Energy Efficiency as a Service: Own the Solution, not the Equipment

[VIDEO TRANSCRIPT]

Well, thanks for everyone taking the time and joining us here today. I also want to thank Holly and CDP for hosting this webinar. Just some quick introductions: I’m Bob Hinkle, President and CEO of Metro Center G. I’ve been working in the energy efficiency space for over 20 years, focusing on the financing and development of energy efficiency projects and programs both in the US and overseas. I founded Metrus a little over 11 years ago, and Metrus is a developer, financier, and owner of large-scale efficiency retrofit projects. We operate projects in 26 different states that are saving over a billion kilowatt hours of electricity, and I’m excited to be speaking here with all of you today.

I’ll have Noah introduce himself, and then we can dig into things. So, thanks again, and looking forward to the discussion. Good morning, my name is Noah Goldstein. I’m a Director of Sustainability at Guidehouse. Guidehouse is a global management consulting firm active in both the public and private sectors. My team works with Fortune 500 clients on sustainability strategy, including carbon reduction implementation, climate risk planning, and sustainability disclosure. We have a very intimate relationship with CDP, and we’re really excited to be here to talk about building energy efficiency with Metrus. Energy efficiency is a what I would consider one of the unsung heroes in the fight to create a resilient, low-carbon economy, and this is a really important lever. So, really excited to have the conversation today."

Okay, so in terms of the agenda, I think we’ll try to keep things pretty simple. So, Noah will start things off and talk about the connection between sustainability and energy efficiency as a service. I’ll then pick things up and go a little bit more into depth than the nuts and bolts of what is energy efficiency as a service, how our deals structured, how our projects developed, financed, and implemented, and that’ll also include going over some selected project case studies that highlight a few different aspects of energy efficiency as a service. And then we can use that as a jumping-off point for some QA. And as Holly was indicating, please do log your questions as we go along, and we’ll do our best to get to all of them. So, with that, Noah, why don’t you start things off?

Great. So, I just advanced the slide. Hopefully, everyone can see it, and I’m going to be talking first about, as Bob mentioned, the connection between overall sustainability goals and energy efficiency as a service. There are a lot of initiatives that companies are taking right now on both ESG and greenhouse gas production. We are ripe with acronyms, so I’m going to be defining some of these but not all of them. ESG, of course, is environmental, social, and governance. GHD is greenhouse gases. Please use your ultimate search tool and Google to find out a lot of what these are, but I’m going to be highlighting some of them right now. What we see in the corporate landscape is that a lot of companies are really putting ESG and greenhouse gas production as a priority. Some of this is driven by investors, some of it by consumers, some of it by more of a drive from corporate leaders themselves. The momentum rising for these programs and initiatives is pretty significant, and they’re coming in all different sorts of ways from different parts of the corporate landscape. I’m going to start with part of our host on the top right, CDP. I’m sure my number is an underestimate with a number of companies that are disclosing to CDP, but it’s really becoming the standard of how companies are reporting greenhouse gases. The CDP platform is really powerful in that it’s a common way of approaching it. In contrast, TCFD on the upper left there is a tool, is really an approach that investors are increasingly asking their companies to focus on the risks and opportunities associated with climate change, and while it’s not a structure to CDP at least not yet, there it is also gaining momentum. On the lower left, we have just a little snapshot of Fortune 100 best companies. What we see in this is not to say that anyone can try and get to that moniker, but that a company’s sustainability posture is increasingly being considered by both including the employee in recruits to help drive delivering a meaningful place to work for both people who are entering the workforce now but people who are already in the workforce.

As we’re seeing a lot lately, where companies fall on certain social causes is actually having a large impact, and that sustainability is a key component of that. In the middle of it, you see sign space targets, which is very exciting that it just reached over 900 companies that have signed up for sign space target. I’ll be touching a little bit on this later, but a science-based target is essentially making sure that your greenhouse gas emissions reduction target is in line with the Paris agreements, to make sure that every company in every sector is taking responsibility. On the lower right, what you see is the LEED emblem. LEED has been around for many years, probably 30 years now, and it is considered the gold standard in making sure that corporate offices are both as efficient as possible but also as aware of what people can get from the space that they’re in.

Now I’m going to be diving into greenhouse gases. As you can see on this next slide, this might be preaching to the choir to the folks on this on the webinar, but I think what’s important to note when you look at greenhouse gases is that energy efficiency has a significant role to play. This breakdown done by the greenhouse gas protocol separates emissions into three different categories. There is what’s really considered direct emissions which is scope one, which is the amount of emissions that you are responsible for from your building. Scope two is indirect emissions, which is really your electricity use, and scope three which is your indirect emissions.

