Jan/Feb 2016 On-Site Energy Management magazine

January/February 2016

Russell Tencer Becomes Distributed Wind’s

Bridge

Builder Page 12

Plus

Zero Up-Front-Cost Microturbine Financing Page 18

How American Schools Finance Solar Page 24

AND

Tapping Industrial Waste Gas Power Page 30

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INSIDE JANUARY/FEBRUARY 2016 VOLUME 1 ISSUE 1

04 EDITOR’S NOTE

Finding Energy Conversion Capital

By Tom Bryan

06 EVENTS CALENDAR

On-Site Energy Industry Events 06 BUSINESS BRIEFS

People, Partnerships & New Products 08 ON-SITE ENERGY NEWS

News and Trends

FEATURES 12 WIND

Distributed Wind’s Bridge Builder

With a huge injection of new capital, United Wind is looking to install 1,000 distributed wind turbines in 24 months.

18 MICROTURBINES

Clear Alternative

Capstone Turbine’s new joint venture brings no-money-down, PPA-style financing to its cash-conserving microturbine customers.

By Tom Bryan

By Tom Bryan

24 SOLAR

30 INDUSTRIAL

Schools and universities represent a massive U.S. market for distributed solar, and an array of financing pathways are available to them.

With buyers waiting for its scaled-up technology, Ener-Core is determined to start changing the way industrial plants manage waste gases.

PV Plays

By D.A. Barber

Nothing Wasted

By Tom Bryan

ON THE COVER: United Wind's Russell Tencer stands near the Brooklyn Bridge in the NYC borough's Dumbo area.

PHOTO: DAVID GORDAN

www.OnsiteEnergyManager.com

3

EDITOR'S NOTE www.OnsiteEnergyManager.com

Tom Bryan Editor in Chief, On-Site Energy Management tbryan@bbiinternational.com

Finding Energy Conversion Capital

VOLUME 1 ISSUE 1

The power-generation industry is in the early stages of a sweeping changeover from old, inefficient spoke-and-hub power to clean, efficient and progressively decentralized energy. A litany

PUBLISHING & SALES

of factors have aligned to bring on this gradual transformation. Legacy power is constrained by regulatory uncertainty and an aging fleet. In the meantime, natural gas is cheap and the costs of renewable energy, mainly solar and wind power, have fallen precipitously. All the while, the stability of America’s electric grid continues to worsen while alternatives to total reliance on it—renewables, storage, on-site energy and microgrids—are here and ready.

Of course, the adoption of these smart, distributed energy solutions can’t happen without money, and lots of it. So this inaugural issue of On-Site Energy Management explores the world of project financing, from fixed-rate leasing for wind power and microtrubines to bond financing for institutional solar. Our cover story features Brooklyn-based United Wind, which has secured more than $213 million in project financing for distributed wind turbines. The company is making a move into the Midwest and, offering an attractive fixed-rate, no maintenance lease, fixing to install 1,000 turbines in less than two years. “Distributed Wind’s Bridge Builder” begins on page 12.

We turn to microturbines in “Clear Alternative,” on page 18, to explain how and why California-based Capstone Turbine Corp. created a joint venture to give its budget-constrained customers a new way to make microturbine installations a reality. What Capstone and United Wind are doing is similar to the prevalent financing approach that’s made institutional solar power pervasive, which is the subject of our page-24 feature, “PV Plays.” The story looks at how American schools and universities are financing photovoltaic power—rooftop, parking canopy and ground-mounted arrays—by leveraging bonds, green energy funds, fixed-rate, power-purchase agreements and other financial tools.

Finally, in “Nothing Wasted,” on page 30, we introduce the still-unfolding story of EnerCore, another California-based company that’s scaling up a technology designed to enable industrial plants to convert poor-quality waste gases into high-quality heat and power. It’s a fitting endcap and a great example of on-site energy’s transformative force.

EDITORIAL Editor in Chief Tom Bryan tbryan@bbiinternational.com Copy Editor Jan Tellmann jtellmann@bbiinternational.com

Chairman Mike Bryan mbryan@bbiinternational.com CEO Joe Bryan jbryan@bbiinternational.com President Tom Bryan tbryan@bbiinternational.com Vice President of Operations Matthew Spoor mspoor@bbiinternational.com Vice President of Content Tim Portz tportz@bbiinternational.com Business Development Director Howard Brockhouse hbrockhouse@bbiinternational.com Senior Account Manager / Bioenergy Team Leader Chip Shereck cshereck@bbiinternational.com Account Manager Jeff Hogan jhogan@bbiinternational.com Account Manager Nick Schaefer nschaefer@bbiinternational.com Sales & Marketing Director John Nelson jnelson@bbiinternational.com Circulation Manager Jessica Beaudry jbeaudry@bbiinternational.com Marketing & Advertising Manager Marla DeFoe mdefoe@bbiinternational.com

ART Art Director Jaci Satterlund jsatterlund@bbiinternational.com

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EVENTS CALENDAR On-Site Energy Conference & Expo April 11-13, 2016 Charlotte Convention Center Charlotte, North Carolina Co-located with the International Biomass Conference & Expo, this event will bring together commercial, institutional and industrial energy professionals who are evaluating or already managing on-site power and thermal energy technologies. This three-day event will offer industry-leading content and networking opportunities for those engaged in on-site energy asset installation, operations and maintenance.

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by Biomass Magazine, this event brings current and future producers of bioenergy and biobased products together with waste generators, energy crop growers, municipal leaders, utility executives, technology providers, equipment manufacturers, project developers, investors and policy makers. It’s a true one-stop shop—the world’s premier educational and networking junction for all biomass industries.

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Energy Storage North America October 4-6, 2016 San Diego Convention Center San Diego, California This event is North America’s largest energy storage conference and exhibition—focusing on projects, customers, and deal-making.

ESNA connects utilities, developers, policymakers and energy users to craft strategies, gain deeper insight, and ultimately shape the fast-growing market for energy storage.

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BUSINESS BRIEFS Dawes leads Global Power’s auxiliary segment Peter Dawes has been named president of Global Power Equipment Group’s auxiliary products segment. Dawes has more than 30 years of experience in the powerDawes generation, alternativeenergy and oil and gas industries. Global Power is focused on growing its aftermarket segment and strengthening its position as a supplier of natural gas turbine auxiliary equipment. In his new position, Dawes is responsible for optimizing company operations and building upon its brands. Dawes joins Global Power from Hamon Corp., where he focused on the Hamon Deltak business as the president of that subsidiary after Deltak was acquired by Hamon.

Coincidentally, Deltak is a former subsidiary of Global Power and a provider of waste heat recovery solutions to various industries including power generation.

Henry Chesbrough, (left) faculty director at the Garwood Center for Corporate Innovation, presents the Berkeley-Haas award to Christopher Herbst, an Eaton corporate research team leader, at the second World Open Innovation Conference in Santa Clara, California.

Eaton recognized for microgrid open innovation Power management company Eaton has received the Berkeley-Haas Open Innovation Award, placing second in the Business Transformation category. Eaton was recognized for leveraging open innovation to launch new cross-functional initiatives 6

People, Partnerships & New Products

and collaborate with external technology experts around the world. The company’s successful submission included a case study on the dramatic growth of its microgrid program through open innovation partnerships with universities, military bases, utilities, government laboratories and nonprofits that bring expertise in renewable power, software and cybersecurity. Eaton and its open innovation partners demonstrated the ability to save 80 percent of the cost of storage in microgrids.

cations. Buemi leads Empower’s business development activities for a broad range of markets, including hospitals, universities, municipalities and schools. He is responsible for all business and project development activities for the organization’s integrated renewable energy segment.

Barksdale inducted to AEE Hall of Fame

The Clean Coalition, a Californiabased organization focused on advancing clean energy and community microgrids, has joined the Microgrid Systems Laboratory, an innovation center for decentralized energy based in New Mexico. Developing microgrids is an important priority for both groups. The Clean Coalition has a Community Microgrid Initiative designed to achieve three demonstration projects by the end of this year. The laboratory has technical and engineering resources for microgrid design, standards, testing and development.

George “Buster” Barksdale, vice president of business development at Empower Energies, was inducted into the Association of Energy Engineers EnBarksdale ergy Managers Hall of Fame in late 2015. The honor is reserved for outstanding leaders in the energy industry who have made significant contributions in the field of energy management. “I am truly humbled to be recognized by my peers, and I thank the AEE and its members for this honor,” Barksdale said. “I’ve enjoyed a long career in the energy industry and have developed many friends and relationships over those years. And I’m not done yet.

In fact, I’m more motivated than ever to deliver the right mix of energy solutions for the customers I’m privileged to serve.”

Buemi joins Empower Energies Dave Buemi has joined Empower Energies as vice president, business development.

