jan/feb 2016 on-site energy management magazine

PlusZero Up-Front-CostMicroturbine Financing8

How American Schools Finance Solar Page 24

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January/February 2016

Russell Tencer Becomes Distributed Wind’s

Bridge

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INSIDE

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

FEATURES12 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. By Tom Bryan

18 MICROTURBINES

Clear Alternative Capstone Turbine’s new joint venture brings no-money-down, PPA-style fi nancing to its cash-conserving microturbine customers.By Tom Bryan

24 SOLAR

PV Plays Schools and universities represent a massive U.S. market for distributed solar, and an array of fi nancing pathways are available to them.By D.A. Barber

30 INDUSTRIAL

Nothing WastedWith buyers waiting for its scaled-up technology, Ener-Core is determined to start changing the way industrial plants manage waste gases. By Tom Bryan

04 EDITOR’S NOTE

Finding Energy Conversion CapitalBy 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

JANUARY/FEBRUARY 2016 VOLUME 1 ISSUE 1

ON-SITE ENERGY MANAGEMENT JANUARY/FEBRUARY 20164

The power-generation industry is in the early stages of a sweeping changeover from old, ineffi cient spoke-and-hub power to clean, effi cient and progres-sively decentralized energy. A litany of factors have aligned to bring on this gradual

transformation. Legacy power is constrained by regulatory uncertainty and an aging fl eet. 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 with-out money, and lots of it. So this inaugural issue of On-Site Energy Management explores the world of project fi nancing, from fi xed-rate leasing for wind power and microtrubines to bond fi nancing for institutional solar. Our cover story features Brooklyn-based United Wind, which has secured more than $213 million in project fi nancing for distributed wind turbines. The company is making a move into the Midwest and, offering an attractive fi xed-rate, no mainte-nance lease, fi xing 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 fi nancing 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 fi nancing photovoltaic power—rooftop, parking canopy and ground-mounted arrays—by leveraging bonds, green energy funds, fi xed-rate, power-purchase agreements and other fi nancial tools.

Finally, in “Nothing Wasted,” on page 30, we introduce the still-unfolding story of Ener-Core, 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 fi tting endcap and a great example of on-site energy’s transformative force.

Finding Energy Conversion Capital

EDITOR'S NOTE

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VOLUME 1 ISSUE 1

EDITORIAL Editor in Chief Tom [email protected]

Copy Editor Jan [email protected]

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EVENTS CALENDAR

On-Site Energy Conference & ExpoApril 11-13, 2016Charlotte Convention CenterCharlotte, North CarolinaCo-located with the International Biomass Conference & Expo, this event will bring to-gether commercial, institutional and indus-trial energy professionals who are evaluat-ing 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, opera-tions and maintenance.866-746-8385 | www.onsiteenergyexpo.com

International Biomass Conference & ExpoApril 11-14, 2016Charlotte Convention CenterCharlotte, North CarolinaOrganized by BBI International and produced by Biomass Magazine, this event brings cur-rent and future producers of bioenergy and biobased products together with waste generators, energy crop growers, municipal leaders, utility executives, technology pro-viders, 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.866-746-8385 | www.biomassconference.com

Energy Storage North AmericaOctober 4-6, 2016San Diego Convention CenterSan Diego, CaliforniaThis 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 ul-timately shape the fast-growing market for energy storage.312-621-5838 | www.esnaexpo.com

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BUSINESS BRIEFS People, Partnerships & New Products

Dawes leads Global Power’s auxiliary segment

Peter Dawes has been named presi-dent of Global Power Equipment Group’s auxiliary products seg-ment. Dawes has more than 30 years of ex-perience in the power-generation, alternative-energy 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 opera-tions 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 subsid-iary 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.

Eaton recognized for microgrid open innovation

Power management company Eaton has received the Berkeley-Haas Open In-novation Award, placing second in the Busi-ness Transformation category. Eaton was recognized for leveraging open innovation to launch new cross-functional initiatives

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 partner-ships with universities, military bases, utili-ties, government laboratories and nonprofi ts 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.

Barksdale inducted to AEE Hall of Fame

George “Buster” Barksdale, vice president of busi-ness development at Empower Energies, was inducted into the Association of Energy Engineers En-ergy Managers Hall of Fame in late 2015. The honor is reserved for outstanding leaders in the energy industry who have made signifi cant contributions in the fi eld 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 Ener-gies as vice president, business development. Buemi brings a 17-year track record of renew-able energy success across the commercial, industrial and govern-ment sectors, enhancing an already strong leadership team with high-growth qualifi -

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.