What we see is that energy efficiency is really has a major role to play in both actually scope one and scope two, but it’s really the way in which a company can reduce its greenhouse gas footprint, really focusing on the source.

By using less energy, you actually reduce your greenhouse gas footprint, but it’s not so straightforward in terms of deploying energy efficiency and attaining your greenhouse gas goals. You really have to think about what makes the most sense, and that’s really what we’re going to be talking about later today.

Jumping ahead, however, I want to just double down and make sure everyone’s clear that energy efficiency is really a powerhouse. I mentioned the unsung hero. It’s really like the quiet storm, to maybe mix metaphors there, that energy efficiency has an outsized impact. Because if you look at the different sectors, buildings really take up at least half of the greenhouse gas footprint of our industrial companies. It’s pretty incredible to think that with all the innovations we have, we still need to reduce the energy in our buildings.

There are some great statistics on the right-hand side of the screen that I’ll walk through here. That energy efficiency at a global scale, and I know this is true both at the global scale but also in the United States, is the lowest cost way to reduce your kilowatt hours. It is true that the cheapest kilowatt hour is the one you don’t have to spend. We also know that there is an incredible potential in energy efficiency. That if you look at the amount of energy efficiency potential that exists, that almost half of the reduction can be done through energy efficiency alone. This is significant, and what’s important to note is even though we have great innovations in technology, it still is the energy efficiency in existing buildings that needs to be managed. If we’re going to be taking control of our greenhouse gas footprint as a society, we have to really literally look where we’re sitting.

I know, right now, a lot of us are not sitting in their corporate office. We’re actually sitting at home, and that has a different kind of energy efficiency impact. But at some point, we all will be coming back to the office at scale. In a way, actually now’s a great time to get started on any energy efficiency, given the nature that our buildings are not acting at optimal performance. So, to talk more about energy efficiency and specifically energy efficiency as a service, I’m going to pass it back over to Bob to go in-depth on the energy efficiency as a service offering.

Great, thanks. Now, advance the slides here. And so, was Noah saying, I’ll talk about what is energy efficiency as a service, and I should probably start by answering the question, why cows? First, it’s an attempt at a little as a service humor, but second, the slide also has a true story to it. Where the president of Dartmouth College put up a picture of a cow when he was making a presentation to his board, when he was pitching the idea of having a third-party finance group come in and own their energy infrastructure. He said there was a time when we needed to own cows on campus to get milk. We don’t own cows anymore, and we also don’t need to own power plants to get clean energy and energy efficiency anymore on campus either. And to me, this really exemplifies what more and more customers are saying with increasing frequency. And that is that you can receive the benefits of energy efficiency, specifically the energy savings and upgraded facility and really an improved and more sustainable built environment, without paying for the equipment or dealing with the hassles of asset ownership, which really, at its crux, is what energy efficiency as a service is all about.

Although energy efficiency as a service is often thought of as something that’s slightly new, it really has its origins and some very well-proven financing structures in the energy world. And going left to right, that certainly includes traditional performance contracting, which dates back to the 1970s, where energy service companies or ESCOs coupled the delivery of turnkey engineering project design and construction services alongside long-term energy savings performance guarantees. And now, the vast majority of this work, particularly early on, was more in the federal sector and probably also the municipal in K through 12 school district type projects, is where a heavy focus is, and not as much in the private commercial industrial market. But energy efficiency as a service also builds on and probably more closely resembles the more recent success of the renewable energy industry over the last decade which, through Power Purchase Agreements or PPAs with third-party financers and owners of renewable energy projects, has shown the benefits of buying solar power and not necessarily buying the solar panels. And that’s really helping help the installation of solar PV across the country and the world really, really take off. The as-a-service model is obviously also not unique to energy efficiency. It’s been transformational. It’s been transformational for the IT industry, the shared economy, where you have third-party ownership and the efficient use of existing resources, whether it’s in cloud-based computing, cars, or homes, really fueling growth and change and innovation. And energy efficiency as a service is really at the intersection of all these key areas. And it’s something that is helping to both expand the scale and speed of what can be accomplished in the world of energy efficiency.