Buemi brings a 17-year track record of renewable energy success across the commercial, Buemi industrial and government sectors, enhancing an already strong leadership team with high-growth qualifi-

ON-SITE ENERGY MANAGEMENT JANUARY/FEBRUARY 2016

Clean Coalition joins Microgrid Systems Lab

Hurst Boiler offers online CAD resources Hurst Boiler, a manufacturer of steam and hot water boilers, has launched a new website featuring downloadable CAD illustrations of its equipment. The online tool makes it easy for customers to evaluate boilers online. Featuring an extensive range of Hurst boilers, the new website will allow users to either download the CAD document or directly import it into their design software. The application supports most popular file types and CAD software programs. To use the CAD feature, visit www. hurstboiler.com/cad_drawings.

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ON-SITE ENERGY NEWS

NEWS & TRENDS

US fuel cell rivalry stays warm In late 2015, FuelCell Energy Inc. secured a $30 million project financing facility with PNC Energy Capital LLC. The deal gives the Danbury, Connecticut, fuel cell maker long-term financing for projects being developed under power purchase agreements. It will also broaden FuelCell Energy's project development capabilities at a time when its high-profile competitor, Bloom Energy, is showing no signs of slowing down in a global market expected to reach $40 billion by 2022.

Bloom Energy, based in Sunnyvale, California, grabbed headlines of its own before and after FuelCell Energy’s big financing arrangement was made public. In late November, Bloom celebrated the completion of a fuel cell power plant at Staples Center in Los Angeles. On Jan. 12, the company made headlines again when it was selected to install fuel cells at Morgan Stanley’s New York City headquarters. It was a well-timed response to FuelCell Energy’s Jan. 4 announcement that it had won a major project with Pfizer in Connecticut.

While the competing American fuel cell manufacturers are headquartered on opposite coasts and serve somewhat different markets, the companies have key similarities and significant marketplace overlap. Both make solid oxide fuel cells capable of running on multiple inputs including biogas.

Each serves a variety of commercial and institutional customers deploying on-site energy. And each has worked with high-profile hosts like Microsoft, Pfizer, Walmart and Google. Here’s a list of projects the manufacturers have completed or taken on in the past three months alone.

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POWER STRIP: A Bloom Energy fuel cell bank on a university campus provides a California utility with grid power.

COGEN CUBE: A Fuel Cell Energy combined-heat-andpower plant supplies energy to a food processing facility.

PHOTO: FUELCELL ENERGY

PHOTO: BLOOM ENERGY

OCTOBER 2015 OCTOBER 20

OCTOBER 28

Hyatt Hotels Corp. announces a new relationship with Bloom Energy. The Hyatt Regency in Greenwich, Connecticut, is selected as the recipient of Hyatt’s first 500 kW fuel cell, which will provide up to 75 percent of the hotel’s energy load.

FuelCell Energy signs a 20-year power purchase agreement (PPA) with the County of Alameda, California. The company says it will install a 1.4 MW fuel cell plant at the Santa Rita Jail, in Dublin, California. With no up-front costs, the jail will replace an existing fuel cell power plant with a larger combined-heat-and-power system.

NOVEMBER 2015 NOVEMBER 2

NOVEMBER 17

NOVEMBER 19

FuelCell Energy announces the sale of six fuel cell modules totaling 8.4 MW to South Korean partner POSCO Energy. This module sale is in addition to the monthly fuel cell kit shipments FuelCell Energy is already sending POSCO under a multiyear 122 MW order.

The community of Woodbridge, Connecticut, announces that it is moving forward with plans to construct a state-of-the-art microgrid powered by fuel cells.

The FuelCell Energy power plant will supply 2.2 MW of ultraclean power.

In Los Angeles, Staples Center and its owner, AEG, hold an event marking the commissioning of its Bloom Energy fuel cell power system. Former Vice President Al Gor is on hand to “flip the switch” on the 500 kW system.

DECEMBER 2015 DECEMBER 15 FuelCell Energy secures a $30 million project financing facility with PNC Energy Capital LLC. The deal provides long-term financing for projects being developed under PPAs.

JANUARY 2016 JANUARY 4 Pfizer unveils a plan to install a 5.6 MW FuelCell Energy power plant at its research and development facility in Groton, Connecticut. The system will provide electricity and steam to the 160-acre pharmaceutical manufacturing campus. Pfizer will buy the energy under a 20-year PPA.

ON-SITE ENERGY MANAGEMENT JANUARY/FEBRUARY 2016

JANUARY 12 Morgan Stanley announces that Bloom Energy will install a fuel cell power plant at its global headquarters in New York City. The system will provide 750 kW of continuous power to the firm’s building.

ON-SITE ENERGY NEWS

On-Site Energy Conference & Expo launches On-Site Energy Management and BBI International will host the On-Site Energy Conference & Expo April 11-13 at the Charlotte Convention Center in Charlotte, North Carolina. Co-located with the International Biomass Conference & Expo—the largest biomass energy conference in the world—the On-Site Energy Conference & Expo will bring together commercial, institutional and industrial energy professionals who are evaluating or already managing on-site power and thermal energy technologies. The three-day event will offer industry-leading content and networking opportunities for those engaged in on-site energy asset installation, operations and maintenance.

Presentation topics will explore how utilities and independent power producers manage and deploy distributed energy; how energy managers spearhead

on-site energy projects; how and why businesses, campuses and municipalities are investing in microgrids; new ideas about connecting, harmonizing and protecting hybrid energy assets; creative financing solutions and funding strategies that make onsite energy more attractive; how commercial and institutional energy managers rely on, and benefit from, third-party operations and maintenance; and more.

“Sessions during the On-Site Energy Conference & Expo will help facility managers, engineers and energy industry professionals better understand the latest technologies and best practices being developed today,” says Tom Bryan, On-Site Energy Management editor in chief. “Attendees will also hear from experts who have successfully developed and executed commercial and institutional on-site energy projects.”

Conference participants will

POWER COMBO: The recently announced On-Site Energy Conference & Expo will be co-located with the largest biomass energy conference in the world. The coupled shows will draw more than 1,500 attendees, 220 exhibitors and 125 speakers.

PHOTO: BBI INTERNATIONAL

include energy managers, facility managers, physical plant administrators, consulting-specifying engineers, sustainability practitioners, building and business owners, power generation equipment manufacturers, distributors and others.

The combined events, along with a preconference seminar on wood pellet markets, are expected to draw more than 1,500 attendees, 220 exhibitors and 125 speak-

ers. Attendees will have access to both events for the price of one.

The conferences will share a general session on April 12, followed by separate breakout sessions later that day and the next. More information is available at www. onsiteenergyexpo.com.

Nascent microgrid sector living up to expectations The microgrid market is projected to grow 300 percent over the next five years, from $225 million in 2016 to $1 billion in 2020. Examples of recent activity appear to back up that claim.

In early January, Renova Power Networks partnered with San Diego-based CleanSpark, a microgrid software and controls company, to deploy microgrid

technology globally. To do so, Renova created a subsidiary called Renova Energy Management.

In late December, the Grid Integration Group at Lawrence Berkley National Laboratory won a Defense Department grant to develop a microgrid at Fort Hunter Liggett, an Army training facility in southern Monterey County, California. When com-

plete, the microgrid will be able to operate independently for at least five days.

Two weeks earlier, power management company Eaton unveiled a new microgrid energy system designed to help simplify and expedite the deployment of complex microgrid and energy storage systems. The company’s solution is engineered to help

customers deploy stand-alone power systems using existing and new assets.

These developments follow Connecticut’s commitment in November to invest up to $30 million into microgrids after already investing $23 million. Applications for the grants are still being accepted.

www.OnsiteEnergyManager.com

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ON-SITE ENERGY NEWS

Toyota’s landfill gas power project up and running

POWERED UP: A 1 MW biogas-capable Caterpillar engine is now generating electricity for Toyota at a landfill in Georgia.

PHOTO: TOYOTA

Toyota’s Georgetown, Kentucky, manufacturing plant is now receiving methane-derived power from the nearby Central Kentucky Landfill. The automaker is generating 1 MW per hour at the site, according to Dave Absher, environmental strategies manager at Toyota. “The system can eventually be scaled up to 10 MW per hour,” Absher said.

The Central Kentucky Landfill is owned and operated by Waste Services of the Bluegrass, which collaborated with Toyota on the project. The U.S. EPA requires landfills to monitor and report methane levels. Capturing and burning landfill gas methane has been determined by the EPA to reduce global greenhouse gas emissions.

“This project was a true collaboration between the two companies,” Absher said. “There

was also a tremendous amount of support from the local community, public utilities and elected officials to get the project off the ground.”

Early planning began in 2010 when the two companies met to discuss the viability of landfill gas power. Last fall, Waste Services began installing a methane collection system and Toyota began installing the generator at the site. An underground electric transmission line runs from the landfill to the automaker’s plant, which is 6.5 miles away.

Toyota has announced a long-term goal of largely eliminating carbon dioxide emissions from its vehicles and manufacturing plants by 2050. In addition to landfill gas power, the company will deploy hydrogen fuel cells, as well as wind and solar power, to achieve the goal.

Compact biomass CCHP unit goes into production Germany-based Entrade has introduced a small-scale combined cooling, heat and power (CCHP) unit designed to run on biomass waste. It’s dubbed E3, and the company is calling it the world’s smallest CCHP module of its kind. The technology is based on a high-temperature gasification process. A single E3 unit, which could be a turnkey energy solution for a business or small commercial facility, is so compact that it is easily transportable in the bed of a pickup truck, according to Entrade.