Clean Coalition joins Microgrid Systems Lab

The Clean Coalition, a California-based organization focused on advancing clean energy and community microgrids, has joined the Microgrid Systems Labora-tory, an innovation center for decentralized energy based in New Mexico. Developing microgrids is an important priority for both groups. The Clean Coalition has a Commu-nity 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.

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 docu-ment or directly import it into their design software. The application supports most popular fi le types and CAD software pro-grams. To use the CAD feature, visit www.hurstboiler.com/cad_drawings.

Dawes

Barksdale

Buemi

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


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In late 2015, FuelCell Energy Inc. secured a $30 million project fi nancing facility with PNC Energy Capital LLC. The deal gives the Danbury, Connecticut, fuel cell maker long-term fi nancing for proj-ects being developed under power purchase agreements. It will also broaden FuelCell Energy's project development capabilities at a time when its high-profi le 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 af-ter FuelCell Energy’s big fi nancing 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 Pfi zer in Con-necticut.

While the competing Ameri-can fuel cell manufacturers are headquartered on opposite coasts and serve somewhat different markets, the companies have key similarities and signifi cant mar-ketplace overlap. Both make solid oxide fuel cells capable of running on multiple inputs including biogas. Each serves a variety of com-mercial and institutional customers deploying on-site energy. And each has worked with high-profi le hosts like Microsoft, Pfi zer, Walmart and Google. Here’s a list of projects the manufacturers have completed or taken on in the past three months alone.

US fuel cell rivalry stays warm

ON-SITE ENERGY NEWS NEWS & TRENDS

OCTOBER 20 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.

OCTOBER 28 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.

OCTOBER 2015

NOVEMBER 2015 NOVEMBER 2FuelCell 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.

NOVEMBER 17The 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.

NOVEMBER 19In 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 15FuelCell 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 4Pfizer unveils a plan to install a 5.6 MW FuelCell Energy power plant at its research and develop-ment 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.

JANUARY 12Morgan 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.

JANUARY 2016

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

COGEN CUBE: A Fuel Cell Energy combined-heat-and-power plant supplies energy to a food processing facility. PHOTO: FUELCELL ENERGY


On-Site Energy Management and BBI International will host the On-Site Energy Conference & Expo April 11-13 at the Char-lotte Convention Center in Char-lotte, 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 profes-sionals who are evaluating or already managing on-site power and thermal energy technolo-gies. 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 ex-plore how utilities and indepen-dent 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 fi nancing solutions and funding strategies that make on-site energy more attractive; how commercial and institutional en-ergy managers rely on, and ben-efi t from, third-party operations and maintenance; and more.

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

Conference participants will

include energy managers, facility managers, physical plant admin-istrators, consulting-specifying engineers, sustainability practitio-ners, building and business own-ers, 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 attend-ees, 220 exhibitors and 125 speak-

ers. Attendees will have access to both events for the price of one. The conferences will share a gen-eral session on April 12, followed by separate breakout sessions later that day and the next. More information is available at www.onsiteenergyexpo.com.

On-Site Energy Conference & Expo launches

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

ON-SITE ENERGY NEWS

The microgrid market is pro-jected to grow 300 percent over the next fi ve 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 fi ve 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. Ap-plications for the grants are still being accepted.

Nascent microgrid sector living up to expectations


ON-SITE ENERGY NEWS

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

The Central Kentucky Land-fi ll is owned and operated by Waste Services of the Bluegrass, which collaborated with Toyota on the project. The U.S. EPA requires landfi lls to monitor and report methane levels. Capturing and burning landfi ll 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 com-munity, public utilities and elected offi cials to get the project off the ground.”

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

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

Toyota’s landfi ll gas power project up and running

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

Germany-based Entrade has introduced a small-scale com-bined 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 gasifi cation 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 transport-able in the bed of a pickup truck, according to Entrade.

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 manufac-ture up to 45 units per month with a target of making 600 units in 2016.

Compact biomass CCHP unit goes into production

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


ON-SITE ENERGY NEWS

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 fl agship C30 and C65 microturbines.