This is being done by funding a hundred percent of the upfront cost of projects under an efficiency-as-a-service agreement, where you have a third-party financier who owns the assets and provides an off-balance sheet financing structure to customers. It also taps into innovation like a pay-for-performance solution, whereby customers are only paying for realized savings on a cost-per-unit of energy save basis. So, that means customers pay for a cost per kWh of electricity saved or a cost per therm of natural gases. It all depends on what type of utility savings you’re seeing on a project, and that cost per unit of energy saves is something that’s set below what the customer would otherwise be paying their utility for a unit of energy they’re consuming. Another area of innovation is it’s an open-source platform where you really have an agnostic route to implement different types of projects that are agnostic in terms of the types of equipment or technology that’s used, the ESCO or contractor that’s used. It’s really designed to be a flexible solution that allows customers to do what makes sense for their business, for their facilities, and to tailor a solution together that achieves the maximum technical and financial output that they’re looking to receive. So, if you see all these attributes, if you bundle them together, it’s really helping drive what we’re now seeing is larger energy efficiency projects and also helping to significantly speed up the rate at which projects are implemented, which is important, obviously, for getting facility improvements done. But in terms of sustainability, it’s helping customers be more aggressive in terms of hitting their ESG targets and getting more carbon reductions done in place.

In terms of what types of energy efficiency measures are typically included in an efficiency-as-a-service project, this slide I think provides a pretty good, you know, shows the depth of the energy efficiency measures and technologies that can be included in a project. Energy efficiency-as-a-service really intends to cast a wide net in terms of the types of different efficiency improvements that are involved. So, this can range from lower-cost, quick payback period items like lighting and controls upgrades to more capital-intensive and longer payback period items like mechanical equipment upgrades, so the replacement of boilers, chillers, or furnaces. And although it’s certainly possible to have single-measure, single-technology projects, more often than not, you see projects that are bundling together different efficiency measures. So, it’s quite common to have a half-dozen or more different efficiency upgrades as part of a single project that are improving both the efficiency of electric and thermal systems at a customer’s site. This type of bundling of different energy efficiencies together in a single project can help achieve deeper levels of energy savings, get a wider diversity and really range of facility improvements in place, and again help go after some deeper reductions and carbon emissions.

There’s also a good trend we’re seeing in the marketplace where clean energy technologies such as solar energy, storage, and EV charging are getting incorporated alongside traditional energy efficiency upgrades and objects, so really moving maybe evolving more towards the sustainable energy-as-a-service approach rather than just solely energy efficiency-as-a-service. Maybe one last point on this slide before moving on, project sizes can vary as you’d expect depending on the type of facility. Is it a single building? Is it a visit a college campus? It also depends on the types of efficiency improvements that are involved, but generally, energy-as-a-service projects are north of a million dollars in terms of total project costs and probably, on average, following the two to four million dollar range, and those are for single sites.

Maybe something we’ll talk about a little bit later on, but you can have smaller size projects at individual sites that are bundled together as part of larger programs, typically for a single customer. And so we can talk about that a little bit later on, but the ability to bundle is a key aspect and a key benefit of energy efficiency as a service. At its core, energy efficiency as a service is really based on a traditional project finance structure that’s governed by some well-defined contracts. So, for each project, you typically see the as-a-service provider entering directly into a services agreement or an ESA with the customer. And that ESA will detail the energy efficiency project scope, so it’ll include specific information and exhibits that talk about the make and type of equipment that’s involved, where that equipment will be placed within a facility, it will talk about the cost per unit of energy saved that the customer will pay for realized savings during each and every year of the project term, and very importantly, it will codify how savings will be measured and verified during each and every year of the project.

The ESA itself, though outside of the project specifics that I was just mentioning, should really be thought of as a master services type contract. It’s replicable across the customer’s entire portfolio of sites and can be used to fund a wide range of different energy efficiency and clean energy measures. Now, in parallel, as entering into the ESA with the customer, the service provider will enter into an ESTC or implementation type agreement with an ESCO or contractor. And that will include a few different scopes of work. It will include a typical EPC construction type contract. It’ll also include ongoing work for selected maintenance on equipment, as applicable to a project, and it will also cover ongoing monitoring of the project performance. There’ll be a lot of flow through between these two agreements, and they’ll also be signed simultaneously, so it will take effect at the same time as a project gets into the early stages of construction.

I wanted to spend a moment just talking about the different stakeholders to get involved in projects and really the benefits to those different stakeholders, and you can categorize the benefits of energy efficiency as a service really into financial and operational buckets. And on the financial side, you, of course, have customers who have no capital outlay since the as-a-service provider is funding 100 percent of the upfront cost of a project. So, this can help customers avoid capital budgeting constraints, maybe payback period hurdle rates they hit, and it will help customers implement deeper retrofit projects, and it will help them do it quicker and faster. It also will help preserve debt capacity for customers because as the service agreements are structured as an off-balance sheet solution, where you have true third-party ownership of assets, you have a pay-for-performance structure with variable payments that go up and down based on realized savings, and you have the service provider paying for and taking operational control of key aspects. That includes providing selected maintenance-type services, but also monitoring the ongoing performance of the project, and very importantly, having the economic return for the as-a-service rider dependent upon the actual performance and economic output of a project. You also have immediate cash flow positive type situations for customers because the service rates under an agreement are set below a customer’s current utility rate. So, for example, you might have a customer that under a service agreement is paying seven cents per kilowatt-hour saved, while their utility rate to their utility for power they’re consuming is eight cents per kilowatt-hour that they’re consuming.