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Containerized units can generate 25 kW (one unit) or 50 kW (two units) of electricity. The E3 comes with complete 24/7 remote-management. According to the company, one E3 CCHP unit currently retails for less than $200,000. Mass production in Germany has reportedly started.

The company plans to manufacture up to 45 units per month with a target of making 600 units in 2016.

ON-SITE ENERGY MANAGEMENT JANUARY/FEBRUARY 2016

BIO BOX: Containerized E3 units are now in production, retailing for under $200,000 per 25 kW module.

PHOTO: ENTRADE

ON-SITE ENERGY NEWS

Chiller, microturbine companies pair up on CCHP product MultiChill Technologies and Capstone Turbine have partnered to deliver air-cooled absorption chillers and water-making systems to end users in conjunction with Capstone’s flagship C30 and C65 microturbines.

MultiChill's MultiGen system is now available to Capstone customers for use with both new and existing assets. The MultiGen system utilizes heat from exhaust gas to provide chilling capabilities for combined cooling, heating and power (CCHP) applications.

This enables Capstone's C30 and C65 microturbines to achieve up to 90 percent efficiency. Furthermore, an integrated water-making system is able to capture water

from the atmosphere, refrigeration or air conditioning, and supply it to the end user.

"We have over 50 MultiGen systems in the field to date, and about 54,000 operating hours in both commercial and residential applications," said Wallie Ivison, CEO and director at MultiChill.

"We anticipate that these systems will greatly enhance the salability of Capstone microturbines as a multiple output system, as it provides flexibility as to what the cooled air can be used for.”

According to MultiChill, it is projected that by the year 2030, global demand for water will be 40 percent higher than it is today.

The worldwide demand for fresh

CCHP BY NUMBER: The MultiGen system, paired with a microturbine, utilizes heat from exhaust gas to provide chilling capabilities for combined cooling, heating and power.

PHOTO: CAPSTONE TURBINE CORP.

water has nearly tripled over the last century, and severe or chronic water shortages are expected for one-third of the population by 2025. This growing demand

opens up countless opportunities for Capstone and MultiChill to address a rapidly approaching water crisis with an innovative and cost-effective solution.

Ameresco completes major PV installation at Minneapolis airport A 3 MW solar installation on top of two parking structures at the Minneapolis-St. Paul International Airport is now complete.

It is Minnesota’s largest solargeneration site and a first-of-itskind airport project, according to developer Ameresco.

In addition to solar panels, four new electric vehicle charging stations were installed in the airport’s parking ramps, bringing the total number of MSP charging stations to 18. It is estimated that the solar installation will generate close to 20 percent of

the airport’s total peak power capacity. Ameresco will maintain and operate the system on behalf of the Metropolitan Airports Commission.

“Ameresco commends the Minneapolis-St. Paul International Airport and applauds its leadership team for its stewardship both in pursuing renewable energy solutions for the airport as well as obtaining publicprivate financing to support the construction,” said George Sakellaris, president and CEO of Ameresco.

SOLAR PARKED: An aerial view of the recently completed 3 MW solar photovoltaic system on the top of two large parking ramps at the MinneapolisSt. Paul International Airport.

PHOTO: AMERESCO

www.OnsiteEnergyManager.com

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WIND

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ON-SITE ENERGY MANAGEMENT JANUARY/FEBRUARY 2016

WIND

DISTRIBUTED WIND’S

BRIDGE BUILDER With $213 million at its disposal, Brooklyn’s United Wind is eyeing the Midwest and planning to install 1,000 on-site wind turbines in 24 months.

By Tom Bryan Photos By David Gordon

From an austere office flat in Brooklyn’s trendy Dumbo neighborhood, Russell Tencer is building an unlikely global headquarters for a business that brings wind power to farms, ag enterprises and country homes. By chance or design, United Wind’s ironic urban location has turned into an effective hub for finding the money needed to make distributed wind more prolific in pastoral America.

Only three months after securing a $13.5 million pledge from U.S. Bank and New York Green Bank, United Wind landed a trove of capital financing in January in what is thought to be the largest financial deal

DEAL FLOW: From New York City, United Wind CEO Russell Tencer is bringing on-site energy to rural American businesses.

www.OnsiteEnergyManager.com

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WIND

NERVE CENTER: Until now, Tencer and his team have been focused on distributed wind projects in rural New York State.

Today, they're expanding into the wind-rich Midwest.

in the history of the distributed wind industry. Before it happened, company reps hinted that “something big” was on the way, but they were inexplicit about what would come.

The distributed wind industry was amazed when, during the first week of the year, Torontobased Forum Equity Partners committed $200 million in project equity capital to Tencer’s young company.

The financing deal unquestionably puts United Wind in a position to expand its nascent WindLease program, which enables property owners to lease distributed wind turbines rated at 100 kW or less. Through the program, qualified customers— mostly located in underserved rural markets—can reduce their energy costs by harvesting onsite wind power through fixedrate, 20-year leases that don’t require out-of-pocket costs for property owners. The arrangement has been well-received by small businesses, agricultural 14

operations, factories and other companies with on-site power generation needs, land and ample wind.

With more than $213 million in financing now at hand, Tencer’s sights are set high. He wants his company to install, own and operate 1,000 wind turbines by the end of 2017.

Achieving that lofty goal would help distributed wind turbines become more ubiquitous, at least from a commercial perspective. It would also solidify United Wind’s future in an industry that needs more success stories.

Analytical Antecedent Prior to co-founding United Wind, Tencer ran a small company called Wind Analytics, which set out to make high-quality wind analysis more accessible to the distributed wind industry. Compared to their utility-scale counterparts, distributed wind turbines are affordable at $100,000 to $1

ON-SITE ENERGY MANAGEMENT JANUARY/FEBRUARY 2016

million installed. But Tencer says the high cost of the wind analysis, required for siting and sizing turbines, was time-intensive and financially prohibitive.

“It could involve expensive monitoring equipment and correlations of data over many months,” he says. “In some cases, the analytics would cost as much or more than the turbine itself. It just wasn’t an option for most people.”

The cheaper alternative, wind maps, are useful but rudimentary tools for assessing wind turbine viability. “Maps don’t account for things like trees, buildings, silos or turbulence, so it’s never going to give you a perfectly accurate reading,” Tencer says. “They just don’t give you a true indication of what a turbine will produce at a particular latitude, longitude and height.”

With complex wind analytics being too expensive and maps too basic, many developers were doing very little due

diligence before erecting wind turbines. “We had a situation where people were buying turbines, foregoing any kind of expensive analysis and typically getting a poor result,” Tencer says.

Spotting an opportunity, Tencer’s company created an algorithm-based application built on long-term weather data from thousands of wind monitoring stations across the country, and even globally.

“We figured out ways to clean up and interconnect the data,” he says, explaining how natural and man-made obstructions at each turbine site have to be factored in. “We can very accurately identify what kind of wind production the customer can expect at almost any given point on the planet.”

The tool worked well but the market for small wind wasn’t large enough to support strong sales. Even worse, Tencer says, the industry just didn’t understand or value wind data.

WIND

The Role of Tax Credit Investors Tax credit investing plays a vital role in the development of many renewable energy projects because developers that need capital often don’t have a significant federal tax liability. When a company is small or marginally profitable, it can’t capture the full benefit of federal tax incentives for wind, solar and biomass projects because its tax obligation is less than the investment tax credit (ITC) they might ultimately be eligible to receive. So developers like United Wind often partner with banks and private equity firms that do have federal tax obligations to offset.

U.S. Bank, for example, has a tax credit investment arm called U.S. Bancorp Community Development Corp., which committed about $5 million in project financing to United Wind in 2015. As the fifth largest commercial bank in the country, U.S. Bank is quite profitable and, as a result, has a significant federal tax obligation. USBCDC finds and leverages tax credit opportunities by investing in things like low-income housing,

“Turbine manufacturers wanted to sell turbines and customers wanted to buy them, but very few people were really thinking about the issue,” he says.

With sales in trouble in 2013, Tencer borrowed a page from the solar industry’s fixedrate lease playbook. He partnered up with wind turbine distributor Talco and created a new company, United Wind, which would attempt to give rural customers a way to install wind power—starting with free analytics—without paying for it up front. “We raised seed capital, moved our assets into one new entity and set out to raise corporate and project financing,” Tencer says.

The money didn't necessarily come quickly. United Wind’s first injection of corporate financing took six months to close and the initial project financing reached finalization three months later in the fall of 2013, when GSG Energy Finance committed $25 million. It

growing businesses, historic building preservation and, of course, renewable energy.

“Our renewable energy practice is robust,” says Dan Siegel, vice president of renewable energy investments at USBCDC. “We do about 40 or 50 transactions a year. Threefourths of those investments are in solar and the balance is in wind.”