MultiChill's MultiGen sys-tem 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 effi ciency. Further-more, an integrated water-making system is able to capture water

from the atmosphere, refrigera-tion or air conditioning, and sup-ply it to the end user.

"We have over 50 MultiGen systems in the fi eld 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 fl exibility 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

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 opportuni-ties for Capstone and MultiChill to address a rapidly approaching water crisis with an innovative and cost-effective solution.

Chiller, microturbine companies pair up on CCHP product

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.

A 3 MW solar installation on top of two parking structures at the Minneapolis-St. Paul Interna-tional Airport is now complete. It is Minnesota’s largest solar-generation site and a fi rst-of-its-kind airport project, according to developer Ameresco.

In addition to solar panels, four new electric vehicle charg-ing stations were installed in the airport’s parking ramps, bringing the total number of MSP charg-ing 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 Interna-tional Airport and applauds its leadership team for its steward-ship both in pursuing renewable energy solutions for the airport as well as obtaining public-private fi nancing to support the construction,” said George Sakellaris, president and CEO of Ameresco.

Ameresco completes major PV installation at Minneapolis airport

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


WIND


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 BryanPhotos By David Gordon

From an austere offi ce fl at 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 fi nding the money needed to make distributed wind more prolifi c in pasto-ral 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 fi nancing in Janu-ary in what is thought to be the largest fi nancial deal

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

DISTRIBUTED WIND’S

BRIDGE BUILDER

WIND


in the history of the distributed wind industry. Before it hap-pened, company reps hinted that “something big” was on the way, but they were inex-plicit about what would come. The distributed wind industry was amazed when, during the fi rst week of the year, Toronto-based Forum Equity Partners committed $200 million in project equity capital to Tenc-er’s young company.

The fi nancing deal unques-tionably puts United Wind in a position to expand its nascent WindLease program, which en-ables property owners to lease distributed wind turbines rated at 100 kW or less. Through the program, qualifi ed customers—mostly located in underserved rural markets—can reduce their energy costs by harvesting on-site wind power through fi xed-rate, 20-year leases that don’t require out-of-pocket costs for property owners. The arrange-ment has been well-received by small businesses, agricultural

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

With more than $213 mil-lion in fi nancing 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 per-spective. It would also solidify United Wind’s future in an in-dustry that needs more success stories.

Analytical Antecedent Prior to co-founding Unit-

ed Wind, Tencer ran a small company called Wind Ana-lytics, 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

million installed. But Tencer says the high cost of the wind analysis, required for siting and sizing turbines, was time-inten-sive and fi nancially prohibitive. “It could involve expensive monitoring equipment and cor-relations of data over many months,” he says. “In some cas-es, 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 ru-dimentary tools for assessing wind turbine viability. “Maps don’t account for things like trees, buildings, silos or turbu-lence, so it’s never going to give you a perfectly accurate read-ing,” Tencer says. “They just don’t give you a true indication of what a turbine will produce at a particular latitude, longi-tude and height.”

With complex wind ana-lytics being too expensive and maps too basic, many develop-ers were doing very little due

diligence before erecting wind turbines. “We had a situation where people were buying tur-bines, 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 fi gured 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 ac-curately 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, Tenc-er says, the industry just didn’t understand or value wind data.

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.

WIND


“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 fi xed-rate lease playbook. He part-nered 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 capi-tal, moved our assets into one new entity and set out to raise corporate and project fi nanc-ing,” Tencer says.

The money didn't neces-sarily come quickly. United Wind’s fi rst injection of corpo-rate fi nancing took six months to close and the initial project fi nancing reached fi nalization three months later in the fall of 2013, when GSG Energy Fi-nance committed $25 million. It

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 signifi cant federal tax

liability. When a company is small or marginally profi table, it can’t capture the full benefi t

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 fi rms that do

have federal tax obligations to offset.

U.S. Bank, for example, has a tax credit investment arm called U.S. Bancorp Com-

munity Development Corp., which committed about $5 million in project fi nancing to

United Wind in 2015. As the fi fth largest commercial bank in the country, U.S. Bank is

quite profi table and, as a result, has a signifi cant federal tax obligation. USBCDC fi nds

and leverages tax credit opportunities by investing in things like low-income housing,

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

“Our renewable energy practice is robust,” says Dan Siegel, vice president of renew-

able energy investments at USBCDC. “We do about 40 or 50 transactions a year. Three-

fourths 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 benefi ts associated with the projects. Optimizing the use of

those credits has become a conventional project fi nance 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 benefi ts,” Siegel says. “We’re

committing capital today—capital that is used to help fi nance a portion of the cost of

those projects—in exchange for an allocation of those benefi ts.”