So, you should have some immediate cash flow benefit to customers, and that same pay-for-performance aspect also helps de-risk projects since customers are paying for actual realized savings according to the measurement and verification protocols that are part of each project. And then just lastly, on the financial side, the as-a-service provider will work with the utility state agencies to incorporate any and all incentives and roll those into projects to help improve the overall service agreement terms to the customer.

On the operational side, you have the benefits of a true turnkey approach that is integrating the delivery of financial and technical services together in one package. Key equipment upgrades are achieved since energy efficiency as a service project really funds a wide range of equipment, and that certainly includes the upgrade of critical assets that can improve the efficiency and operational reliability, really resiliency, of customers’ facilities.

You also have the as-a-service provider, during the term of the agreement, covering ongoing monitoring services and paying for that, and then also paying for selected maintenance work that’s going to be done to help ensure project performance. But also on the monitoring front, to provide some ongoing transparency of savings throughout the term of the project agreement. And just the one final item on this slide is energy efficiency as a service should really be thought of a little differently than a loan or lease. It’s more than a single point in time financing solution. It’s something that can be, once it’s in place, replicated and rolled out across a customer’s entire campus or portfolio of facilities. And at individual sites, you can have new energy efficiency measures added over time into an original agreement as technology advances occur. So, it’s a little bit more of an ongoing energy efficiency procurement program that provides some added benefits to customers.

Now, before going on to the next slide, I thought maybe I’d circle back a little bit to different stakeholders that are listed here on the left of this slide. I wanted to bring Noah into the discussion, and I mean maybe Noah, asked you, honing in on the sustainability side as part of your work, what are you seeing when you’re helping customers put together sustainability plans? What are some of the key challenges they face, and in terms of advancing and implementing projects? Bob, it’s a question because I think that what’s important to keep in mind is that sustainability managers and also facility managers are at their balancing a lot at any one time, and generally, their budgets are not overflowing. And I think the first thing that they really need to understand is alignment on the impact of the solution. They want to know at what how can they actually make the most impactful decisions associated with, in this case, greenhouse gas reductions or even improved operations.

So, it comes down to this trade-off between cost per kilowatt hour or ton saved associated with that. They need to have solutions that are easy, and the idea that you mentioned, two really important topics, sustainability, sustainable energy as a service, but also the idea of bundling, which is that the more this can be made as something that is an easier solution for sustainability managers, the better and more likely these are going to be adopted because again they’re dealing with a lot. But if they can basically offsource or outsource a solution, it’s an incredible opportunity for them. The another challenge that they have is clarity on who has the internal funds, who has the internal or authority, and how they can balance energy efficiency with operations.I mean, that’s more of a factory issue than a commercial building, and so all of those issues come around if you’re in a sustainability manager’s approach, and some of them need to get really needing buy-in because that’s a challenge that they may not have the authority to make some of these decisions.

