PACE FINANCING INTEGRATION

PACE FINANCING INTEGRATION user guide instructions

ETB Resource Guide

January 2017

ENERGY TOOLBASE - K2 | RESOURCE GUIDE

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Table of Contents

Benefits ETB – K2, PACE financing integration 3

Signing up K2 PACE financing integration 4

Generating quotes 6

K2 suggested Transaction Template inputs 7

K2 suggested ‘Edit Proposal’, step 1 – 7 inputs 8

Summary of K2 PACE Transaction inputs: 11

Property Report 12

Making ‘Cash Flows’ Pencil 13

Funding Process K2 PACE projects 14

About us 15

Authors: Adam Gerza & Jonathan Pickering

Published: January 2017


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Benefits of ETB - K2, PACE financing integration

The Energy Toolbase – K2 PACE financing integration allows users to instantaneously generate

PACE financing quotes, cash flows and proposals for their C&I solar projects.

Fully-integrated proposals: include K2 PACE cash flows, avoided cost analysis,

incentives, and solar system specifications. Compare PACE to other financing

methods, and showcase the benefit of K2 PACE to potential customers.

Property information: users can instantly view online property reports (via our

CoreLogic API), to verify building owner, assessed property value, and available

mortgage information. Quickly determine PACE project financing eligibility.

Real-Time interest rates: K2 PACE quotes are based off current market interest

rates, ensuring that customer financing quotes and cash flows are based on the

most up-to-date data available.

Project eligibility verification: K2’s built-in financing logic will instantly flag

eligibility criteria metrics, like min/max project input specifications, LTV

requirements, and state & country PACE program eligibility.


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Signing up K2 PACE financing integration

Signing up to use K2’s PACE financing service is quick and simple. Energy Toolbase users must

apply to use the PACE financing integration service, and K2 must approve.

Overview of steps to sign-up:

(1) After logging in, from the ETB ‘Dashboard’ screen > select ‘Company Settings’ in the

drop-down menu under your user name.

(2) From the ‘Company Settings’ screen > select ‘3rd Party Services’ tab > under the K2

Clean Energy Capital logo > ‘Click here to apply’ link.


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(3) Download the K2 “PACE Financing Services Agreement”

(4) Review, sign & send the agreement to: [email protected] . For questions, call

Jon Pickering at: 408-893-8321 or K2 main line at: 408-894-9999.

a. Once K2 receives the signed agreement, they will activate the K2 PACE

financing integration and send a notification email.

i. After K2 approves a dealer application they will schedule a call to

discuss their service and onboarding process in more detail.

ii. Once approved, it will show as “Your application has been approved”

under ‘3rd Party Services’ tab.

“PACE Financing Services Agreement” overview & key elements:

(a) Confidentiality Agreement: the project information users enter into ETB will not be

disclosed or released to a third party with the exception of our contracted financing

partners for purposes of financing your projects.

(b) Non-Circumvention: once a K2 - PACE financing proposal is generated for a specific

project, the user agrees to not circumvent, bypass or compete against K2 for that

project with PACE financing. Note: K2 is ‘funder agnostic’ and utilizes several sources

for PACE funding, and will work to get the most competitive deal for each specific

project.

(c) Fees: All financing fees will be factored into the PACE financing and embedded in the

financing proposal. No fees or costs are incurred until a project is funded.

Disclaimer: the terms & conditions of the Agreement are between K2 and the Energy Toolbase

User Account. Energy Toolbase is not a party to the “PACE Financing Services Agreement”.


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Generating Quotes K2 PACE financing

We’ve organized this section into a number of sub-sections as follows:

Create & Customize – Transaction Template(s)

K2 suggested Transaction Template inputs

K2 suggested ‘Edit Proposal’, step 1 – 7 inputs

Summary of K2 PACE Transaction inputs:

Property Report

Making ‘Cash Flows’ Pencil

Create – Transaction Template:

After being approved for the K2 PACE service, in order to generate your first PACE financing

quote & proposal, users must first “Create a Transaction Template”. This is the same process

ETB users would use for creating any other type of financing transaction in Energy Toolbase.

From the Dashboard screen, via the ‘Create’ drop-down menu, choose “Create Transaction

Template”. Click the blue “Select” button for the “K2 PACE Financing w/O&M” to save this

transaction template into your account and make edits.

Customize – Transaction Template:

From the “View all Transaction Templates” drop-down menu, select the blue ‘Edit’ button to

access the “Edit Transaction Template” screen.


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From the ‘Edit Transaction Template’ screen, ETB users can make edits similar to how they

would edit any Energy Toolbase Transaction Template, such as changing the transaction name,

changing the transaction term (years), or adding an additional ‘Cash Flow’. Note: ‘Service

Provider Cash Flows’ cannot be edited by ETB users; only by K2 Administrators.

