Assistant Secretary of the Army (Installations, Energy & Environment) UNCLASSIFIED Privately Financed Projects - Keys To Success Ms. Kathy Ahsing August 12, 2015 Office of Energy Initiatives1

Assistant Secretary of the Army (Installations, Energy & Environment) Keys to a Successful Deployment 2 1.Strategy, Goals, & Principles 2.Understand the Deal 3.Manage the Process 4.Garner Stakeholder Support The Office of Energy Initiatives (OEI) serves as the central management office for partnering with U.S. Army installations to implement cost-effective, large-scale renewable energy projects, leveraging private sector financing Office of Energy InitiativesUNCLASSIFIED

Assistant Secretary of the Army (Installations, Energy & Environment) Strategy, Goals, & Principles Office of Energy InitiativesUNCLASSIFIED3 Two of five strategic goals under the Army’s Energy Security and Sustainability Strategy are supported by privately financed renewable energy projects Within the strategic goals, all privately financed projects must meet at least two of three underlying principles that is clean, reliable, and affordable Securing Army Installations with energy The challenge is developing a balanced portfolio that supports all three principles

Assistant Secretary of the Army (Installations, Energy & Environment) Market Analysis  Technology  Capacity  Economics  Regulatory/Legislation  Offtake Installation Drivers  Highest Cost  High Demand  High Value Energy Security Sites  Reliability & Volatility Stakeholder Input  Army Leadership  Commands  Installation  Industry  Community  Partners Army Land 150+ installations Resource Drivers 4 Finding the Balance Point Office of Energy InitiativesUNCLASSIFIED New Opportunities

Assistant Secretary of the Army (Installations, Energy & Environment) Basic Economics: Is there a deal 5 Projects must deliver financial returns to investors to be financeable by private capital Under a energy purchase agreement, the Army is purchasing a service over time and relies on third party developers to obtain financing from debt and equity investors The terms in the energy purchase agreement along with other project agreements and developer obligations provide for a credit sufficient to make the transaction bankable Price is also important for projects that use Army lands but do not have a energy purchase agreement– if the price of power from the project to consumers is not competitive, revenue is not available to the developer and the project will not be financed Office of Energy InitiativesUNCLASSIFIED

Assistant Secretary of the Army (Installations, Energy & Environment) Project Price: Is there a deal A viable project: Provides good internal rate of return (IRR) Is priced below the Army’s ceiling, or Is price competitive in the market The price ceiling is calculated by first fully understanding the details of the installations utility bills including: Energy, demand, and other charges Energy profiles Tariff stand by charges If the price of power for the project to consumers is not competitive, revenue is not available to the developer and the project will not be financed Office of Energy InitiativesUNCLASSIFIED6 Projected Price Army Price Ceiling Energy Price Project IRR 12% 8% Flawed project: Project price to produce a marketable IRR is higher than the Army price ceiling Projected Price Army Price Ceiling Energy Price Project IRR 12% 8% Financially viable project: Project price is below Army price ceiling and provides a project IRR in the marketable range

Assistant Secretary of the Army (Installations, Energy & Environment) Strong Project Fundamentals –8 risk areas that “make or break” projects –Beware interconnection between risks –Develop mitigation strategies Process Discipline –Resource allocation & managing project risk –An iterative process –Focus on low risk, high value projects Timing –Align with market conditions –Understand comprehensive timeline –Deploy resources with speed & agility Office of Energy InitiativesUNCLASSIFIED7 Manage the Process

Assistant Secretary of the Army (Installations, Energy & Environment) Engage & Garner Stakeholder Support 8 A project can have numerous stakeholders including: -Installation staff and leadership -Headquarters leadership -Environmental and community advocates -Contract and real estate partners -The servicing utility and public utility commission -State and local governments regulators Proactively managing risks and seeking comments and input turns key stakeholders into strong project advocates Office of Energy InitiativesUNCLASSIFIED Photo from Warren Gretz, NREL/PIX Ground breaking at Fort Stewart, GA

Assistant Secretary of the Army (Installations, Energy & Environment) Keys to a Successful Deployment 9 Clear Strategy, Objectives, & Principles –Anchors the project –Assists in finding the balance point Understand the Deal’s Value Proposition –Army and developer motivations –Economic conditions Manage the Process −Strong project fundamentals −Process Discipline −Timing Engage & Garner Stakeholder Support Biomass facility at Fort Drum, NY Solar PV installation at Fort Huachuca, AZ Office of Energy InitiativesUNCLASSIFIED

Assistant Secretary of the Army (Installations, Energy & Environment) Stay Connected with the OEI 10 The OEI engages with industry stakeholders, the media, and our local communities Join us for major events and milestones including g round breakings industry days, RFPs, contract awards, ribbon cuttings, and more. Follow our progress by signing up to receive our bi-monthly newsletter and OEI blasts at Learn more about our process by reading the Army Guide: Developing Renewable Energy Projects by Leveraging the Private Sector Engage with our leadership attending the Energy Exchange Amanda Simpson – Executive Director Erich Kurre – Project Director George Robitaille – Project Director Office of Energy InitiativesUNCLASSIFIED

Assistant Secretary of the Army (Installations, Energy & Environment) Office of Energy InitiativesUNCLASSIFIED11