Siegel says any time a renewable energy developer is looking to develop solar or wind assets there are tax benefits associated with the projects. Optimizing the use of those credits has become a conventional project finance pathway. “If United Wind is developing $10 million worth of wind projects, for example, and there’s a 30 percent tax credit, that’s a $3 million tax credit that’s going to be available to them,” Siegel says.

“A company like United Wind doesn’t have a practical use currently for that sort of tax offset, but we do.”

The ITC for wind and solar, which recently received multiyear extensions that ratchet down over time, are available to both project developers and partners. “By the nature of our interest in those partnerships we receive tax and cash benefits,” Siegel says. “We’re committing capital today—capital that is used to help finance a portion of the cost of those projects—in exchange for an allocation of those benefits.”

The recent tax extenders package wasn’t signed into law when U.S. Bank, along with New York Green Bank, committed a total of $13.5 million to United Wind in October, but Siegel says that wasn’t a concern. “At the time we closed the transaction, the investment tax credit for distributed wind was going to be available through the end of 2016,” he says. “The extension is certainly helpful. We prefer to invest on a long-term, portfolio basis. So we’ll see. Once the ground thaws and these wind projects start to happen, hopefully, we’ll be talking about another round of funding by the second or third quarter.”

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'The delta between what we charge the customer and what they’d be paying a utility just keeps growing. They’re getting immediate savings while fixing their costs and hedging against future rate hikes.'

Russell Tencer, United Wind

was a big moment for United Wind, but the company ultimately didn’t tap much of the expensive capital. “We drew down about $1.4 million of it,” Tencer says.

“The cost of capital on that first round of funding was extremely high.”

Soon after, the company received $10 million of marginally lower-cost financing from Pacific Rim Capital, of which it has drawn down about $6 million. A third round of capital, even cheaper yet, came from U.S. Bank and New York Green Bank in October, followed by the overshadowing $200 million commitment from Forum Equity Partners in January.

With enough project financing capital to purchase and install hundreds, maybe thousands of new turbines, United Wind has opened a satellite office in Denver and is making a strong move into the Midwest. Now, the company’s success hinges almost solely on how customers react to its fixed-rate leasing play.

Price Mitigating Escalator United Wind’s typical customers are almost exclusively rural and generally have at least five acres of land. Twothirds of them are agricultural or commercial businesses and the rest are large residences or farm homes. “It’s very much a rural play, but as we grow this will become more commercial, indus16

ON-SITE ENERGY MANAGEMENT JANUARY/FEBRUARY 2016

trial and agricultural and less residential,” Tencer says. “We’re focused on bigger projects, and that means more commercial customers.”

The company’s recent expansion into the Midwest puts United Wind in front of a broader range of rural enterprises, including big dairy farms, feedlots and manufacturing plants. Interestingly, carbon reduction and sustainability pursuits are not driving many distributed wind turbine leases. Tencer says it’s really about money. “Yes, we’ll see a few customers in, for example, consumer goods manufacturing that might be interested in saying their product is ‘wind powered’ but it really comes down to an economic decision for most people,” he says. “That’s what drives this.”

United Wind’s new customers in the Midwest already enjoy cheap power but they also have excellent wind. “In the Midwest, you have 8-meter-persecond wind in the areas we’re targeting,” he says. “Energy prices aren’t high out there, but they are high enough to make our project economics work. We can provide, over 20 years, $200,000, $300,000 or even $400,000 in savings to rural ag enterprises when they put in a 100 kW turbine.”

Signing a fixed-rate, 20-year lease, United Wind customers typically receive a 10 percent savings on their current electricity expenses and a fixed escalator on payments—1.9 percent per year—over the duration of the agreement. Tencer says the escalator is a good deal for customers because power costs increase, on average, 3 to 5 percent per year in the U.S. “The delta between what we charge the customer and what they’d be paying a utility just keeps growing,” he says. “They’re getting immediate savings while fixing their costs and hedging against future rate hikes.”

United Wind also handles the installation, service and maintenance of the turbine itself, making it an almost worryfree situation for property owners. “We

WIND

insure it, repair it, and guarantee its performance,� Tencer says. “We try to make it as simple as possible for the customer. They sign the lease and we manage the entire project, from permitting and installation to operations and maintenance, over the life of the contract.�

Distributed wind turbine projects come together quickly. Permitting takes two to six months in New York State, where United Wind has been operating to date, and 30 to 60 days in the Midwest, where it’s expanding. “Permitting is the longest pole in the tent,� Tencer says. “Once we’ve got that building permit and the project is shovel-ready, we start placing purchase orders and shipping equipment to the site.�

Erecting and hooking up a wind turbine takes only three or four days, but there is a period of about a month that is required ahead of time for the turbine’s concrete foundation to cure.

United Wind doesn’t manufacture wind turbines or install them. The company buys turbines, ranging from 10 to 100 kW, from manufacturers like Bergey, Endurance Wind Power and Northern Power Systems. The company also hires out installation, operations and maintenance.

But Tencer says he’d like to work toward establishing in-house installation capabilities in 2016. “We want to be more vertically integrated as we move forward,� he says. “That’s where I see real value, both to our investors and our customers. We want to be able to offer seamless service and generate the best gross margins for our business.�

While the distributed wind industry rises above its principal long-time challenges, Tencer wants to see it evolve from a cottage industry into a sector that can stand up to other segments of renewable energy. “Solar and utility-scale wind have access to game-changing, low-cost financing capital,� he says. “Before distributed solar had access to mainstream project finance capital, it was just like distributed wind has been. It was niche. It was for en-

vironmentalists who put solar panels on their roof for $20 a watt. It wasn’t about project economics at all. Now it is, and we can save the environment while also saving money.�

Tencer says United Wind’s available pool of financing could bring about a sea change in the way distributed wind power is built and sold in America. “It would not surprise me to see other companies come along with similar programs,� he says. “This is the start of something big. We ex-

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Author: Tom Bryan Editor in Chief, On-Site Energy Management 701-746-8385 tbryan@bbiinternational.com

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MICROTURBINES

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ON-SITE ENERGY MANAGEMENT JANUARY/FEBRUARY 2016

MICROTURBINES

CLEAR ALTERNATIVE Without true direct competitors, Capstone has been both advantaged and tested by its singular position in the microturbine market. Financing has been a challenge for some customers. Not anymore.

By Tom Bryan

A decade ago, the book 'Blue Ocean Strategy' became an instant business school darling with an enticing thesis about escaping “red oceans,” where companies are trapped in constant competition with rivals. The book’s authors summoned companies to break away from those incessant scuffles and create clear alternatives in wide-open spaces—blue oceans—where there’s less opposition and endless opportunity.

The founders of Capstone Turbine Corp. couldn’t have known what a blue ocean strategy was when the first iteration of its product landed in the auto industry in the late 1980s. But even then, 10 years before the company’s commercial launch, the microturbine manufacturer’s story was starting to read like an excerpt from that bestselling book. It all began with a 30kW microturbine installed in Ford and Saturn electric vehicles for onboard battery charging. The platform was innovative but decidedly “ahead of its time.” The electric vehicle market didn’t pan out for Capstone’s antecedents, but that bantam C30 was the prototype technology the $115 million global business is now built on. The company was on its way to open water.

Today, Capstone’s 80 percent share of worldwide microturbine sales, alone, illustrates that it found a way to swim solitarily, but its top officer doesn’t consider the absence of close competition a real strategic advantage. “Competition isn’t a big thing for GREEN MACHINE:: Capstone Turbine's C1000 is comprised of five C200s and can be paralleled up to 30 MW. PHOTO: CAPSTONE TURBINE CORP.

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us,” says Darren Jamison, Capstone’s president and CEO. “We don’t have direct competition because we were first-to-market in the microtrubine space and hold 112 patents on our technologies.

The truth is, it’s hard to identify other well-funded, competitive microtrubine manufacturers, but I don’t think that’s what makes us unique.”

Jamison says Capstone’s ability to innovate, modify and adapt to changing customer needs in a variety of markets and geographies is the company’s real strength. “We’ve also been effective at getting people to think differently about power,” he says. “Instead of buying power from a monopoly—the local utility—we ask them to think about an alternative that can lower their cost of energy and improve their reliability at the same time.”

Custom, Flexible Assets Capstone microturbines, which offer an electrical net efficiency of 33 percent, come in many sizes and configurations based on each customer’s need.

“Rarely do we sell one microturbine by itself,” Jamison says.

“Our concept is a little different than the traditional reciprocating engine players. They don’t mind selling a single engine.

They’re affordable to install and from a manufacturer’s standpoint, that probably makes a lot of sense. However, from a customer standpoint, it doesn’t make a lot sense to install power generation and CHP assets in that way. We take a different approach. We install power generation plants and guarantee them as 20-year assets. We also guar20

antee the life-cycle costs of that asset for up to nine years. That’s a nine-year guarantee or operational insurance policy for your power plant. If, eight years and 11 months into it there is a catastrophic failure, the customer is getting a new turbine with no questions asked. That’s just the way it is. I challenge customers to find an engine manufacturer who will stand behind their product in that way.”