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 Octo-

ber, 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.”


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 fi rst round of funding was extremely high.”

Soon after, the company received $10 million of marginally lower-cost fi nancing from Pacifi c 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, fol-lowed by the overshadowing $200 mil-lion commitment from Forum Equity Partners in January.

With enough project fi nancing capital to purchase and install hundreds, maybe thousands of new turbines, Unit-ed Wind has opened a satellite offi ce in Denver and is making a strong move into the Midwest. Now, the company’s success hinges almost solely on how cus-tomers react to its fi xed-rate leasing play.

Price Mitigating Escalator United Wind’s typical customers

are almost exclusively rural and gener-ally have at least fi ve acres of land. Two-thirds of them are agricultural or com-mercial 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, indus-

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

The company’s recent expansion into the Midwest puts United Wind in front of a broader range of rural enter-prises, including big dairy farms, feedlots and manufacturing plants. Interestingly, carbon reduction and sustainability pur-suits are not driving many distributed wind turbine leases. Tencer says it’s re-ally about money. “Yes, we’ll see a few customers in, for example, consumer goods manufacturing that might be in-terested 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-per-second wind in the areas we’re target-ing,” 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 fi xed-rate, 20-year lease, United Wind customers typically re-ceive a 10 percent savings on their cur-rent electricity expenses and a fi xed es-calator on payments—1.9 percent per year—over the duration of the agree-ment. 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 sav-ings while fi xing their costs and hedging against future rate hikes.”

United Wind also handles the instal-lation, service and maintenance of the turbine itself, making it an almost worry-free situation for property owners. “We

'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 fi xing their costs and hedging against future rate hikes.'Russell Tencer, United Wind


insure it, repair it, and guarantee its perfor-mance,” 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 Mid-west, 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 tur-bine 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 com-pany buys turbines, ranging from 10 to 100 kW, from manufacturers like Bergey, En-durance Wind Power and Northern Power Systems. The company also hires out in-stallation, operations and maintenance. But Tencer says he’d like to work toward establishing in-house installation capabili-ties in 2016. “We want to be more verti-cally 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 chal-lenges, 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 fi nanc-ing capital,” he says. “Before distributed solar had access to mainstream project fi nance capital, it was just like distributed wind has been. It was niche. It was for en-

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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 fi nancing 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-

pect to have 1,000 customers by the end of 2017, and we’re raising more corporate and project fi nance capital to enable that to happen.”

Author: Tom BryanEditor in Chief, On-Site Energy [email protected]


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CLEAR 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 com-petition with rivals. The book’s authors summoned com-panies to break away from those incessant scuffl es 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 fi rst 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 30-kW 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 microtur-bine sales, alone, illustrates that it found a way to swim solitarily, but its top offi cer doesn’t consider the absence of close competi-tion a real strategic advantage. “Competition isn’t a big thing for

GREEN MACHINE:: Capstone Turbine's C1000 is comprised of fi ve C200s and can be paralleled up to 30 MW. PHOTO: CAPSTONE TURBINE CORP.

ALTERNATIVE

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us,” says Darren Jamison, Cap-stone’s president and CEO. “We don’t have direct competition be-cause we were fi rst-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 effec-tive 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 ef-fi ciency of 33 percent, come in many sizes and confi gurations based on each customer’s need. “Rarely do we sell one micro-turbine by itself,” Jamison says. “Our concept is a little different than the traditional reciprocat-ing engine players. They don’t mind selling a single engine. They’re affordable to install and from a manufacturer’s stand-point, 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 ap-proach. We install power genera-tion plants and guarantee them as 20-year assets. We also guar-

antee the life-cycle costs of that asset for up to nine years. That’s a nine-year guarantee or opera-tional insurance policy for your power plant. If, eight years and 11 months into it there is a cata-strophic failure, the customer is getting a new turbine with no questions asked. That’s just the way it is. I challenge customers to fi nd 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, Califor-nia, company and its distributors place a heavy emphasis on spec-ifying 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 re-quirements of the customer and our reliability standards.”

