Energy Project Financing:

Resources and Strategies for Success This page intentionally left blank Energy Project Financing:

Resources and

Strategies for Success

Albert Thumann, P.E., C.E.M.

Eric A. Woodroof, Ph.D., C.E.M., CRM Library of Congress Cataloging-in-Publication Data

Thumann, Albert.

Energy project financing : resources and strategies for success / Albert

Thumann, Eric A. Woodroof.

p. cm.

Includes index.

ISBN 0-88173-597-3 (alk. paper) -- ISBN 0-88173-598-1 (electronic) -- ISBN

1-4200-8386-4 (distribution by taylor & fancis : alk. paper)

1.  Energy conservation--Finance. 2.  Industries--Energy conservation--

Finance.  I. Woodroof, Eric A. II. Title.

HD9502.A2T5187 2008

658.2’6--dc22

2008017540

Energy Project Financing : Resources and Strategies for Success / Albert Thumann,

Eric A. Woodroof.

©2009 by The Fairmont Press. All rights reserved. No part of this publication

may be reproduced or transmitted in any form or by any means, electronic or

mechanical, including photocopy, recording, or any information storage and

retrieval system, without permission in writing from the publisher.

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1-4200-8386-4 (Taylor & Francis Ltd.)

While every effort is made to provide dependable information, the publisher,

authors, and editors cannot be held responsible for any errors or omissions.

iv Foreword

The landscape for implementing energy efficient projects is rapidly

changing. The need for energy project financing has never been greater.

The factors influencing energy project financing have been brought

about by legislation, oil prices surging past $120 a barrel, and the grow-

ing concern for global warming.

In December of 2007, the Energy Independence and Security Act

was passed into law. This act promotes energy savings performance

contracting in the federal government, and provides flexible financing

and training of federal contract officers. The Energy Policy Act of 2005

reauthorizes energy service performance contracting through September

30, 2016.

The purpose of this book is to provide the key success factors

for structuring a finance energy project and getting it approved by top

management. The goals of the authors are threefold: First, we want

to explore as many financing options as possible. Second, we want to

provide the tools to make a comprehensive financial analysis. Third,

we want to broaden the readers’ horizons with new trends in the

industry.

There are many correct ways to assemble and finance an energy

management project. The number of possibilities is only limited to one’s

creativity. So be flexible and keep searching until you find the “win-

win” deal for everyone.

Albert Thumann, PE, CEM

v This page intentionally left blank Table of Contents

Chapter 1  Background on the Need for

Financing Energy Projects ........................................................1

Chapter 2  Financing Energy Management Projects ...............................3

Chapter 3  Choosing the Right Financing for Your

Energy Efficiency and Green Projects

with E  S ® ...................................................................51

NERGY TAR

Chapter 4  Financing Energy Projects through

Performance Contracting ........................................................79

Chapter 5  The Power Purchase Agreement (PC for Solar) ................93

Chapter 6  Selling Projects to Financiers .................................................99

Chapter 7  Key Risk and Structuring Provisions for

Bankable Transactions ...........................................................103

Chapter 8  When Firms Publicize Energy Management

Projects, Their Stock Prices Go Up ....................................113

Chapter 9  Overcoming the Three Main Barriers to

Energy Efficiency or ”Green” Projects ..............................127

Chapter 10  Basics of Energy Project Financing .....................................139

Chapter 11  Codes, Standards, and Legislation ......................................145

Chapter 12  The Energy Audit ...................................................................159

Appendix A  Economic Analysis .................................................................195

Appendix B  International Performance Measurement

and Verification Protocol—Vol. I .........................................277

vii Appendix B  International Performance Measurement

and Verification Protocol—Vol. II ........................................395

Appendix C  Resources/Links .....................................................................457

Index ................................................................................................................459

viii Contributors

CHAPTER 1, 2, 6, 8, & 9

Eric A. Woodroof, Ph.D., CEM., CRM, shows clients how to

make more money and simultaneously help the environment. During

the past 15 years, he has helped over 250 organizations improve profits

with energy-environmental solutions. He has written over 25 profes-

sional journal publications and his work has appeared in hundreds of

articles. Dr. Woodroof is the chairman of the board for the Certified

Carbon Reduction Manager program and he has been a board member

of the Certified Energy Manager Program since 1999. Dr. Woodroof has

advised clients such as the U.S. Public Health Service, IBM, Pepsi, Ford,

GM, Verizon, Hertz, Visteon, JPMorgan-Chase, universities, airports,

utilities, cities and foreign governments. He is friends with many of the

top minds in energy, environment, finance, and marketing. He is also

a columnist for several industry magazines, a corporate trainer, and a

keynote speaker. Eric is the founder of ProfitableGreenSolutions.com

and can be reached at 888-563-7221.

CHAPTER 3

Neil Zobler, President of Catalyst Financial Group, Inc., has been

designing energy finance programs and arranged project-specific financ-

ing for demand side management (DSM) and renewable energy projects

since 1985. Catalyst, a specialist in energy and water conservation proj-

ects, has arranged financings for over $1 billion. Neil’s clients include

U.S. EPA ENERGY STAR, the Inter-American Development Bank, over

20 electric and gas utilities (including Con Edison Co. of NY, PG&E,

TVA), engineering companies and vendors, and hundreds of individual

companies and organizations. He speaks regularly for organizations

including the Government Finance Officers Association, the Association

of School Business Officials, National Association of State Energy Offi-

cers, Association of Government Leasing & Finance, and the Council of

ix