Better Buildings Case Competition 2014

1. Better Buildings Case Competition 2014 SMART POWER Georgetown University McDonough School of Business David Gomez, Ian Huang, Caitlyn McAllister, Angel Prado, Devon Weiss

2. Agenda • SMART POWER Team • SMART POWER Proposal Overview • The Energy Efficiency Split Incentive Problem in Multifamily Housing • The SMART POWER Solution • Maximizing Project Efficiency through Objective Analysis • Eliminating Recommendation Bias through Solution Standardization • Overcoming Project Finance Barriers through Securitization • Choose SMART POWER

3. Georgetown UniversityMcDonough School of Business SMART POWER Team David Gomez Ian Huang Caitlyn MacAllister Angel Prado Devon Weiss

4. SMART POWER Proposal Overview President Obama’s Climate Action Plan sets a goal of 100 megawatts of renewable energy capacity to be installed within federally subsidized housing by 2020 The optimal solution will: • Provide a means of identifying projects objectively at the portfolio level. • Standardize a list of potential energy efficiency upgrades and distributed generation retrofit solutions. • Facilitate third party project finance to overcome the split incentive market failure. SMART POWER’s proposal meets these benchmarks by providing HUD with a comprehensive program that: • Virtually selects priority sites from utility level data. • Identifies the most efficient upgrades virtually through a diagnostic tool. • Accelerates installation of renewable capacity through third party project finance and collateralization. • Incentivizes all stakeholders through direct economic benefit.

5. The Energy Efficiency Split Incentive Problem in Multifamily Housing • Tenants are hesitant to make capital improvements because long term benefits will accrue to owners • Owners are reluctant to invest inefficiency improvements because energy costs are passed through to tenants The combination of current HUD subsidy terms, capital structures, and project financing hindrances, creates a split incentive market failure limiting adoption of renewable projects across the HUD-assisted multifamily portfolio

6. The SMART POWER Solution A portfolio level solution to address HUD’s split incentive market failure and assist in meeting Climate Action Plan goals will require three main components: • An objective means of project identification to maximize the utility of efficiency and renewable upgrades; • A standard suite of project development solutions to avoid bias in recommendations; and • An external means of project finance to overcome disincentives within current capital structures. The SMART POWER Solution proposes the adoption of a three step process identify, analyze, and fund energy efficiency and distributed generation projects.

7. Maximizing Project Efficiency through Objective Analysis Project Identification can be done objectively at the portfolio level through the use of utility level data and commercially available analytic tools from WEGOwise, an online tool for monitoring and analyzing utility usage. Objective analysis will direct limited resources to projects with the highest potential return.

8. Maximizing Project Efficiency through Objective Analysis (Continued) WEGOwise is an on-line tool for monitoring and analyzing the energy use of multifamily and single family housing with a focus on the user-friendly reports, accompanied by helpful recommendations and summaries to guide the user to improved performance for a single building or a portfolio of buildings.

9. Eliminating Recommendation Bias through Solution Standardization Project Development can be optimized for resiliency, environmental, or economic goals through the use of the Hilltop Energy Partners’ Hilltop Energy Efficiency Diagnostic (HEED) Application. HEEDanalyzes data from numerous energy monitoring or utility level data collection services and provides optimal recommendations for energy efficiency upgrades and distributed generation projects based on locality, baseline power usage, local utility costs, and other data points. HEED standardizes recommendations across the portfolio, eliminating recommendation bias and creating a list of “conforming” projects within stated size and payback period limits.

10. Eliminating Recommendation Bias through Solution Standardization (Continued) The HEED Application is Hilltop Energy Partner’s proprietary diagnostic tool that leverages inputs from standard information providers such as WEGOwise, First Fuel, or building energy monitoring systems and incorporates this data into our matrix of information on solutions. The tool produces a more refined and actionable report that the customer can then act upon. Hilltop Energy Efficiency Diagnostic(HEED)Application

11. Overcoming Project Finance Barriers through Securitization External Project Finance can be arranged through the creation of Collateralized Energy Backed Securities (CEBS), the securitization of multiple distributed generation sites to create a third party financing market similar to that seen with collateralized mortgage backed securities. The CEBS model allows project developers and/or installation firms the ability to free and redeploy capital and provides the investment community a means of supporting growth in renewables while earning a market return. Government backing through HUD or existing government sponsored entities (GSE’s) will increase credit ratings of these securities, but private sector non-GSE backed CEBS are a viable option as well.

12. Overcoming Project Finance Barriers through Securitization (Continued) Smart Power CEBS Deal Structure Major benefits of introducing CEBS: • Standardized asset • Stabilized growth income • Enhanced credit shared across a portfolio of assets

13. Choose SMART POWER This three step process will facilitate private sector project development by: • Bringing more implementation firms into the HUD-assisted multifamily market; • Circumventing the complexities of HUD multifamily capital stacks by utilizing external capital; • Lowering costs to both rate payers and HUD by increasing efficiency; and • Increasing the value of private owner’s HUD properties with no capital expenditure. Properties will remain connected to the existing grid and any excess generation capacity can be rerouted through net metering, alleviating power utilities demand during peak times and strengthening the resiliency of the grid as a whole.