Typically, Capstone recom-mends customers install mul-tiple, 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 mul-tiple C200s,” Jamison says. “If the customer has a 1-MW need, our C1000 Series is fi ve 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 Pow-erGen International expo in Las Vegas, Capstone unveiled its new C1000S, the Signature Series version of its largest con-tainerized microturbine con-fi guration. The unit features nu-merous improvements plus the same proven technology found in the original C1000 microtur-bine. Jim Crouse, Capstone’s

executive vice president of sales and marketing, says there were 73 changes made to what was al-ready a super-effi cient, high-per-forming arrangement. “We’ve made it even better,” Crouse says. “We started shipping C200s fi ve years ago, and we’ve taken what we’ve learned from plac-ing some 1,200 units into service worldwide and rolled that collec-tive knowledge into this pack-age.”

Notably, the C1000S has an integrated heat recovery module, making the machine highly suit-able for combined heat and pow-er (CHP) and combined cooling, heating and power (CCHP). “That’s a nice benefi t,” Crouse says. “Instead of having to buy a third-party heat recovery mod-ule—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 micro-turbine specifi cation is under-standing and predicting the in-consistent nature of power and thermal loads, which are rarely constant. Capstone’s machines are set up to follow electrical or thermal loads while also parallel-ing and load balancing with one another. The units can also self-optimize, or run in effi ciency 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 effi ciency,” Jamison ex-plains. “The goal is to always run the machines at the maximum effi ciency, which is 100 percent output. But if the load drops and you drop an engine, you just go down that effi ciency curve and save slightly less money.”

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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.


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 be-fore a slowdown in the oil and gas sector, and a strong dollar, damp-ened microturbine sales in fi scal year 2015, reducing revenue by 13 percent.

Not surprisingly, even Cap-stone’s response to last year’s revenue narrowing has a distinct blue ocean feel to it. In Novem-ber, the company announced the launch of Capstone Energy Finance, a joint venture to pro-vide fi nancing options for its microturbine-based power plant projects. Through a power pur-chase agreement (PPA) platform, the fi nance vehicle will give pro-spective Capstone customers the ability to purchase electricity gen-erated by a microturbine at their facility with no up-front capital investment. This proven style of

third-party PPA fi nancing is being used in many clean energy indus-tries, but it is most widely recog-nized as a fi nance mechanism for distributed solar projects.

It took three years to as-semble the fi nance joint venture, largely because Capstone is the only sizeable microturbine manu-facturer in the world. Jamison says traditional fi nancing sources struggled with the company’s marketplace singularity. “They tend to want to work with tech-nologies that have lots of players, lots of competition, so if some-thing unexpected happens they can install another technology or source parts from another com-pany,” 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 fi nd tradi-tional fi nancing that would take on this kind of third-party fi nanc-ing.”

Ultimately, Capstone found and secured the right strategic

partners. The fi nancing entity is now funded by strategic high-net-worth individuals with the potential for more funding from traditional equity sources down the road. Jamison says the com-pany’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 fi nancing platform will work well in the CHP and CCHP mar-kets, but it needs to be an effective instrument for recovering lost oil and gas sales fi rst.

Familiar Proving Grounds

Having lost as many as 250 potential microturbine sales in 2015 due to a lack of fi nancing options for its customers, Cap-stone is eager to circle back to them with a new fi nance option. “Oil and gas is the fi rst 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 envi-ronment.”

There will certainly be pres-sure 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 abil-ity to produce good returns. The oil and gas sector, Jamison says, is the most logical and accommo-dating 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 fi nancials who can easily and quickly put the technol-ogy 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 fi nancing vehicle in the plethora of com-mercial, institutional and manu-facturing sectors that need CHP and CCHP. Jamison says the an-nouncement of the joint venture, alone, has generated interest from prospective CHP and CCHP cus-tomers. “We’ve received a number of new inquiries about the pricing and applicability of microtru-bines in commercial and institu-tional CHP scenarios,” he says, explaining how the new fi nanc-ing solution is a great conversa-tion starter with industrial, com-

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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.


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

Delivering Deal FlowLike many original equip-

ment manufacturers, Capstone doesn’t sell its own microtru-bines. Its products, ranging in size from 30 kW to 1 MW, are sold by more than 90 distribu-tors worldwide.