Capstone’s made-to-order approach to microturbine sales, installation and maintenance means the Chatsworth, California, company and its distributors place a heavy emphasis on specifying projects. “We care very much about how each project is sized and integrated into the host facility,” Jamison says. “It absolutely has to meet the requirements of the customer and our reliability standards.”

Typically, Capstone recommends customers install multiple, synced up microtrubines.

“If the customer has a 200-kW load, we’ll put in three C65s. If they’ve got a 300- to 400-kW load, we’ll have them put in multiple C200s,” Jamison says. “If the customer has a 1-MW need, our C1000 Series is five C200s in a single enclosure. You can pair all of our machines together and also parallel them to the grid and other technologies.”

In December, at the PowerGen International expo in Las Vegas, Capstone unveiled its new C1000S, the Signature Series version of its largest containerized microturbine configuration. The unit features numerous improvements plus the same proven technology found in the original C1000 microturbine. Jim Crouse, Capstone’s

ON-SITE ENERGY MANAGEMENT JANUARY/FEBRUARY 2016

NETWORKERS: Darren Jamison (left), Capstone president and CEO, and Jim Crouse, executive vice president of sales and marketing, helped introduce the new C1000S at the PowerGen International expo in Las Vegas in December.

PHOTO: CAPSTONE TURBINE CORP.

executive vice president of sales and marketing, says there were 73 changes made to what was already a super-efficient, high-performing arrangement. “We’ve made it even better,” Crouse says. “We started shipping C200s five years ago, and we’ve taken what we’ve learned from placing some 1,200 units into service worldwide and rolled that collective knowledge into this package.”

Notably, the C1000S has an integrated heat recovery module, making the machine highly suitable for combined heat and power (CHP) and combined cooling, heating and power (CCHP).

“That’s a nice benefit,” Crouse says. “Instead of having to buy a third-party heat recovery module—ship it, position it, pipe it in—we integrate the whole thing into one system. You set it on the ground and start making

electrical and thermal energy. It's truly plug-and-play.”

Another aspect of microturbine specification is understanding and predicting the inconsistent nature of power and thermal loads, which are rarely constant. Capstone’s machines are set up to follow electrical or thermal loads while also paralleling and load balancing with one another. The units can also selfoptimize, or run in efficiency mode, as needed. “So if you’re running at 1 MW and the load drops to 600 kW, some units can shut down and pick back up as needed to maximize the overall plant efficiency,” Jamison explains. “The goal is to always run the machines at the maximum efficiency, which is 100 percent output. But if the load drops and you drop an engine, you just go down that efficiency curve and save slightly less money.”

MICROTURBINES

MODULARITY: Capstone's C20 (left) and C65 units can be used independently or as the building blocks of a larger power generation solution.

PHOTO: CAPSTONE TURBINE CORP.

New, Friendlier Financing By and large, Capstone has achieved remarkable sales growth since becoming a publically traded company in 2000, and particularly over the past decade. Jamison says the company achieved eight years of successive revenue gains before a slowdown in the oil and gas sector, and a strong dollar, dampened microturbine sales in fiscal year 2015, reducing revenue by 13 percent.

Not surprisingly, even Capstone’s response to last year’s revenue narrowing has a distinct blue ocean feel to it. In November, the company announced the launch of Capstone Energy Finance, a joint venture to provide financing options for its microturbine-based power plant projects. Through a power purchase agreement (PPA) platform, the finance vehicle will give prospective Capstone customers the ability to purchase electricity generated by a microturbine at their facility with no up-front capital investment. This proven style of

third-party PPA financing is being used in many clean energy industries, but it is most widely recognized as a finance mechanism for distributed solar projects.

It took three years to assemble the finance joint venture, largely because Capstone is the only sizeable microturbine manufacturer in the world. Jamison says traditional financing sources struggled with the company’s marketplace singularity. “They tend to want to work with technologies that have lots of players, lots of competition, so if something unexpected happens they can install another technology or source parts from another company,” he says. “They also like to see residual values and mature secondary markets. Frankly, most of our 8,600 or so units shipped are still running. That made it challenging for us to find traditional financing that would take on this kind of third-party financing.”

Ultimately, Capstone found and secured the right strategic

partners. The financing entity is now funded by strategic highnet-worth individuals with the potential for more funding from traditional equity sources down the road. Jamison says the company’s primary objective now is to reverse recent trends in sales to the oil and gas sector by letting customers in that industry know it is possible to install microtrubines without directly paying for them.

Jamison says the company’s new financing platform will work well in the CHP and CCHP markets, but it needs to be an effective instrument for recovering lost oil and gas sales first.

Familiar Proving Grounds Having lost as many as 250 potential microturbine sales in 2015 due to a lack of financing options for its customers, Capstone is eager to circle back to them with a new finance option.

“Oil and gas is the first place we’re going to apply this,” Jamison says.

“Many oil and gas customers that

had capital budgets a few years ago, don’t today. But they still have that free fuel coming out of the ground and it just makes sense for them to consider our technology when they’re facing high electricity costs and lower oil and gas prices. Here’s a way for them to save money—month one—without using scarce capital dollars. They can get our products on the ground and start using that free fuel today to lower operating expenses in a low-crude-oil environment.”

There will certainly be pressure for Capstone Energy Finance to demonstrate the joint venture’s economic viability. The entity will be obligated to its investors to prove that the vehicle has the ability to produce good returns. The oil and gas sector, Jamison says, is the most logical and accommodating place to demonstrate that.

“Building permits and siting is easier in that sector,” he explains.

“You’re not putting heat recovery units in place, so, for a customer with strong financials who can easily and quickly put the technology on the ground, that’s the place to start. That’s where customer need is the strongest in the U.S.” At the same time, Capstone will leverage its new financing vehicle in the plethora of commercial, institutional and manufacturing sectors that need CHP and CCHP. Jamison says the announcement of the joint venture, alone, has generated interest from prospective CHP and CCHP customers. “We’ve received a number of new inquiries about the pricing and applicability of microtrubines in commercial and institutional CHP scenarios,” he says, explaining how the new financing solution is a great conversation starter with industrial, com-

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NYC: Melting Pot of Microturbine Installations Combined heat and power (CHP) and combined cooling, heat and power (CCHP) now make up about half of Capstone’s revenue, reported at $115.5 million in fiscal year 2015. Both CHP and non-CHP sales are coming from a broad spectrum of sectors and regions, and New York City serves as a microcosm of Capstone’s customer range. “When I do investor presentations in New York, I point out just how many of our microturbines have been placed in service there,” says Darren Jamison, Capstone president and CEO. “We’ve done 50 projects in New York alone in the last couple of years.

Right now, we’re doing several projects for a very large New York-based [real estate investment trust]; Hudson Yards, another huge marquee project; Seven Bryant Park; and 1350 Avenue Americas. These are high-rise office and multiple-use buildings.”

Jamison says Capstone has also installed microtrubines at several hotels, institutions and food-related establishments in New York, including the New York Palace Hotel, the NYC Marriott Downtown, Archer Hotel, Memorial Sloan Kettering Cancer Center, and New York University, and within affordable housing developments. Additionally, Capstone has installed microtrubines at pharmaceutical plants, food processing plants and big-name global manufacturing facilities. “The bottom line is that anybody who has more than 12-cent power is going to be a pretty good candidate for one of our microtrubines, particularly when there is some thermal load that we can tap into,” Jamison says.

mercial and institutional clients.

“The PPA is a way to get past a ‘maybe’ or a ‘tomorrow’ with a customer,” he says.

Delivering Deal Flow Like many original equipment manufacturers, Capstone doesn’t sell its own microtrubines. Its products, ranging in size from 30 kW to 1 MW, are sold by more than 90 distributors worldwide.

Crouse says PPA financing will be a useful sales tool for its distributors. “It’s not too differ22

ent than when you buy a car and the dealership has a financing solution available for you,” he explains. “You can buy the car with your own cash, work with a bank or finance it through the local dealer. This works the same way. Our new finance solution is one of many tools for our distributors. It’s going to help them facilitate deal flow.”

Capstone’s distributors will bring candidate PPA projects to the joint venture for review. Ultimately, however, both Capstone Energy Finance and the cus-

ON-SITE ENERGY MANAGEMENT JANUARY/FEBRUARY 2016

tomer must like the fit and feel of the agreement. “The finance entity will determine which projects are appropriate to fund and, likewise, the customer will need to determine whether or not the model works for them,” Crouse says. “Some customers might tell us they can get money cheaper or they simply want to go forward with financing on their own. That’s fine. This is just one more way for projects to move forward.”

For Capstone’s distributors, winning microturbine orders is their No. 1 priority, but it’s not their only objective. Ancillary revenues from service and support are also important. “They want to sign nine-year factory protection plans (FPPs) and lock themselves into that attractive recurring revenue,” Crouse says.

“They also might want to be more involved in a project, and we’ve got the ability to provide that flexibility. If a distributor says they want to own 30 percent of a microturbine project in their territory, we can do that.

