy system

on a customer’s property. The customer then purchases the system’s electric output for a predetermined period. A PPA allows the

customer to receive stable and often low-cost electricity with no up-front cost.

Efficiency-as-a-Service (EaaS) Efficiency-as-a-service is a pay-for-performance, off-balance-sheet financing solution that allows customers to implement energy and

water efficiency projects with no up-front capital expenditure. The provider pays for project development, construction and

maintenance costs.

Loan or Debt Financing Customers can borrow money directly from banks or other lenders to pay for energy efficiency, renewable energy and other

generation projects. The customer must then arrange the purchase, installation and management of equipment by a third-party

contractor or in-house staff.

Lease Financing A lease is a simple financing structure that allows a customer to use energy efficiency, renewable energy or other generation

equipment without purchasing it outright. The two most common types are on-balance-sheet capital leases and off-balance-sheet

operating leases.

Internal Funding Internal funding refers to the use of an organization’s existing financial resources to pay for energy efficiency, renewable energy or

other generation projects, rather than seeking external financing. This is often the most simple and direct method for funding

projects.

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Innovative EaaS solutions have emerged as an attractive model to further expand the market for energy efficiency services. InEaaS contracts, the service provider maintains ownership of the installed assets and the customer pays for the services provided by the assets.

The EaaS Model1 Case Study: The Ohio State University2

Pays monthly, quarterly or annualservice charge for realized

energy savings

Designs project, installsequipment, provides

maintenance andmonitoring service

Vendor Energy-as-a-Service (EaaS)

Provider

Customer Commercial Building Owner

Energy Service Agreement

(ESA)

Energy Service Performance

Contract (ESPC)

Contractor Energy Services Company

(ESCO)

Situation at a Glance

Ohio State entered into a $1.165 billion public-private partnership that will establish the university as an international leader in sustainability while generating new resources to advance teaching, learning and research

ENGIE North America and Axium Infrastructure, which are world leaders in energy services and sustainability, created Ohio State Energy Partners to serve the university

How It Works

On behalf of Ohio State Energy Partners, ENGIE Services operates the systems that power, heat and cool the Columbus campus and will install energy conservation measures to meet the university’s sustainability goal for energy

3High-Voltage Substations

750kMWH of

Electricity

$115MAnnual

Spending

110MW Peak Demand

2.9MmmBTUs of

Steam

OSU at a Glance: Energy Profile

What Ohio State Gets

In return for a 50-year lease, Ohio State Energy Partners paid Ohio State $1.015 billion up-front and will pay an additional $150 million in direct academic collaboration support. In addition, the consortium will put up the capital funds for and install energy conservation measures and other energy infrastructure improvements

1.) Source: American Council for an Energy-Efficiency Economy, Energy-as-a-Service2.) Source: The Ohio State University, Comprehensive Energy Management Opportunity

The EaaS model shifts the burden of financing, owning, installing and managing the performance of an energy asset from the

customer to the service providerWhat Ohio State Pays

Ohio State pays Ohio State Energy Partners an annual utility fee that includes three elements: an operating fee to cover costs (starting at $9.2 million based on a three-year average of university costs), a fixed fee that starts at $45 million and grows 1.5 percent a year, and a financial return for any capital investments it funds at the university

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The ESCO market remains fragmented with market participants ranging from sector-focused players to larger, diversified players from a variety of markets, including industrial technology, utilities, engineering and construction, international energy services, building and facility services, renewables and professional services.

ESCO Market Participant Taxonomy

Industrial Technology

Building and Facility Services

Energy EfficiencyEngineering & Construction

Lighting

International Energy Services

Professional Services Renewables Utility

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ESCOs and adjacencies have a long history of M&A activity.

Acquirers

Targets

2010

2011

Quantum Engineering

Ennovate Corporation

2012

2013

2014

2015

2016

2017

2018

2019

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Strategic Energy Management Investments since 2017

Smart Buildings

Energy Efficiency

E-Mobility

Energy Services

Smart Buildings

Software Consulting

Data Analytics

Infrastructure Solutions

Distributed Energy

Demand Response

E-Mobility

Demand Response

Energy Efficiency

E-Mobility

E-Mobility

Demand Response

Residential Retailer

Demand Response

EV Charging

Energy Storage

Demand Response

Smart Buildings

Data Analytics

EV Charging

Energy Storage

Distributed Energy

Smart Buildings

Energy Storage

EnergyEfficiency

Acquirers

Targets

2017 2018 2019

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Select Private ESCO Market Participants

Company Ownership Headquarters

Bernhard Energy SolutionsBernhard Capital Partners Baton Rouge, LA

CenergisticKleiner Perkins Dallas, TX

Clear EnergyPrivately Held Fayetteville, AR

CM3 Building SolutionsPrivately Held Fort Washington, PA

CMTA Energy SolutionsPrivately Held Prospect, KY

Energy Solutions ProfessionalsPrivately Held Overland Park, KS

EnvocoreDFW Capital Partners Gambrills, MD

Metco EngineeringPrivately Held Dallas, TX

SitelogIQOaktree Power Opportunities Minneapolis, MN

Stark Tech GroupPrivately Held Tonawanda, NY

VeregyBow River Capital Phoenix, AZ

The ESCO remains fragmented with a range of private participants, including regional and local players as well as private equity-backed platforms.

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Key Market Segments Market DriversAddressable

MarketMarket Outlook

Aging building stock

Operational improvements

Technology advancement

Regulations/legislation

Financing advantages

Improving indoor environment, security and comfort

Corporate sustainability and environmental priorities

Increasing tenant occupancy and property values

Economics and shortening payback periods

Resiliency needs and security

Transition toward distributed energy resources and privatization

Regulations and federal mandates

Dynamic DOD/DOE initiatives

Deferred maintenance

MUSH1

$104B+

$37B+

$6B+

Commercial & Industrial

Federal

1.) Municipalities, universities, schools and hospitals

Critical market segment

Underserved relative to the opportunity

Offers counter-cyclical and technologically advanced diversification

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What Should Investors Be Looking For?

Comprehensive energy efficiency

offeringDER capabilities

Demand management

Controls integration capabilities

Measurement and verification

Facilities management capabilities

Project finance solutions

Engineering expertise

Proven project execution

Technology leadership

Demonstrated ability to attach to the customer

at multiple offerings

Business analytics and

reporting

End market diversity

Depth of customer

relationships

Sales pipeline development and

conversion

Proven track record of organic

and inorganic growth

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