1. Lean & Green Michigan and Property Assessed Clean Energy A Financing Breakthrough End Energy Waste with Positive Cash Flow Andrew S. Levin, JD andy@levinenergypartners.com http://www.leanandgreenmi.com MACAO Conference, Crystal Mountain May 25, 2016

2. Buildings use 44% of energy in the United States (not counting industrial use) 30% of that energy (and expense) is wasted! Massive investment opportunity (McKinsey & Co. estimate: $520,000,000,000) Copyright © Levin Energy Partners, LLC. All rights reserved. www.leanandgreenmi.com The Problem: Energy Waste

3. Comprehensive energy efficiency upgrades take 5-20 years to pay back So businesses keep wasting energy and money! Copyright © Levin Energy Partners, LLC. All rights reserved. www.leanandgreenmi.com The Problem: Energy Upgrades Payback vs Typical Bank Loan Years

4. Property Assessed Clean Energy (PACE) PACE brokers long-term financing so business property owners can undertake energy improvements profitably – making their business more efficient while gaining positive cash flow to plow back into operations. The Solution: From “What’s the ROI?” to “immediately improved NOI” – for up to 20 years!

5. What is PACE? Copyright © Levin Energy Partners, LLC. All rights reserved. www.leanandgreenmi.com Financing through property tax special assessment 100% financing 10-20 year terms Contractor must guarantee that energy savings will exceed the owner’s PACE payments over the life of the project

6. Paying for energy upgrade through property tax system is completely different than regular loan Lender becomes beneficiary of a tax lien Will lend $ at competitive fixed interest rate for 20 years – bingo – positive cash flow Clean energy projects go from pie-in-sky “nice ideas” to hard-nosed, bottom line winners Why Scientific American Called PACE a World Changing Idea

7. PACE Financing Benefits Copyright © Levin Energy Partners, LLC. All rights reserved. www.leanandgreenmi.com Leading to more projects and larger projects! Payments and benefits “run with the land” Creates fluid market for buying and selling greened properties Fundamentally less risk for lender Non-recourse (no personal guarantee) Solves the “split incentive problem” – payments and benefits can be shared with tenants Solves the “CFO dilemma” – the money can’t be used for anything else

8. PACE is an economic development incentive that requires no taxpayer money. The county is simply giving its businesses a property tax tool to make long-term financing work for clean energy projects. PACE As Public Policy

9. PACE Legislative Map 9 33 States + DC, 80+% of US Population 2009 2013 2009 2015 2008 2013 2011 2010 2012 2010 2009 HI Existing Authority 2016 legislative initiatives 2013 9 2014 2015 PACE enabled 2015 2016

10. 10 C-PACE P ROGRAMS T ODAY 730+ Projects – $230+ mil – 2,700+ jobs created 10 PACE programs with funded projects Early stage PACE program development Launched PACE programs PACE enabled RI DC

11. PACE Commercial Market Stats Cumulative Financing 11 Displaying data for projects with known closing dates (totaling approx. $217 million)

12. Background Michigan’s PACE Statute Public Act 270 of 2010 became law on 12/14/2010 Affords great flexibility on financing arrangements Allows up to 100% financing Allows refinancing Allows “direct payment” Requires mortgagee consent Performance guarantee above $250K Allows municipalities to work together Nationally significant; copied by TX, VA, etc.

13. Who can take advantage of PACE? Any business: commercial, industrial, agricultural, multi-family Private non-profits (churches, hospitals, private schools and colleges, etc.) Who can not use PACE under the MI statute? Single family homes Government buildings Copyright © Levin Energy Partners, LLC. All rights reserved. www.leanandgreenmi.com

14. What types of properties are eligible? PACE lenders underwrite PACE projects carefully Property is healthy and likely to continue to be used for 10-20 years Property is not overly leveraged (debt load is 80% or less) Project value does not exceed 25% of the property’s market value High energy: spending over $5000 per month Copyright © Levin Energy Partners, LLC. All rights reserved. www.leanandgreenmi.com

15. Energy efficiency improvements Water efficiency improvements Renewable energy improvements 100% of eligible project costs Refinancing all of above What can be financed? Copyright © Levin Energy Partners, LLC. All rights reserved. www.leanandgreenmi.com

16. Insulation Caulking, weather-stripping, and air sealing Windows Doors Energy control systems HVAC Energy recovery systems Lighting fixtures and day lighting systems Electrical systems to charge PEVs and HPEVs Water use reduction or efficiency Energy-efficient or water-efficient manufacturing processes and equipment Biomass Solar photovoltaics Solar thermal Wind Geothermal Methane gas captured from a landfill Anything else approved as a "utility cost-savings measure" Exclusions: incinerator and digester Eligible Measures Copyright © Levin Energy Partners, LLC. All rights reserved. www.leanandgreenmi.com