I’m curious to hear actually, hear from your perspective, what kind of drivers you’ve seen from the real estate and finance community, because those are groups I generally interact with. What are they seeing as making the energy efficiency as a service solution attractive? Yeah, I mean maybe I’ll answer that but also I guess echo one of your points. Mean typically there’s what we’re dealing with all these different stakeholders on projects and often it starts out first with the facilities or operations side or the sustainability side for exactly the reasons you’re talking about. I think perhaps from a slightly different perspective, both of those groups have a long laundry list of items that need to get done or they want to get done and don’t necessarily have a budget attached to all of it, so that does bring us into the world of finance and real estate. So maybe first on the real estate side, it’s a key aspect and one of the first things we do particularly when we’re working with some multi-site or customers in on a portfolio building put their real estate group ability as they own which facilities they lease and for the leased facilities how long are the terms of that lease. We’ve done projects both with owner-occupied customers but also at least facilities and you know before you go headlong the technical and engineering work of energy audits, which is often the first step, you want to have a view on the real estate because a lot of these agreements I made the comparison earlier to efficiency as a service and Power Purchase Agreements. I’d say efficiency has a service creams are typically a shorter term, you know maybe at the very short end five years for probably more typically close to ten years, you know probably between five and fifteen years. But from a real estate perspective, that’s a long time and you need to have a view on the real estate of a facility as part of any program you’re developing, both in terms of longevity of a site but also maybe getting a little bit transition into the world of finance there can be different financing arrangements that are attached and associated with the real estate so that is also an area where we interact with the finance teams looking at how the as a service model will interact with different existing financings that are part of a building and that can be in the private sector but it can be at hospitals where there’s may be previous bonds that have been financed and you know as a service is very you know it’s a lot more flexible of a financing solution and doesn’t take priority liens over previous financing, but there is some navigation that needs to happen within the world of real estate and finance. And then as you’d expect with the finance side even though an as a service agreement is not a loan or a lease with a fixed interest rate that’s you know has is always paying back principal and interest, there is some discussion surrounding the underlying return or cost of capital with projects. There’s definitely discussions on the accounting side questions that we answer that connect the as a service model to current accounting guidance. We get into those discussions as well so you know project lifecycle the development phase can you know take anywhere from 6 to 12 months and we’ll we’ll spend some time with each of these folks on it and it’s so I one thing that your that’s interesting about we were talking about is is that you’re balancing both capex and OPEX.

Sounds like in terms of what’s getting deployed, so I’m wondering actually if you could talk about that, but also the other thing that I, the other observation they have, is one of the sources of value here is that you’re actually creating a constant billing approach or constant fee associated with energy as opposed to the fluctuations. I’m wondering if how those both those elements come into play in the conversation of the development of a project. Yeah, both do. I mean, I guess capital expense first, operating expense, you know, answering that first and as a service agreement, the payments that come back to the service provider should be viewed as an operating expense and not a capital expense. It’s really akin to the utility bill type payment that customers are making. So, that gets a little bit into some of the accounting questions, and then you know you are right, customers can view the as a service agreement as somewhat of a hedge if they want to think of energy efficiency as part of their energy portfolio where typically upfront what happens is you agree with the customer on the cost per unit of energy save. I think earlier I talked about, you know, hypothetical seven cents per kilowatt-hour saved is the rate that will get locked in in year one and then that, you know, over the term of the agreement the customer will have certainty on what they’re paying for each and every measured and realized kilowatt hour of savings. So, in year one it might be seven cents per kilowatt hour, and then sometimes it depends, you know, on the agreements we do, sometimes you have that rate escalate over time at an agreed-upon escalation rate annually with customers, other times you have it stay flat, but regardless, you know, to your point, it provides some certainty on how they’re meeting really a portion of their facilities’ energy needs, and all that gets codified and locked in and can certainly, you know, type benefits for customer. I think, yeah, you mentioned one word, certainty, and that’s something that is, uh, sometimes feels like it’s hard to come by. One thing we’re seeing a lot of, well, I mean, there’s a pandemic going on right now, and I’m curious to know how COVID-19 has changed any agreements that you may have already with clients or any projects that might be evolving. I mean, given the fact that there’s uncertain, that you know we’ve seen the energy markets fluctuate, we’ve seen the finance markets fluctuate, we’ve seen commercial buildings use enter a new phase, how has that changed this whole concept?

Well, I mean, you know, obviously things are pretty pretty fluid and evolving here. I guess I would say that it depends on the market segment. You know, some market segments are more challenging than others. You know, obviously over the last couple months, you know, we do a lot of work with hospitals in healthcare, those facilities have been, you know, you’re not getting into those facilities. Other facilities, including higher-edge construction, has sped up since there’s not students on campus to get get in the way. So, it can depend a little bit, and you know it gets into some deeper questions, but maybe you know one comment on this before moving on the other slides is that I some of it depends on the phase of project too. Before things really hit, I guess in mid-March, projects that were already under construction, we’ve seen advance pretty well, perhaps even accelerate, and that’s in a lot of different market segments. It’s in biotech, it’s in assisted living, it’s at colleges, so projects that are under construction have moved the head pretty well.