K2 suggested Transaction Template inputs:

• Transaction “with O&M”: K2 recommends selecting the K2 Transaction Template that

includes operations and maintenance (O&M) so the owner can budget their ongoing

O&M cash flow expense during the PACE financing term.

• Transaction Name: K2 recommends creating a unique ‘Transaction Name’ when initially

setting up the K2 PACE Transaction Template to avoid confusion later on.

• Electric Bill Savings Change Taxable Income (Federal): Energy Toolbase allows users to

select whether ‘electric bill savings’ are considered taxable for a given transaction,

which would create a negative tax effect when modeling a project on an ‘after-tax’

basis. K2 recommends setting this to ‘False’, which assumes utility bill savings are

dropped straight through to the bottom line (and do not increase the taxable liability for

the customers’ project).


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K2 suggested ‘Edit Proposal’, step 1 – 7 inputs:

Step 1, ‘Tax Treatment’: users have the option to run their cash flows analysis either ‘Before

Tax’ or ‘After Tax’. It’s important to understand the difference.

• If the user chooses to model ‘Before Tax’, all project cash flows (i.e. incentives, O&M,

electric bill savings, etc) will show their full value in the cash flow section, with no tax

effect. Note: it is not possible to show the ‘interest deduction on PACE payments’ when

modeling before tax.

• If the user chooses to model ‘After Tax’, all project cash flows (i.e. incentives, O&M,

electric bill savings, etc) will be taxed as income and have a tax effect. Note: ‘Electric bill

savings’ will have a negative tax effect (because we’ll assume the system owner will

have reduced their utility cost expense, leading to a higher taxable net income), unless


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the user configures their K2 PACE Transaction Template, setting “Electric Bill Savings

Change Taxable Income (Federal)” to false, as described above. Note: when modeling

‘after tax’ users will be able to also show the ‘interest deduction on PACE payments’

(which will have a positive effect on cash flow).

Disclaimer: Energy Toolbase and K2 are not tax advisors, and are not providing formal tax

advice. Users should independently verify the tax eligibility of their project and the

estimated tax savings with a qualified accountant.

Step 2 – Utility Rates: users are responsible to conduct all necessary due diligence on the

eligibility of rate switch and/or NEM 2.0 scenarios for their customer. K2 encourages ETB users

to utilize the ‘ETB Optimizer’ feature, to optimize the solar system size for dollar savings, based

on the customers’ unique load profile and utility rate schedule.

Step 3 - Incentives: with PACE financing, the system owner can take all the same tax credits,

incentives and deductions they are eligible for with a cash purchase. Therefore, users should

select all eligible incentives for the project, which will be taken by the system owner and

reflected in the project cash flows.

Step 4 – Solar PV: users are free to use their preferred solar production modeling tool (i.e.

PVWatts, HelioScope, PVSyst, etc.). Complete step 4 the same way for any other type of

project.

Step 5 – Energy Storage: systems can be financed under PACE. Due to the additional

complexities we recommend you complete the information required in Step 5, and K2 will

review and discuss storage projects with ETB users on a one-off basis.


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Step 6 – Transactions:

Once a K2 PACE Financing transaction template has been created, users will have the ability to

select the transaction template when they “Add a new Transaction” in Step 6.

After selecting a K2 Clean Energy Capital transaction, the user will be prompted to enter in

required transaction details.


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Summary of K2 PACE Transaction inputs:

i. Estimated Sale Date: determines the timing for start of PACE financing payments (note:

default ‘Sale Date’ is 3 months after the ‘Proposal Date’ defined in Step 1).

ii. Additional Overhead Project Costs: incremental cost above and beyond the ‘PV Array

Cost’ (as defined in Step 4) that gets added to the total financed value.

iii. Down payment: a loan buy-down amount, which reduces the ‘total financed value’

basis. This is generally if the client would like to pay-down some portion of the PACE

loan amount upfront, or if the owner wants to self-finance all or part of the ITC. Note:

there is no requirement for a down payment, and it is standard to enter $0 down

payment as PACE can finance 100% of all project costs.

iv. PACE Loan Term: option to finance over 10, 15 or 20-year term. Note: cash flows look

more attractive when selecting a longer term as the annual payments are lower.

v. Owner is a 501(c)(3) Non-Profit entity: requires a specific financing structure to meet

the needs of non-profit entities. Note: for non-profits, users should complete the ETB

report using a standard ‘cash purchase’ cash flow, and K2 can advise further on non-

profit specialized PACE-enabled financing options.