17. What We Do: The Lean & Green Model Three Key Concepts: Copyright © Levin Energy Partners, LLC. All rights reserved. www.leanandgreenmi.com 1. Public-private partnership: counties/cities join for free; no barrier to entry or exit 2. Statewide, opt-in program: one lean & efficient PACE market for whole state (only one set of rules for contractors to learn!) 3. Use private capital to unleash the market to drive growth

18. So How Are We Doing? A fast growing market 27 local govt’s have joined program They represent 54% of population Even higher % of biz-to-biz economy More local govt’s join every quarter Having project ready to go is good idea Copyright © Levin Energy Partners, LLC. All rights reserved.

19. Michigan Public Service Commission Michigan Agency for Energy Building Solar, LEDs, variable speed motors About $450,00 in upgrades Over $800,000 in lifetime savings Eaton County (just outside Lansing in Delta Twp.) First PACE project by a state agency in U.S. Michigan PACE examples

20. First Beer Distributor in US Completes PACE Financing Copyright © Levin Energy Partners, LLC. All rights reserved. www.leanandgreenmi.com Project Financing: Total Assessment:$445,330 Annual Payment: $40,000 Annual Savings: $66,000 Annual Cash Flow: $26,000! Impact: Approx. 370,000 KWh savings annually Electricity use reduction: Approx. 20% Building: 200,000 square feet Built: 1998, 2008, 2013 Improvements: 100 kW solar PV installation & LED lighting Powers Distributing Orion Township, MI Solar PV and LED lighting had already been installed Company used PACE for long-term refinancing Powers also decided to treat it as off balance sheet, freeing up capital for other projects

21. First USDA-Approved Affordable Housing PACE Project in US Cambridge Court Apartments Greenville, MI Affordable housing owners do not have capital available to complete property upgrades. With PACE, tenant comfort is improved and property operating costs are reduced. Project Financing: Total Assessment:$117,580 Annual Payment: $10,500 Avg. Annual Savings: $17,000 Avg. Annual Cash Flow: $6,500 Impact: Approx. 40% annual reductions, or: 50,000 kWh electricity 6,700 CCF natural gas 312,000 gallons water Building: 27,000 square feet – 2 buildings Built: 1988 Improvements: Solar, low-flow plumbing, high-efficiency boilers, thermostats, Energy Star appliances

22. Lean & Green Michigan Pipeline Over $60M of projects of astounding variety Copyright © Levin Energy Partners, LLC. All rights reserved. www.leanandgreenmi.com Auto parts mfr. in suburbs ($1M) Detroit foundation ($1M) Food co-op in N MI city ($400K) Repurposed Detroit factory ($4M) Senior living in suburbs ($3M) Major mall in Ann Arbor ($650K) Downtown Detroit office bldg. ($3M) Apartment building in NW MI ($250K) YMCA in midsized city ($1.5M) Rural private university ($2.5M) Food pantry in SE MI city ($600K) Industrial facility “Up North” ($8.5M) Brewpub addition in Detroit suburb ($600K) Iconic facility on Detroit River ($1M) Factory converted to arts hub ($2.5M) Multi-building food-beer-whiskey redevelopment in suburb ($2M) Detroit baking facility ($400K) Injection molding mfr. ($1.2M) SE MI urban multifamily refinance ($1M)

23. Economic Development Property owners Save money, get green PR Contractors Close more and bigger deals Local government Improved business climate Free economic development tool Green PR Rising property values/tax revenue Citizens More jobs More comfortable buildings Cooler, cleaner planet Market opportunity Commercial building owners to invest almost $1 trillion in efficiency through 2023 Growing 7% per yr. on average Copyright © Levin Energy Partners, LLC. All rights reserved. www.leanandgreenmi.com

24. Questions and Discussion Copyright © Levin Energy Partners, LLC. All rights reserved. www.leanandgreenmi.com

25. Lean & Green Michigan and Property Assessed Clean Energy A Financing Breakthrough End Energy Waste with Positive Cash Flow Andrew S. Levin, JD andy@levinenergypartners.com http://www.leanandgreenmi.com Copyright © Levin Energy Partners, LLC. All rights reserved. www.leanandgreenmi.com

26. Over 100 Banks Have Consented Copyright © Levin Energy Partners, LLC. All rights reserved. www.leanandgreenmi.com Great resources on lender consent and support from PACE Now: Lender support handbook Lender support handbook Lender support study Lender support study 2014 update One-pager