Projects that were in the detailed energy assessment phase and relatively advanced have also moved along, where things have been more spotty and a lot of navigation is needed to happen with customers. For projects that were probably just about ready to have a preliminary assessment kicked off, we’re not seeing projects get cancelled, but you are seeing delays as customers navigate just the basics of, you know, first, am I going to have my coffee machine operating at work before they get into other questions about having people come into their site. We’ve certainly seen preliminary assessments moving forward, especially of late, but it requires a lot more discussion than you’d usually see, and part of that we’re trying to tackle by doing more remote assessments and analyses to keep things moving before we get on a campus or a site, which has, you know, I think been helpful and also in some ways provided some good insights on areas for innovation. Okay, well, let me go through and pick up on just a couple of these last slides and then get to folks’ questions. In terms of the project lifecycle, the service provider really is involved in all key phases of a project’s life cycle. So, in the development phase, they’re casting a wide net in terms of the types of efficiency measures that are evaluated as part of initial technical analyses or on-site audits, and the service provider is working to identify a suite of attractive upgrades that are running the gamut in terms of different types of building improvements. They’re working with an ESCO or a contractor who’s often doing some of that on-site engineering analysis, and then the service rider then takes those results to really perform the financial engineering required to design a project that meets both the technical and financial objectives of customers. Once a project scope is locked in and finalized, the service provider will then finance 100% of the upfront cost of a project, and this will be done in part with their own equity but also with outside debt. Those funds will be used during the construction phase to pay the ESCO contractor for their work that they’re completing on a progress type payment basis. And once this is completed, during this phase, obviously, the incentives that can be brought in from local utilities or state secured, and those get rolled into the economics of a project, and those benefits get passed through to the customer. But once a project achieves substantial completion and construction is complete, you kick into the operational phase, and that’s when the ongoing measurements of realized savings begin to be captured. These savings measurements are completed during each and every year of the agreement, and they serve as the basis of the payments that customers make to the service provider. Again, paying on that cost per unit of realized energy, and the customers, three months after, customers are not paying anything during construction while the project is being installed, and their first bill will usually order after construction is completed. Once the operational phase is kicked in, you also have the service rider paying for some ongoing monitoring of the project’s performance, paying for any agreed-upon maintenance work, and certainly looking to identify new measures that get installed over time.

Over the last couple of years, we’ve seen this with LED lighting and the drop in prices and advancing in technologies projects that we’ve done a few years ago. It’s made sense to go do a relamping with LEDs, so there’s that type of opportunity as well, and then as you know, projects continue on, really customers continue to reap the benefits of projects, and that includes enjoying lower energy bills and healthier and more efficient buildings, and really more sustainable operations that hopefully are helping hit their est targets.

I won’t spend a lot of time on this slide because in many ways, it’s just the cash flow being mapped to that project lifecycle, but just going through it quickly: as you work from left to right, in Year Zero, you have the service provider funding a hundred percent of the upfront project cost. The project gets constructed, typically construction periods are anywhere from six to twelve months, six to nine months, and once a project is operational, there should be energy savings, so you see the baseline energy costs for the customer go down.

During the service agreement term, the customer service provider for the realized savings, they’re also keeping a portion of those savings themselves, and then in this slide, we’re assuming that at the end of the term, which year is set at ten years as an example, that the customer elects to purchase the energy efficiency assets of the fair market value, and then after that, they would receive 100% of the savings.

Just a quick comment on the end of term aspect of projects: at the end of a term, there’s a couple different things that can happen: the customer can work with the service provider to extend the agreement for a to be determined time period, as is illustrated in this slide, the customer can purchase the assets and then receive a hundred percent of the savings, and at the end of the term, the customer could also end the agreement and have the service provider come and take whatever assets they deem or are able to be removed. That’s a little bit of mapping it out from a cash flow perspective, and before we get into the QA, just wanted to go over a couple case studies. So this is a project that we have, a really a program we have that’s in its ninth year with BAE Systems, a large aerospace and defense contractor. There are six different sites involved in the program spanning three different states. A lot of this work is multi-measure integrated retrofits using lighting and controls to really help average down the payback period of some longer mechanical payback-type equipment upgrades like boilers and chillers. These projects are a lot of them are now in their eighth and ninth year of operation and have been performing quite well, so generating energy savings that are at or exceeding expected levels of savings and generating 15,000 tons of annual CO2 reductions.

This next case study is with a fortune 100 technology customer that’s a customer Metrus–is. And here you have fewer efficiency measures, which reflects the type of facilities. So it’s primarily LED lighting and BMS systems, but you can see you have a smaller project size typically at a lot of these sites but a higher number of sites, so 56 different sites across 23 different states, and the $75 million was financed as part of really six different projects where you were bundling not only the LED lighting and BMS systems together, but also taking sites that might be in a high energy cost and therefore have a quicker payback to including them with sites in a lower energy cost region, even if it’s thousands of miles apart, putting them together in the same financing in order to get more work done so that the lower energy cost states aren’t left behind in terms of making these improvements.