Crouse says PPA fi nancing will be a useful sales tool for its distributors. “It’s not too differ-

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

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

tomer must like the fi t and feel of the agreement. “The fi nance entity will determine which proj-ects 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 for-ward with fi nancing on their own. That’s fi ne. 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 sup-port 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 fl exibility. If a distributor says they want to own 30 per-cent of a microturbine project in their territory, we can do that. We made sure this JV was set up with the fl exibility to allow a dis-tributor to own a portion of ev-ery Capstone project that lands in their area. So, the distributor can actually benefi t from a small rev-enue stream and partial owner-ship 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 custom-ers a new fi nancing solution is

an important avenue for Cap-stone. 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 strength-ened by the abundance of low-cost natural gas. “Current en-ergy 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 mar-ket today.”

If a customer is deploying CHP or CCHP, Capstone can easily apply its new PPA fi nanc-ing solution to the project by calculating its charges based on a discount to the customer’s ex-isting thermal and cooling costs. That’s possible after offsetting their boiler and chiller loads with CCHP derived from microtru-bines 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 pro-vide them with a 10 or 15 per-cent discount on what we sup-ply to them,” Jamison explains. “Same thing on the electrical side. The customer is generally going to get that power for 10 to 15 per-cent less than what they can buy from the grid. The customer is going to see a month-one cost re-duction 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 fulfi ll-ing major orders in oil and gas. In January, for example, Capstone

NYC: Melting Pot of Microturbine Installations

Combined heat and power (CHP) and combined cool-ing, heat and power (CCHP) now make up about half of Capstone’s revenue, reported at $115.5 million in fi scal 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 offi ce 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 bot-tom line is that anybody who has more than 12-cent power is going to be a pretty good candidate for one of our microtru-bines, particularly when there is some thermal load that we can tap into,” Jamison says.

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received an order for three C800 and two C1000 systems—a total of 4.6 MW—for a large fl are 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 fl are gas to power.

Over the past 15 years, the oil and gas sector has purchased about two-thirds of the microtur-bines Capstone has manufactured and sold. In the past fi ve years, specifi cally, U.S. shale gas has un-questionably driven the compa-ny’s spectacular revenue growth. “We put a ton of products into

the U.S. shale gas fi elds—with customers like Anadarko, Pioneer Natural Resources, Chesapeake or EQT—and it’s still a big mar-ket for us,” Jamison says. “Lots of different players within the market were deploying our tech-nology 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 unconvention-al oil and gas, Capstone has put its micorturbines to work in tradi-tional oil and gas plays: onshore, offshore, pipelines, gas compres-sion stations, cathodic protection, and more. “Obviously there has been a precipitous drop in oil pric-es 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 de-termined to “get the revenue en-gine 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 diver-sify the business profi le, geogra-phy 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 diversifi cation 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 sec-ond, third or fourth highest annu-al expenditure for many compa-nies, 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.’”


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


Leveraging bonds, green energy funds, fi xed-rate, power-purchase agreements and other fi nancial 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 numer-ous public and private fi nancing 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 fi nancing system ownership by leveraging higher education’s access to low-cost fi nancing mecha-nisms, 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 fi nancing 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 com-mercial 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 Unifi ed School District in 2014. PHOTO: NATURAL POWER AND ENERGY

SOLAR

PV PLAYS


SOLAR


“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 identifi ed 3,752 schools equipped with solar ener-gy—a vast majority of them be-ing 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 univer-sities. 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 uni-versities and one K-12 school.

Finding FundingThere is a multitude of cre-

ative project fi nancing pathways schools and universities are tak-ing, from bond fi nancing and utility-run green energy funds to fi xed-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 fi nancial 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 own-ership—only two were funded via a single fi nancing 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 so-lar installation cost through a 30 percent tax credit. The ITC was extended when President Obama signed the omnibus and tax-extender bills in late December, leaving the ITC at 30 percent for

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

Tax-exempt schools, howev-er, are unable to take direct advan-tage of these federal tax credits. Instead, outside companies—like Solar City, SunPower or SunE-dison—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 electric-ity prices as a hedge against ev-er-rising utility rates. The school gets solar installed without pay-ing hefty upfront costs or dealing with PV maintenance.