We made sure this JV was set up with the flexibility to allow a distributor to own a portion of every Capstone project that lands in their area. So, the distributor can actually benefit from a small revenue stream and partial ownership in each project as well as the FPP revenue. There are a lot of things about this that are creative, interesting and, frankly, different than anything happening in the industry.”

Lower-Cost Thermal, Cooling With the slowdown in the oil and gas sector, being able to offer CHP and CCHP customers a new financing solution is

an important avenue for Capstone. Jamison says Capstone’s CHP business works almost like a hedge against oil and gas sector volatility. The company’s CHP sales have actually been strengthened by the abundance of lowcost natural gas. “Current energy prices have prompted a lot of commercial and institutional energy users to think differently about how they want to get their energy,” he says. “As a result, CHP/CCHP is our biggest market today.”

If a customer is deploying CHP or CCHP, Capstone can easily apply its new PPA financing solution to the project by calculating its charges based on a discount to the customer’s existing thermal and cooling costs.

That’s possible after offsetting their boiler and chiller loads with CCHP derived from microtrubines paired with compatible chillers. “If they were going to make hot water or steam, we would look at what it costs them to generate that today and provide them with a 10 or 15 percent discount on what we supply to them,” Jamison explains.

“Same thing on the electrical side.

The customer is generally going to get that power for 10 to 15 percent less than what they can buy from the grid. The customer is going to see a month-one cost reduction on all the thermal energy we can supply. If we don’t supply it to them for some reason, they don’t pay for it.”

Oil & Gas Sector Still Strong Even though the company has, to some degree, shifted its resources to CHP, it is still fulfilling major orders in oil and gas.

In January, for example, Capstone

MICROTURBINES

IN SYNC: Capstone microturbines are often paralleled with one another, as shown here in this oil and gas industry application.

PHOTO: CAPSTONE TURBINE CORP.

received an order for three C800 and two C1000 systems—a total of 4.6 MW—for a large flare gas energy project in North America from Horizon Power Systems.

That and other sizable orders in the sector indicate that the global oil and gas slowdown is not only shifting companies away from exploration, but also prompting them to lower their operating costs by converting flare gas to power.

Over the past 15 years, the oil and gas sector has purchased about two-thirds of the microturbines Capstone has manufactured and sold. In the past five years, specifically, U.S. shale gas has unquestionably driven the company’s spectacular revenue growth.

“We put a ton of products into

the U.S. shale gas fields—with customers like Anadarko, Pioneer Natural Resources, Chesapeake or EQT—and it’s still a big market for us,” Jamison says. “Lots of different players within the market were deploying our technology when they wanted to get their product out of the ground but couldn’t get a utility in, or the utility was too expensive.”

In addition to unconventional oil and gas, Capstone has put its micorturbines to work in traditional oil and gas plays: onshore, offshore, pipelines, gas compression stations, cathodic protection, and more. “Obviously there has been a precipitous drop in oil prices and that’s created a slowdown,” Jamison says. “So, oil and gas has gone from about 65 percent of

our business to about 40 percent of our business.”

Finding More Blue Ocean At the start of 2016, Jamison is optimistic about sales and determined to “get the revenue engine growing again.” In addition to recovering oil and gas sales and making new inroads into CHP, Capstone is focusing more heavily on global expansion, especially in Australia, Africa, the Middle East and Latin America. “As we diversify the business profile, geography and verticals, we’ll be an even more resilient company,” Jamison says. “We’ve traditionally been a 20 percent to 30 percent annual growth company, so we want to get back there as soon as possible, and diversification is the key.”

Jamison says Capstone’s growth vision is not based on more sales alone, but on the broader ambition of changing the way commercial, institutional and industrial customers think about power and thermal energy.

“We’re trying to change the way people see power,” he says. “Even though energy represents the second, third or fourth highest annual expenditure for many companies, they don’t see their utility as a vendor partner. They see energy as a sunk cost of doing business.

And I tell them, ‘Well, I’m here to change that for you.’”

Author: Tom Bryan Editor in Chief, On-Site Energy Management 701-746-8385 tbryan@bbiinternational.com

www.OnsiteEnergyManager.com

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SOLAR

PV PLAYS

Leveraging bonds, green energy funds, fixed-rate, power-purchase agreements and other financial instruments, America’s places of learning are getting solar done like never before.

By D.A. Barber

With budget cuts and rising energy costs slicing into general operating funds, K-12 school districts and universities nationwide have discovered that solar power can help offset their utility bills—not just in theory any longer, but as a matter of fact.

Paying for solar power used to be a challenge, but with numerous public and private financing options available to schools and universities, getting solar done is no longer about if and how, but when and with whom.

“Approaches can include buying electricity through power purchase agreements (PPAs) or financing system ownership by leveraging higher education’s access to low-cost financing mechanisms, such as tax-exempt municipal leases and revenue bonds,” says SunPower project manager Nathan Griset.

In fact, thousands of K-12 schools have already completed on-site solar photovoltaic (PV) installations, with many more set to be completed in 2016 by leveraging the numerous financing options available to them. According to The Solar Foundation's 2014 report, “Brighter Future: A Study on Solar in U.S. Schools,” which used data from the Solar Energy Industries Association, from 2010 to the second quarter of 2014, average costs for commercial solar PV systems have fallen over 50 percent. That, along with recently extended government incentives, is making solar more viable.

SUN AND SHADE: These solar canopies were installed by Natural Power and Energy for the Tucson Unified School District in 2014.

PHOTO: NATURAL POWER AND ENERGY

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ON-SITE ENERGY MANAGEMENT JANUARY/FEBRUARY 2016

SOLAR

www.OnsiteEnergyManager.com

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SOLAR

LOTS OF SOLAR: Many of the 43 school-owned sites where solar panels were installed in Tuscon were parking areas.

PHOTO: NATURAL POWER AND ENERGY

“Our 2014 study shows that total school solar capacity in the U.S. increased from 303 kW in 2003 to over 457,000 kW in 2013,” says Roxie Brown, National Solar Schools Program manager. “In 2013 alone, 128,000 kW of school solar installations came on line across the country.”

The study identified 3,752 schools equipped with solar energy—a vast majority of them being PV—with over 3,000 of those installed in the past six years. Still, that reperesents only 3 percent of K-12 schools, leaving massive room for growth.

While the Solar Foundation will be issuing a new report on solar in K-12 schools during the second half of 2016, it has not tracked data on colleges or universities. But an October 2015 U.S. EPA report does highlight the top 30 universities, as well as the top 30 on-site green energy generators in the U.S., which includes three universities and one K-12 school.

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Finding Funding There is a multitude of creative project financing pathways schools and universities are taking, from bond financing and utility-run green energy funds to fixed-rate PPAs, leases and grants. But not all options work for every scheme, and typically any cash put into projects by the schools is combined with other financial support. According to the Solar Foundation's report, of the 15 projects examined, “no schools relied solely on direct cash payments for their systems” and—excluding third-party ownership—only two were funded via a single financing option.

Most solar development has hinged on the now decade-old federal solar investment tax credit (ITC), which allows homeowners and businesses to reduce their solar installation cost through a 30 percent tax credit. The ITC was extended when President Obama signed the omnibus and taxextender bills in late December, leaving the ITC at 30 percent for

ON-SITE ENERGY MANAGEMENT JANUARY/FEBRUARY 2016

commercial and residential solar projects through 2019; it then drops to 26 percent in 2020, 22 percent in 2021, and to 10 percent in 2022 and beyond.

Tax-exempt schools, however, are unable to take direct advantage of these federal tax credits.

Instead, outside companies—like Solar City, SunPower or SunEdison—that develop projects can use the tax credit and offer the school electricity at a reduced rate through a PPA that locks in 15 to 25 years of predictable electricity prices as a hedge against ever-rising utility rates. The school gets solar installed without paying hefty upfront costs or dealing with PV maintenance.

Most K-12 schools follow the basic PPA path that the Paso Robles, California, Joint Unified School District did in October when it partnered with SunEdison to install solar across five schools. The project required no up-front investment and is expected to save the district $9 million over the 20-year contract

after it's completed this summer.

The financing of Tucson Unified School District's 11-MW project at 43 sites across the district using canopies over parking lots and recreation areas was a bit more complicated. According to Tina Cook, TUSD's energy projects manager, the district began by selecting Arizona's Natural Power and Energy to develop the project, which, in turn, obtained financing through Constellation Energy, which owns and maintains the system and charges the school a fixed rate.

But unlike some other regions, the local utility, Tucson Electric Power, offered no incentives to subsidize the project.

Cook says shortly after they went out for bids in June 2013, the Arizona Corporation Commission, the state's utility regulator, allowed TEP to end incentives for commercial solar projects. “So by the time we got to our projects, there were no incentives from the utility provider,” she says.

Nevertheless, a few months

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SAFETY PANELS: Solar canopies offer effective space utilization on school grounds, and they also provide students and spectators with shade on dangerously hot days.

PHOTO: NATURAL POWER AND ENERGY

ago TUSD'S project received EPA's 2015 Green Power Leadership Award in the category of Green Power Partner of the Year.

TUSD is also No. 2 on the EPA's Top 30 K-12 Schools list and No. 12 on the EPA's Top 30 On-Site Generation list—the only K-12 school in the latter category.