This is a large-scale program with some massive CO2 reductions, and just another type of bundling example – not bundling of measures, but the bundling of sites across geographic regions. This last slide is for a project in Connecticut at Bristol Hospital, again a multi-measure type project. It includes water efficiency, so you know it’s not just energy efficiency. And this slide is really just to underscore that in addition to the Fortune 1000 commercial, industrial, manufacturing type customers, the “as-a-service” model works quite well with institutional customers, be it hospitals, colleges, universities, school districts, and public sector customers. So with that, I will stop and move things over to the Q&A section here, and I guess we got a little over ten minutes, and Holly would have you pick things up. Thank you. Hear you fine? Well, great, I got those. Thanks very much, Baba. Noah, that we pressured how energy efficiency is a service enables customers to reduce greenhouse gas emissions and meet carbon reduction targets. So now we’re going to move on towards a human session, so please do continue to send through your questions using that Q&A function on the right-hand side of the screen. Now, why I have one start out for you: which approaches for accelerating GHG reduction or gaining traction among leaders in the industry? Um, thanks for that question, Holly. I think that it’s, as I mentioned earlier, there’s a lot of action going on, a lot of evolution, I would say, of the kinds of tools that companies are focusing on. I think they fall into really two big, two big buckets. First, it’s really the Scope 1 and 2 area, and that’s really what we’re talking about today, when in terms of really committing to reducing energy. What that’s not new, that is something that is gaining traction because it’s just, it’s been around for a while, and it’s gaining, it’s gaining more importance with innovative financing alternatives like energy efficiency as a service. The other big area that we’re seeing actually is in Scope 3, addressing the supply chain of the emissions associated with a company’s supply chain. And this is where things are getting a little interesting because it’s not simply where companies are spending their money with their supply chain, but also how to engage with their supply chain on reducing carbon. One thing that I think has not been done yet, but I think there’s a lot of potential, is to help use the energy efficiency lever as a tool with the supply chain. So imagine a big Fortune 10, 20 company engaging with its supply chain on energy efficiency as a service to say, “Look, you as a supply chain, as members of my supply chain as my suppliers, you need to address energy efficiency in order to reduce your greenhouse gases, which in turn uses mine, ever reduces mine.” I’m excited about this kind of opportunity of engagement.

I think it’s a it, this is this is energy, using credible powerful tool for that. Thank you. Actually, how can a company impact GHG footprint or GHG strategy? Well, first you need to have a strategy. Many companies have been doing a lot of advances in reducing their footprint because they think it’s something that they should be doing or they’ve been engaging with utility on, but they don’t necessarily have a clear plan. I think what I would suggest first is come up with a strategy, understand what your footprint is, understand where you want it to go. If you think that having a globally recognized target like a science-based target is the right one for you, then pursue it. The other side of that, though, is evaluating the impact. I would suggest making sure that you measure the impact in different ways. I think your impact is not just on greenhouse gas production, but also thinking about how to make it the cheapest, least cost approach to do that. There are a lot of no-cost, low-cost solutions for reducing a company’s footprint. We’re talking about one of them today. There are ways of pursuing that which is really, really key. So, with that, I’ll pass it back. But I think that you know, book between measurement and goals, and lastly identifying ways of doing low-cost approaches or really ways they can evaluate your impact.

Occupation exploring what an efficiency of service project could look like for their company. What would be the first step? Yeah, the first step in terms of getting some clarity of what can be done, I think, would be to get some type of either remote assessment done of their buildings or properties and then follow that up with an on-site assessment. And a little bit, obviously in the COVID environment, doing you know, right to getting one of our contractor partners on site to do an energy efficiency audit. But now starting a little bit more with some higher level review that can be conducted, so there’s things you can do now, even if access to your site is tough, but I think getting a perspective of energy use at different sites, looking at energy use intensity, and then drilling down there and obviously looking at what’s been done. Then, you know, lighting is a key question because sometimes that can be an economic engine and driver for other work that can be done, but that’s certainly I think where you can start, and we can make pretty quick headway there. And then also, there’s in parallel to that, there’s some discussion and definition around what the contractual structure looks like and some early-stage engagement of those different stakeholders that Noah and I were talking about.

Great point. Is energy feeding to rhythm enjoying how much electricity is a solar PV system generates? How are energy savings measured under an efficiency services agreement? Yeah, that’s an important question, and I think it really gets to the crux of energy efficiency as a service and rarely energy efficiency in general. I made the comparison earlier to the world of renewable energy and PPAs, and it definitely is easier to meter the output of a solar PV system and know how many kilowatt hours of solar electricity you’re generating. So what often happens, and it really gets involved in the development stage both during the preliminary and detailed assessments, is there’s a comprehensive review that’s conducted of some baseline conditions, looking at a site or a building, understanding both the use and operational profile that building in terms of items like annual operating hours or production levels, but then also looking at the existing efficiency or the efficiency of existing equipment. So, you know where the customer’s current equipment is, and that gets coupled with the analysis of what potential efficiency improvements there are. Because you can have a lot of clarity on the likely efficiency of new equipment that’s installed. And you know, full disclosure, I’m a non-engineer here. You know, the way I think of it is an ongoing before and after calculation, where you have the initial baseline readings of the existing efficiency of equipment.