Most K-12 schools follow the basic PPA path that the Paso Robles, California, Joint Unifi ed School District did in October when it partnered with SunEd-ison to install solar across fi ve 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 fi nancing of Tucson

Unifi ed School District's 11-MW project at 43 sites across the dis-trict using canopies over parking lots and recreation areas was a bit more complicated. According to Tina Cook, TUSD's energy proj-ects manager, the district began by selecting Arizona's Natural Power and Energy to develop the project, which, in turn, obtained fi nanc-ing through Constellation Energy, which owns and maintains the sys-tem and charges the school a fi xed rate.

But unlike some other re-gions, the local utility, Tucson Electric Power, offered no in-centives to subsidize the project. Cook says shortly after they went out for bids in June 2013, the Ari-zona Corporation Commission, the state's utility regulator, allowed TEP to end incentives for com-mercial 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

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

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ago TUSD'S project received EPA's 2015 Green Power Lead-ership 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 BondsA unique aspect of K-12

school districts is their ability to is-sue 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 na-tionally, administered by the IRS. And to help reduce interest pay-ments on municipal bond debts, the federal government authorized $3.2 billion in Qualifi ed Energy Conservation Bonds to provide interest rate subsidies of approxi-mately 3 to 4 percent. “There’s another federal tax credit bond program called Qualifi ed Zone Academy Bonds, which has been

in place for several years, and up until recently, hadn’t been utilized very much for fi nancing solar proj-ects,” says SunPower's Griset.

The federal government al-locates QZABs separately to each state. However, QZABs require a 10 percent private sector contribu-tion—usually in-kind services—and the establishment of academic programs. And that, Griset says, has been an impediment to fi nanc-ing solar with QZABs. “SunPower installed 5.2 MW at 20 sites for Antioch Unifi ed School District in Northern California, which fund-ed its solar project with QZABs,” Griset says. “Through the QZAB program, SunPower was able to help Antioch implement a district-wide STEM (science, technology, engineering and math) academy and supplement its Linked Learn-ing platform through our SunPow-er Horizons education program.”

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

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

Solar UThe 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 be-coming “carbon neutral by 2025” through both on-site and offsite renewable energy projects. To-ward that goal, SunPower has been working with the university system at UC Santa Barbara, UC Davis and UC Riverside, as well as pri-vate 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 complet-ed by the end of this year.

Alternatively, at UC Davis of-fi cials are taking advantage of scale through on-site solar farms. On Nov. 20, UC Davis and SunPower dedicated the largest behind-the-meter solar farm on a U.S. college campus: a 16.3-MW solar farm ca-pable 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 roof-top systems they previously built at UC Davis cost three times the price per kilowatt-hour (kWh) of the solar farm. “It's much more

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

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cost-effective to do ground-mounted large solar systems in scale compared to what we did with their fi rst [solar panel] proj-ect,” he says.

UC also chose to clear the land and do the electrical infra-structure 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 bud-gets set aside funds for purchas-ing 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 indi-rectly 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 fi eld 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 fi nance 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 al-lowed 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, Macales-ter's choice also illustrates what a number of schools have to deal with when considering rooftop panels on vintage buildings, par-

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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

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


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 care-ful not to create additional drifting which creates weight in addition to the weight of the panels them-selves.”

While the Solar Foundation expects to have more informa-tion when its next school report is released later this year, the 2014 “Brighter Future” report suggests a trend toward third-party owner-ship fi nancing as system sizes in-crease. “Our report showed that schools have been installing larger and larger systems over time, and that PPAs are the predominant fi -nancing mechanism for larger sys-tems. Given this, one could infer a trend toward PPAs, but because these aren't available in all states, it's diffi cult to make an exact compari-son,” says TSF's Brown.

Nevertheless, some institu-tions 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 sys-tems rather than fi nancing them through a PPA. “If you do that, you miss out on all of the tax cred-its 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 public-private partnership because they can take advantage of things that we can't.”

TUSD’s Cook adds, “You know, it comes down to the fund-ing. Even if you go through a bond such as CREBs for [buy-ing] 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, giv-ing way to other options for some districts. A December U.S. DOE report, “Energy Investment Part-nerships” examining innovative fi nancing mechanisms adopted

by eight states—California, Con-necticut, Florida, Hawaii, New Jersey, New York, Ohio and Ore-gon—found an emerging trend. It suggested that energy investment partnerships, or green banks, can maximize the impact of public funds by leveraging private dol-lars. “Rather than simply offering generous tax credits and grants, these new partnerships focus on facilitating fi nancing through bonds, loans, credit enhancement and other proven development fi -nance 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 mil-lion from Portland General Elec-tric‘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 fi nance 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 authori-zation 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 multi-ple sites as one competitive bidding process with a single developer. I think that's always a good idea.”