Tapping Bonds A unique aspect of K-12 school districts is their ability to issue local bonds to cover some of the cost of going solar, as well as tapping federal funding through Clean Renewable Energy Bonds.

As of Sept. 1, $432 million of CREB allocation was available nationally, administered by the IRS. And to help reduce interest payments on municipal bond debts, the federal government authorized $3.2 billion in Qualified Energy Conservation Bonds to provide interest rate subsidies of approximately 3 to 4 percent. “There’s another federal tax credit bond program called Qualified Zone Academy Bonds, which has been

in place for several years, and up until recently, hadn’t been utilized very much for financing solar projects,” says SunPower's Griset.

The federal government allocates QZABs separately to each state. However, QZABs require a 10 percent private sector contribution—usually in-kind services— and the establishment of academic programs. And that, Griset says, has been an impediment to financing solar with QZABs. “SunPower installed 5.2 MW at 20 sites for Antioch Unified School District in Northern California, which funded its solar project with QZABs,” Griset says. “Through the QZAB program, SunPower was able to help Antioch implement a districtwide STEM (science, technology, engineering and math) academy and supplement its Linked Learning platform through our SunPower Horizons education program.”

On a state and local level, other low- or no-interest-rate bonds are also helping schools. The state of California in 2009 awarded Qualified School Construction

Bonds to the San Ramon Valley Unified School District, which then partnered with SunPower to build a 3.3-MW solar project to supply five schools and save the district $24.4 million over a 25-year contract period. Those savings allow the school to pay back the bond.

Solar U The number of colleges and universities establishing campus sustainability goals that include solar energy use is growing, largely as a result of the entire University of California system's goal of becoming “carbon neutral by 2025” through both on-site and offsite renewable energy projects. Toward that goal, SunPower has been working with the university system at UC Santa Barbara, UC Davis and UC Riverside, as well as private universities like Stanford.

In mid-December, UC Santa Barbara announced a partnership with SunPower for 5.2 MW of solar power at six campus sites, including two rooftop systems and

four parking canopies. The whole project is scheduled to be completed by the end of this year.

Alternatively, at UC Davis officials are taking advantage of scale through on-site solar farms. On Nov. 20, UC Davis and SunPower dedicated the largest behind-themeter solar farm on a U.S. college campus: a 16.3-MW solar farm capable of supplying 14 percent of the campus' total electricity needs.

In essence, the project treats the college campus as a minigrid.

“The reality is we have one common electrical grid and it doesn't really matter where on the campus the solar systems are going in, they are still supporting the campus in the same way,” says David Phillips, former director of utilities at UC Davis, who now oversees the entire UC system as associate vice president of energy and sustainability.

Phillips says the existing rooftop systems they previously built at UC Davis cost three times the price per kilowatt-hour (kWh) of the solar farm. “It's much more

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ADMINISTRATIVE APPROVAL: UC Riverside Chancellor Kim Wilcox (left) walks through a campus solar array with the university's sustainability director, John Cook.

PHOTO: CARLOS PUMA/UC RIVERSIDE

ENERGY FIELD: UC Davis recently installed this on-site solar farm, which is the largest behind-the-meter solar farm on a U.S. college campus, at 16.3 MW. PHOTO: UC DAVIS

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ON-SITE ENERGY MANAGEMENT JANUARY/FEBRUARY 2016

cost-effective to do groundmounted large solar systems in scale compared to what we did with their first [solar panel] project,” he says.

UC also chose to clear the land and do the electrical infrastructure on its own. “We just basically said, 'Here's the 63-acre site, you put in the panels and you connect to our substation,' and it just made for a much simpler project for them,” Phillips says. “It was better for us to just do that up front because we get better bids from our solar developers.”

Phillips says university budgets set aside funds for purchasing electricity and, “in our case, we were able to get an agreement to spend some of that money to do the interconnections.”

Another notable college solar project with a different approach is Macalester College in St. Paul, Minnesota, which is going indirectly 100 percent solar through a partnership with SunEdison and local utility Xcel Energy.

“Indirectly” because the small

college found it infeasible to install solar panels on the 54-acre campus for a number of reasons. “There's no empty field nearby; most of our acreage is either open space because we need it that way, or buildings,” says David Wheaton, Macalester College's vice president for finance and administration.

“We have no way to expand in any direction.”

Instead, the school will be supplied with solar power from a joint SunEdison-Xcel Energy solar garden project, an off-site community solar farm slated to be completed this year. Macalester, like other customers, will be allowed to purchase a piece of the garden and receive credit on its electric bill. “So the power costs is what we pay to the developer, but all the power gets delivered through the existing [Xcel Energy] grid,” says Wheaton.

Founded in 1874, Macalester's choice also illustrates what a number of schools have to deal with when considering rooftop panels on vintage buildings, par-

SOLAR

SOLAR BONDS: A welder works on the framework for a solar canopy on the campus of UC Irvine.

PHOTO: UC IRVINE

ticularly in the North. “We always have to think about snow loads and that can make the issues on the roof more complicated,” says Wheaton. “You have to be careful not to create additional drifting which creates weight in addition to the weight of the panels themselves.”

While the Solar Foundation expects to have more information when its next school report is released later this year, the 2014 “Brighter Future” report suggests a trend toward third-party ownership financing as system sizes increase. “Our report showed that schools have been installing larger and larger systems over time, and that PPAs are the predominant financing mechanism for larger systems. Given this, one could infer a trend toward PPAs, but because these aren't available in all states, it's difficult to make an exact comparison,” says TSF's Brown.

Nevertheless, some institutions do decide to buy the panels themselves. In fact, SunPower says of the community colleges in Cali-

fornia where they've installed solar projects, almost all own their systems rather than financing them through a PPA. “If you do that, you miss out on all of the tax credits that are not available to public, tax-free entities like us,” says UC's Phillips. “So, I'm always surprised when I hear folks that don't pay taxes buying their panels. That's one lesson learned: It seems like it's always better to have a publicprivate partnership because they can take advantage of things that we can't.”

TUSD’s Cook adds, “You know, it comes down to the funding. Even if you go through a bond such as CREBs for [buying] the solar, you're still going to end up having to pay those loans back.”

But changes in net metering rules in some states may change the way PPAs are approached, giving way to other options for some districts. A December U.S. DOE report, “Energy Investment Partnerships” examining innovative financing mechanisms adopted

by eight states—California, Connecticut, Florida, Hawaii, New Jersey, New York, Ohio and Oregon—found an emerging trend. It suggested that energy investment partnerships, or green banks, can maximize the impact of public funds by leveraging private dollars. “Rather than simply offering generous tax credits and grants, these new partnerships focus on facilitating financing through bonds, loans, credit enhancement and other proven development finance tools,” the report notes.

One notable user of green banks is Portland Public Schools.

In September, Portland launched a $4.6 million solar project at six schools that will generate 1.2 MW of power using a combination of funding sources, including a 2012 local construction bond; $2 million from Portland General Electric‘s Renewable Development Fund, and $1 million from Energy Trust of Oregon’s green bank cash incentives program.

And there are other lessons schools can learn.

“Several of our customers are presently utilizing [CREBs] to finance their solar projects, and many more K-12 districts should consider capitalizing on these subsidized bonds,” says Griset.

“CREBs can also be incorporated into a district’s general obligation bond program as well, if a district is planning to seek voter authorization of bonds to support new construction and modernization work.”

Phillips adds, “I think the other lesson learned is the value of having scale, whether that means doing a solar farm, or doing multiple sites as one competitive bidding process with a single developer. I think that's always a good idea.”

Author: D.A. Barber Freelance Writer Contact On-Site Energy Management with questions about this article.

701-746-8385

www.OnsiteEnergyManager.com

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INDUSTRIAL

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ON-SITE ENERGY MANAGEMENT JANUARY/FEBRUARY 2016

INDUSTRIAL

Nothing

WASTED With a 2-MW Power Oxidizer built and being tested, and a big customer waiting, Ener-Core’s CEO is determined to start changing the way industrial facilities handle low-value waste gases.

By Tom Bryan

A century ago, J.D. Rockefeller amassed one of the greatest fortunes of all time—an equivalent of $340 billion today—by cornering the market on petroleum refining leftovers. Turn-of-the-century kerosene producers were dumping gasoline and other undesirable oil derivatives anywhere they could—including rivers—because the products were ostensibly worthless. Rockefeller, despising wastefulness, rejected this and used gasoline to make thermal energy for his kerosene plants. Automobiles arrived and the rest is history.

Alain Castro, CEO of Irvine, California-based Ener-Core, doesn’t claim to be the next Rockefeller. But he does believe his company’s technology could be a catalyst for transforming unwanted industrial waste gases into new fortunes. “What we think of today as low-quality waste gases will only be considered that for a short time longer,” he

says. “We have a technology that could cause industries to really shift.”

By that, Castro means he believes EnerCore’s patented Power Oxidizer, which turns low-value industrial waste gases into baseload, on-site power, is poised to change the way industries manage and utilize the gases most of them currently consider a liability.