Then during each and every year of the contract, you’re taking measurements of the new equipment that’s installed. You’re taking readings of kW per ton of a new chiller and the efficiency of a lighting system. And taking that before and after calculation and putting that up against some of the agreed-upon operating parameters that are established and codified with customers prior to a project ever getting done. Because I think one of the key elements is that under efficiency as a service agreement projects, you have the service provider taking the risk on the performance of the equipment and its ability to generate energy savings. But certain parameters that are outside of a service provider’s domain, such as occupancy at a hotel or production levels for an industrial facility, those are items that typically get fixed and agreed upon with customers upfront. Or at least some parameters are established around them. So all of this does get codified in the agreement, and a lot of transparency to it upfront. And then once that is in place, those are the protocols that are utilized during the ongoing measurement and verification that happens again during or of the agreement. An accurate reading of how the equipment is performing.

Bob, I have a follow-up question to that. Actually, what we’re seeing here in California is we’re bracing ourselves for public safety power shut-offs. Namely, for that’s the idea that parts of the grid may shut down to prevent wildfires or due to high wildfire risk. I’m wondering how a topic like planned shutdowns or natural disasters are brought into the agreements and how they’re buffered.

Yeah, I mean, that can be a complicated question. I mean, that gets into force majeure-type situations. So, that is probably no different than what you’d see for any other type of financing arrangement where there are certain force majeure risks that are just part and parcel of any financing agreement. So, that is a risk that the customer would likely take. And it’s something that, obviously, in the current world, we work with customers to go through what those risks are so that everyone enters into these agreements like they would for any other financing with eyes wide open.

Thanks. Another question, Pack Energy Efficiency. As they’re changing, as the cost of electricity from renewable energy becomes more competitive, how do you sequence energy efficiency compared to renewable energy?

You want me to take that?

No, I think you should.

Well, so if I’m understanding the question, I think part of it is, as the cost of renewable energy declines, as it has been, how does that compare, or how do you sequence things with energy efficiency? And you know, obviously, I think you want to take a holistic view. But it makes sense to do all the energy efficiency that you can first. And you might have a little bit of a way that you can look at different efficiency measures and think about sequencing them and where renewable energy would stack in there. But by and large, you want to get your demand profile right. And that means really doing all the energy efficiency that you can.

And then on the heels of that, getting in a renewable energy system that’s right-sized and is really tailored to meet the needs of a facility. And not, you know, oversized in some way to account for inefficient internal operations. So I think you know we very much take the view that it’s energy efficiency first and then you get right into the renewable energy side of things. But you can, you can also do it right in tandem as I mentioned earlier. Increasingly, we are seeing projects where customers are asking us to, alongside energy, look at floor or even EV charging, which is a bit different but incorporating that together. But I think, yeah, you need to have a good plan in place for energy efficiency first and that, I think, optimizes the economics even further of renewable energy. Be great, thank you. Can you elaborate on the experience using that call to prove savings to the end-use clients? Do they have the tech-savvy staff that can validate the savings? Yeah, I think the question there a little bit was kind of the validation process and how that goes on. So, a lot of it again is during the development phase where we will work to make sure that customers are understanding how energy savings are being calculated and that will be involved in that. And we’ll also, as part of the projects that we’re implementing, there’s going to be an ESCO or contracting partner that’s going to be working hand-in-hand with the customer. As part of our projects, we also have independent engineers that will come in and evaluate the different inputs that are developed by our ESCO or contracting partner. And part of that explanation and benefit of us, you know, paying for and having an independent engineer gets rolled into the explanation and understanding of the customer. So, all this gets codified in the exhibits to the contracts too, so it’s, you know, something that before any deal is signed we make sure customers are aware of it and try to map it out as clearly as we can. Thanks, Bob. I have about all that before question, so probably bring things to a close. But, you know, contact information here for Bob and on myself. If there are questions that we didn’t get to today that you would like answered, please do feel free to send an email. And as I strongly Weiss, there’s a recording for your reference. So, thank you all very much for joining today. Thanks, Bob and Noah for the very informative presentation. Have a great rest of your day. Thank you. Thank you.