Author: D.A. BarberFreelance WriterContact On-Site Energy Management with questions about this article.701-746-8385

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


INDUSTRIAL


WASTEDWith 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 for-tunes of all time—an equivalent of $340 billion today—by cornering the market on petroleum refi ning leftovers. Turn-of-the-century kerosene producers were dumping gasoline and other undesirable oil derivatives anywhere they could—including rivers—because the prod-ucts 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, Califor-nia-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 Ener-Core’s patented Power Oxidizer, which turns low-value industrial waste gases into base-load, 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 fi rst major adopters of the modifi ed turbine will be a Pacifi c Etha-nol 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 in-stalled—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 offi cer.PHOTO: BBI/DAVID BRAUN

INDUSTRIAL

Nothing


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 indus-try 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.”

Ener-Core won’t sell its oxidizers directly to Pacifi c 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 some-thing they couldn’t do before—utilize their own low-energy fuels,” says Mike Cormier, business development director for Dresser-Rand.

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

turbine generators coupled with integrated Power Oxidizers. The deal was made of-fi cial last spring when Ener-Core received nonbinding notifi cation 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 ac-ceptance test. “We wanted to simulate how the full-scale unit would operate on a small-scale 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 ac-ceptance test of the large unit is all that re-mains before Pacifi c Ethanol adopts the tech-nology.

“It’s a very good fi t for pollution con-trol—it is the best available control technolo-gy—and it helps reduce our operating costs,” says Pat McKenzie, director of corporate engineering at Pacifi c Ethanol. “When we’re fi nished with the installation of the power oxidizer at our Stockton facility, we’re going to take those results and look at how it fi ts 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 fi nal vali-dation,” he says. “At some point, most utili-ty-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.”

Pacifi c Ethanol will reduce its operating costs and become an inordinately clean etha-nol plant when it adopts oxidizer-integrated turbines. But Castro says the latter benefi t 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.”

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


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 gen-eration 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 fore-front of the renewable and distributed energy transformation, Castro says there is a growing need for sources of energy that are not inter-mittent. “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 in-stalling 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, Cas-

tro 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 in-dustries 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 administra-tor Stephen Johnson, an Ener-Core’s adviso-ry board member, said he expects no letup in U.S. industrial regulation in the future. “The policy and regulatory trend is not for relax-ation on air quality,” he said. “It is defi nitely toward tougher air emissions standards.”

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

INDUSTRIAL

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 re-

sult, most industries fl are 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 fl ame,” Castro says. “If you could look inside the Power

Oxidizer, there would not be fi re 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.”


INDUSTRIAL

air emissions regulation. In fact, there are countless types of manufacturing and indus-trial plants that emit, fl are, mitigate or oth-erwise manage waste gases. Castro’s list of prospective Power Oxidizer buyers includes ethanol plants, distilleries, oil refi neries and petrochemical plants, semiconductor manu-facturing plants, animal rendering plants, coal mines, wastewater treatment plants and more. “We think we can make them all more effi cient and more cost competitive,” he says. “They all have waste gases, spend lots of money on energy, and are exposed to increas-ingly 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 pol-itics 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 indus-try holler about how America is getting less

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 fl ared 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 ineffi ciency and misdirected environmental solutions. He says industries would gladly stop emitting waste gases if they had a fi nancial incentive to do so. “We just need to give industries a reason to change for capitalistic reasons rather than by force-feeding them more rules and new costs,” he says. “Here’s something that can make them cleaner and more competitive at once. Every-one has been focused on the problem, and that’s why there are hundreds of technolo-

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 ineffi -ciency.”

Ultimately, the Power Oxidizer’s adop-tion in the industrial marketplace will depend on its ability to align economic and environ-mental goals for early adopters like Pacifi c Ethanol. “When you align capitalism with environmental solutions, it’s powerful,” Cas-tro 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 profi table—just like Rockefeller did with gasoline.”


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