The oxidizers come in 250-kW and 333-kW sizes, and Ener-Core recently completed the primary construction of a highly anticipated 2-MW unit. The large-scale Power Oxidizer will be integrated with a Dresser-Rand gas turbine. One of the first major adopters of the modified turbine will be a Pacific Ethanol plant in Stockton, California, which is waiting for the 2-MW unit to be fully tested.

“They’re planning to install two of our systems,” Castro says. “And they’ve determined that once the systems are installed—and we expect that to happen this summer—they will drop their operational

POWER PACK: Ener-Core CEO Alain Castro (right) poses in front of a model of the Power Oxidizer with Mike Cormier, Dresser-Rand business development director, and Boris Maslov, Ener-Core chief technology officer.

PHOTO: BBI/DAVID BRAUN

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GOING BIG: Ener-Core completed construction on its 2-MW Power Oxidizer in December. The unit was assembled at an industrial staging site managed by Combustion Associates Inc. in Corona, California.

PHOTO: ENER-CORE

costs by $3 million to $5 million a year. That’s a huge cost advantage for an ethanol plant.”

Because the ethanol industry’s principal products are global commodities, producers aren’t able to premium-price them the way beverage alcohol companies can. “They’re not selling cognac or champagne,” Castro says. “The only way to compete in this industry is to be lower on your cost. So, when a company comes along and says it can drop its operating costs by $5 million a year, the rest of the industry should take notice.”

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Ener-Core won’t sell its oxidizers directly to Pacific Ethanol. Rather, it will sell them to Dresser-Rand, a Siemens-owned company that’s been working with Ener-Core for about two years. “We view this as a game-changer that’s going to allow customers to do something they couldn’t do before—utilize their own low-energy fuels,” says Mike Cormier, business development director for DresserRand.

As planned, Pacific Ethanol will install two Dresser-Rand KG2-3GEF 2-MW gas

ON-SITE ENERGY MANAGEMENT JANUARY/FEBRUARY 2016

turbine generators coupled with integrated Power Oxidizers. The deal was made official last spring when Ener-Core received nonbinding notification from Dresser-Rand stating its intent to issue a formal purchase order, valued at $2.1 million, pursuant to Ener-Core’s ability to complete a subscale acceptance test. “We wanted to simulate how the full-scale unit would operate on a smallscale acceptance test,” says Doug Harmin, vice president of engineering for Ener-Core.

“To do that, we used our multifuel test facility to simulate the conditions of the 2-MW gas turbine.”

That test was successfully completed last summer and Dresser-Rand followed through with a purchase order. Now, a full-scale acceptance test of the large unit is all that remains before Pacific Ethanol adopts the technology.

“It’s a very good fit for pollution control—it is the best available control technology—and it helps reduce our operating costs,” says Pat McKenzie, director of corporate engineering at Pacific Ethanol. “When we’re finished with the installation of the power oxidizer at our Stockton facility, we’re going to take those results and look at how it fits into our operations in the remainder of our facilities in North America.”

Castro says completing construction of the 2-MW unit represents a big milestone for Ener-Core. “It’s a big step towards final validation,” he says. “At some point, most utility-scale power technologies must prove that they can surpass the 1-MW-size threshold.

We are on the cusp of making this historic step in the next few months.”

Pacific Ethanol will reduce its operating costs and become an inordinately clean ethanol plant when it adopts oxidizer-integrated turbines. But Castro says the latter benefit is not the ethanol producer’s chief motivation for change. “They’re not doing this just to be clean,” he says. “This goes way beyond state and federal air emissions standards. They don’t have to go this far. They’re doing this because it gives them a cost advantage and because they’ll be better prepared for the next ethanol price drop.”

INDUSTRIAL

Baseload Power Castro says Ener-Core is on the leading edge of a transformative distributed energy generation movement that’s hungry for clean, baseload power. “I believe distributed generation is not just a trend that’s here now and going to pass,” he says. “This is a big shift in the energy industry. We’re going away from the concept of massive centralized coal and nuclear power, and huge thermal energy plants, and moving toward small generation at the load.”

With wind and solar energy at the forefront of the renewable and distributed energy transformation, Castro says there is a growing need for sources of energy that are not intermittent. “You need baseload energy,” he says.

“You can’t just make this transition with wind and solar because consumers need power all the time. That’s why we need baseload power generation assets like gas turbines.”

But Castro says companies that are installing their own gas turbines, often in the form of combined heat and power, are still exposed to fuel price volatility. “Natural gas prices have been cheap lately—we’ve all been spoiled—but I don’t think it can last much longer,” he says. “Prices will go up.”

Regulatory Transcendence In addition to energy price swings, Castro says industries are also susceptible to the volatility of environmental regulation. “We don’t know what the EPA is going to propose next month or next year, but we are pretty sure that it is not going to go easier on industries with waste gases,” he says. “It’s never going to get easier to emit waste gases into the atmosphere. It’s always going to get tougher.

It’s only a question of how steep and how challenging the EPA’s rules will be.”

At a recent technology showcase for the Power Oxidizer, former U.S. EPA administrator Stephen Johnson, an Ener-Core’s advisory board member, said he expects no letup in U.S. industrial regulation in the future. “The policy and regulatory trend is not for relaxation on air quality,” he said. “It is definitely toward tougher air emissions standards.”

Johnson also said a wider swath of American businesses are being effected by

How the Power Oxidizer Works: Most industrial energy is derived from combustion-based processes.

Combustion works well with clean, high-BTU fuels like natural gas but it is ineffective for converting poor-quality industrial gases to energy. As a result, most industries flare off waste gases or destroy them with emissions mitigation technology.

Ener-Core’s gradual oxidation process is based on a chemical reaction in a controlled pressure vessel (i.e., the Power Oxidizer). Inside the vessel, a reaction occurs at pressure and temperature that destroys contaminants and releases energy in the form of heat. The heat is then used to power a turbine which spins a generator to create electricity.

Ener-Core CEO Alain Castro says the company’s technology replicates the natural process of oxidation, which is responsible for aging things—like the rusting of an old nail. EnerCore’s Power Oxidizer does, in one second, what takes 10 to 20 years in nature. Using proprietary technology, the unit simulates the perfect atmospheric condition for instant oxidation to occur, releasing a lot of heat in the process.

“There is no flame,” Castro says. “If you could look inside the Power Oxidizer, there would not be fire inside it. You would see a bright orange glow. We are oxidizing the gas quickly, but we’re not igniting it.”

Ener-Core’s technology interfaces with a turbine or boiler, taking the place of the combustion chamber. “We’re like Intel in your computer,” Castro says. “We’re inside. We’re the reason the turbine or boiler can run on waste gases.”

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INDUSTRIAL

air emissions regulation. In fact, there are countless types of manufacturing and industrial plants that emit, flare, mitigate or otherwise manage waste gases. Castro’s list of prospective Power Oxidizer buyers includes ethanol plants, distilleries, oil refineries and petrochemical plants, semiconductor manufacturing plants, animal rendering plants, coal mines, wastewater treatment plants and more. “We think we can make them all more efficient and more cost competitive,” he says.

“They all have waste gases, spend lots of money on energy, and are exposed to increasingly strict air-emissions standards. All three of those problems can be taken care of with our technology.”

Castro says he hopes industries will use Ener-Core’s technology to rise above the politics of climate change and the usual banter about environmental regulation’s ill effects on manufacturing. “Every time this country raises its emissions standards, we hear industry holler about how America is getting less

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competitive,” he says. “I reject that idea. We can make industry more competitive while also surpassing emissions standards.”

According to the U.S. EPA, industrial and commercial emissions represent about one-third of all greenhouse gas emissions. If all of the industrial waste gases flared around the world were converted to energy, Castro says, 70 to 100 gigawatts of power would be generated—enough power for every home in the United States for a year.

Castro thinks of industrial emissions as a symptom of inefficiency and misdirected environmental solutions. He says industries would gladly stop emitting waste gases if they had a financial incentive to do so. “We just need to give industries a reason to change for capitalistic reasons rather than by forcefeeding them more rules and new costs,” he says. “Here’s something that can make them cleaner and more competitive at once. Everyone has been focused on the problem, and that’s why there are hundreds of technolo-

ON-SITE ENERGY MANAGEMENT JANUARY/FEBRUARY 2016

gies on the market that focus on destroying waste gases. That’s like throwing aspirin at a disease. You might feel better, but you haven’t really tackled the problem. Let’s focus on the underlying root cause. Let’s focus on inefficiency.”

Ultimately, the Power Oxidizer’s adoption in the industrial marketplace will depend on its ability to align economic and environmental goals for early adopters like Pacific Ethanol. “When you align capitalism with environmental solutions, it’s powerful,” Castro says. “I’d like to think companies would deploy this solution even in a world where there wasn’t environmental regulation,” he says. “They would do it because it’s a way for them to utilize a resource that will make them more profitable—just like Rockefeller did with gasoline.”

Author: Tom Bryan Editor in Chief, On-Site Energy Management 701-746-8385 tbryan@bbiinternational.com

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