vi. Owner Occupied: enables users to view the Property Report, if one is found. Otherwise

users are prompted to manually enter property information.

vii. Specify Property Value: an estimate of the current property value. Note: oftentimes

the assessed value is below the current market value of the property. Users can ask the

property owner for a recent property appraisal value or estimated value.

viii. Remaining mortgage balance: is used to assess the total debt of the property. Where

‘Total Debt’ = ‘remaining mortgage balance’ + ‘total PACE financed amount’. Total Debt

cannot exceed 80% of the current property value. Note: the remaining mortgage

balance can sometimes be found on the property report.

ix. Show Special Project Costs: values to be entered when K2 advisors specify them for

your project due to special circumstances. Note: please do not use this facility unless

you have been in contact with K2.


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Property Report information:

Energy Toolbase has integrated the CoreLogic data service

API in order to access property report information. The

key sections of the Property Report include:

i. Owner Information: to understand the entity that legally owns the property, as only

the owner can sign the PACE transactional documents. Note: please check that you

are dealing with the owner of the building and not the tenant.

ii. Tax Information: the “Total Taxable Value” is the assessed property value used by

counties to calculate property taxes. PACE financing can typically finance up to 20%

of the property value (assuming no other property secured loans). Note: the

assessed property value can be outdated, and a current property appraisal may yield

a significantly higher property value.

iii. Location Information: the key data point is the APN number, which is the formal

reference number of the ‘parcel’ that the building is sitting within.

iv. Last Market Sale: if the building was recently sold, the assessed value is likely close

to the current appraised value, unless significant upgrades were made.

v. Property Characteristics: it can be useful to have the building classification and

square footage record, especially when estimating a property valuation.


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Making ‘Cash Flows’ Pencil:

K2 will assist dealer partners to structure the best-fit financing solution for their customers.

There are a few key considerations to keep in mind:

• Cash Flow Positive: a project is most ideal if it’s “in the black” (shows a positive

annual cash flow) for each and every year of the projects’ life. If the annual “Total

Cash Flow” for a given year is negative, it’s an absolute necessity that the

“Cumulative Cash Flow” stay positive.

• Ways to improve cash flow: check that the system size is optimized for ‘avoided

cost’, based on the customers’ unique load profile & utility rate schedule. Adjust the

turnkey installation price, improve the kWh/kW yield, or possibly look for a more

optimized depreciation schedule.

• Timing of PACE payments: the date of sale & installation can affect the timing of the

1st PACE payment. For example, if the funding is made after July, the first PACE

payment may not be due until Dec of the following year, so it’s possible to show

savings with no PACE payment. Note: client pays interest from the date of closing.


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Funding Process K2 PACE projects

K2 Clean Energy Capital assists dealer partners and property owners to find and execute the

best-fit financing solutions for their projects. K2 focuses exclusively on commercial projects in

order to simplfy and expedite the funding process. This enables dealer partners to focus on

originating, closing and installing projects. K2 brings years of experience and relationships with

the leading PACE funders and program administrators.

Steps to funding a PACE project:

1) Finalize construction contract with the Customer. K2 checks to verify property

eligibility, finalize financing interest rates, closing costs, review payment terms and

construction financing.

2) K2 issues a formal financing term sheet.

3) With Term Sheet and a financing contigent EPC contract, K2 begins the full

underwriting process. Note: it typically takes 2 to 3 months from contract execution

to finance closing and project funding.

K2 services provided:

• Educate property owners on the benefits and tax advantages of PACE financing.

• Conduct due diligence on property & host customer financial eligibility.

• Obtain lender consent for PACE financing on properties with an existing mortgage

• Complete and submit all required PACE documentation and applications

• Obtain multiple sources of qualified financing to ensure competitive rates.

• Negotiate construction finance progress payments with funders and administrators.

• Coordinate underwriting documentation with PACE program administrators.

• Coordinate legal bond counsel review of corporate entity documents.

• Coordinate with local county/municipality to gain approval for PACE financing.


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About us

Energy Toolbase is an industry leading software platform for modeling and proposing

the economics of solar and energy storage projects. Our SaaS product is used by several

hundred leading distributed energy organizations nationwide to accurately, objectively

and transparently analyze their projects.

Start a free trial at: www.energytoolbase.com

K2 Clean Energy Capital, founded in 2013, provides turn-key solutions to commercial

building owners to develop, finance, and execute renewable energy, energy efficiency,

and water conservation projects. K2 enables property owners to simultaneously reduce

operating expenses and improve their environmental footprint both without making any

significant capital investments. K2 CEC also offers PACE, operating lease and equipment

loans to renewable energy contractors and developers.

Learn more at: www.k2cleancap.com

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PACE FINANCING INTEGRATION