make it rain - new approaches to water and energy independence
DESCRIPTION
These "Make it Rain" slides show how California's growers and agribusinesses can use PACE (Property Assessed Clean Energy) financing to generate positive cash-flowing, off-balance sheet projects that secure water supplies and reduce energy costs.TRANSCRIPT
Make it Rain!
Courtesy of:
New approaches toWater and Energy Independence
• Energy
• Water
• PACE Financing
• Q&A
Overview
• Food, Water & Energy security are inextricably linkedo Two greatest users of freshwater are agriculture and power plants
o We consume massive quantities of energy to deliver clean water
o We consume massive quantities of water to generate energy
o Rising energy prices are curtailing efforts to supply more clean water
o Water restrictions are hampering solutions for generating more energy
The Food–Water–Energy Nexus
Coal – cheap, but California won’t buy it
Natural Gas – unsustainably low prices, competes for water
Nuclear – Mothballed reactors, competes for water
Hydro – aging dams, permitting, climate change, competes for water
Failing Infrastructure - future costs
Energy - Utilities face rising & deferred costs
Energy – Growers face rising, volatile retail prices
2006 2007 2008 2009 2010 2011 2012 2013 CAGR
-5%
0%
5%
10%
15%
20%
Large Ag Pricing% change vs YAGO
20052007
20092011
20132015
20172019
20212023
20252027
20292031
20332035
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
Forecast Large Ag Pric-ing
$/kWh - optimistic$/kWh - pessimisticSolar $/kWh*
$/kWh
Energy - Diesel: An Unnecessary Evil?
Characteristics Reliable, on-demand High fuel costs High NOx Emissions
Tips & Traps Ongoing fuel costs NOx Limit usage to on-peak Plan on changing!
Energy - Natural Gas Engines
Characteristics Reliable, on-demand Cheap fuel cost Accessibility NOx Emissions
Tips & Traps? Nice work if you can get it Emissions regs Rising fuel costs
Electricity
Natural Gas
Diesel
Propane
Relative Irrigation Fuel Costs
Energy - Solar PV is the Long Term Winner
Characteristics Sustainable, no fuel Low ownership costs Incentives, financing Large capital investment Not “power-dense”
Tips & Traps• Finance & Policy are as
important as engineering Got Taxes?PACENet Meter: Buy low, sell highMeter Aggregation: Got space!
• Net Metering – Permits you to “bank” and
utilize 100% of solar production and
investment. Benefits decline for projects
completed after 7/1/17
• Meter Aggregation – Permits system owner
to allocate solar energy to various loads on
existing or adjacent parcels… whether
leased or owned.
Energy – Policy Wins
2014• Meter Aggregation Implemented• Contract by June for 30% 2014 Tax Credit• Include in Fiscal Year budget for 2015
completion
2015• Contract by June for 30% 2015 Tax Credit• Include in Fiscal Year budget for 2016
completion
2016• Net Metering Cap risk – benefits may decline• Tax Credits will decline by 20% on Dec 31 • Expect a Utility backlog for inspections &
interconnections
2017 • Net Metering benefits will decline on July 1
Energy – Policy Window: Plan now
• Consistent & stable long-term return on Assets & Invested Capital.o Equal or better than alternative investments
• Annual Income + LT capital appreciation
• Grow the balance sheet
• Manage risk
Goals for the Ag Enterprise
• Quality
• High production
• Lowest cost / unit of production
• Operational efficiencies
• Low debt service
• Branding & Marketing
What is Your Long-Term Competitive Advantage?
Current Scenario:
$3,500 / ac – Annual Net $ BT
Future Scenario:o Almond Price: $2.10/lb
o Bees: + $100/ac
o Energy: + 50/ac
o Water: + 400/ac
Sensitivity Analysis (changes in revenue – production costs – additional capital)
Double-Line PC Drip Micro-Jets
Limited Water: How do you select an emission device?
Manage moisture & fertilizers in root zone
Distribution Uniformity Every plants gets the same amount of water & fertilizers
Irrigation System Distribution Uniformity (DU)
Tools for measuring soil moisture
Monitor crop growing conditions
System Design: Know what is inside the black PE tubing
System Design: Match up irrigation zones & soils
Water Quality & Treatment Program
Build in well capacity now……..
• Manage risks – protect the capital investment
• Measure every aspect of the enterprise & benchmark - Improve
• Achieve Operational efficiencies
• Solidify your LT competitive advantages
“Take Home” Messages
Tulare County PACE
• PACE, property assessed clean energy, was passed into law in California in 2008 and approved by Tulare County in the Fall of 2013
• Financing is in the form of a property assessment
• Provides 100% non-recourse term, (no personal or corporate guaranty) financing
• Terms are for up to 20 years and fixed rates of interest
PACE Improvements
100% Financing for:
Water – Sprinklers, pumps, weather stations, software, controls – any type of water conservation
technology
Renewable Energy – Solar, fuel cell, micro turbine
Tulare County PACE Description
Security: PACE is a tax assessment; payment is made with the property taxes. There is no deed of trust or UCC-1 filing.
Term: Up to 20 years Rate: Rate depends on quality of property and the
ownership Accounting Treatment: PACE is off-balance sheet financing.
Tulare County PACE Description
Recourse: PACE is non-recourse and looks only to thevalue of the property. No guaranty
Sale or Transfer: PACE transfers with the property. There is no
prepayment or approval of the buyer.
Underwriting: 80% LTV; 1.25x debt service coverage
Benefits – Tulare County PACE
• Property acquires capital improvements and reduces operating expenses. (No cost to the owner - 100% financing)
• Increase in operating income and cash flow net of cost of PACE• PACE financing is non-recourse – no guaranty• PACE is off balance sheet – Does not affect future
borrowing• PACE transfers with the sale of the property. Owner only
pays for the improvements during ownership period.
Reduced Operating Expenses – Increase in Cash Flow
Tom Millhoff – Ag/Food Practice Leader, HelioPower
E: [email protected] C: 775.830.0448
Twitter: @tmillhoff www.LinkedIn.com/in/FoodEnergy
Jeff Bradshaw – District Sales Manager, RainBird
E: [email protected] C: 559.593.9814
Jean Dunn – CEO, Structured Finance
E: [email protected] P: 760.304.4371
Thank You!