Make it Rain!

Courtesy of:

New approaches toWater and Energy Independence

• Energy

• Water

• PACE Financing

• Q&A

Overview

• Food, Water & Energy security are inextricably linkedo Two greatest users of freshwater are agriculture and power plants

o We consume massive quantities of energy to deliver clean water

o We consume massive quantities of water to generate energy

o Rising energy prices are curtailing efforts to supply more clean water

o Water restrictions are hampering solutions for generating more energy

The Food–Water–Energy Nexus

Coal – cheap, but California won’t buy it

Natural Gas – unsustainably low prices, competes for water

Nuclear – Mothballed reactors, competes for water

Hydro – aging dams, permitting, climate change, competes for water

Failing Infrastructure - future costs

Energy - Utilities face rising & deferred costs

Energy – Growers face rising, volatile retail prices

2006 2007 2008 2009 2010 2011 2012 2013 CAGR

-5%

0%

5%

10%

15%

20%

Large Ag Pricing% change vs YAGO

20052007

20092011

20132015

20172019

20212023

20252027

20292031

20332035

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

Forecast Large Ag Pric-ing

$/kWh - optimistic$/kWh - pessimisticSolar $/kWh*

$/kWh

Energy - Diesel: An Unnecessary Evil?

Characteristics Reliable, on-demand High fuel costs High NOx Emissions

Tips & Traps Ongoing fuel costs NOx Limit usage to on-peak Plan on changing!

Energy - Natural Gas Engines

Characteristics Reliable, on-demand Cheap fuel cost Accessibility NOx Emissions

Tips & Traps? Nice work if you can get it Emissions regs Rising fuel costs

Electricity

Natural Gas

Diesel

Propane

Relative Irrigation Fuel Costs

Energy - Solar PV is the Long Term Winner

Characteristics Sustainable, no fuel Low ownership costs Incentives, financing Large capital investment Not “power-dense”

Tips & Traps• Finance & Policy are as

important as engineering Got Taxes?PACENet Meter: Buy low, sell highMeter Aggregation: Got space!

• Net Metering – Permits you to “bank” and

utilize 100% of solar production and

investment. Benefits decline for projects

completed after 7/1/17

• Meter Aggregation – Permits system owner

to allocate solar energy to various loads on

existing or adjacent parcels… whether

leased or owned.

Energy – Policy Wins

2014• Meter Aggregation Implemented• Contract by June for 30% 2014 Tax Credit• Include in Fiscal Year budget for 2015

completion

2015• Contract by June for 30% 2015 Tax Credit• Include in Fiscal Year budget for 2016

completion

2016• Net Metering Cap risk – benefits may decline• Tax Credits will decline by 20% on Dec 31 • Expect a Utility backlog for inspections &

interconnections

2017 • Net Metering benefits will decline on July 1

Energy – Policy Window: Plan now

• Consistent & stable long-term return on Assets & Invested Capital.o Equal or better than alternative investments

• Annual Income + LT capital appreciation

• Grow the balance sheet

• Manage risk

Goals for the Ag Enterprise

• Quality

• High production

• Lowest cost / unit of production

• Operational efficiencies

• Low debt service

• Branding & Marketing

What is Your Long-Term Competitive Advantage?

Current Scenario:

$3,500 / ac – Annual Net $ BT

Future Scenario:o Almond Price: $2.10/lb

o Bees: + $100/ac

o Energy: + 50/ac

o Water: + 400/ac

Sensitivity Analysis (changes in revenue – production costs – additional capital)

Double-Line PC Drip Micro-Jets

Limited Water: How do you select an emission device?

Manage moisture & fertilizers in root zone

Distribution Uniformity Every plants gets the same amount of water & fertilizers

Irrigation System Distribution Uniformity (DU)

Tools for measuring soil moisture

Monitor crop growing conditions

System Design: Know what is inside the black PE tubing

System Design: Match up irrigation zones & soils

Water Quality & Treatment Program

Build in well capacity now……..

• Manage risks – protect the capital investment

• Measure every aspect of the enterprise & benchmark - Improve

• Achieve Operational efficiencies

• Solidify your LT competitive advantages

“Take Home” Messages

Tulare County PACE

• PACE, property assessed clean energy, was passed into law in California in 2008 and approved by Tulare County in the Fall of 2013

• Financing is in the form of a property assessment

• Provides 100% non-recourse term, (no personal or corporate guaranty) financing

• Terms are for up to 20 years and fixed rates of interest

PACE Improvements

100% Financing for:

Water – Sprinklers, pumps, weather stations, software, controls – any type of water conservation

technology

Renewable Energy – Solar, fuel cell, micro turbine

Tulare County PACE Description

Security: PACE is a tax assessment; payment is made with the property taxes. There is no deed of trust or UCC-1 filing.

Term: Up to 20 years Rate: Rate depends on quality of property and the

ownership Accounting Treatment: PACE is off-balance sheet financing.

 

Tulare County PACE Description

Recourse: PACE is non-recourse and looks only to thevalue of the property. No guaranty

Sale or Transfer: PACE transfers with the property. There is no

prepayment or approval of the buyer.

Underwriting: 80% LTV; 1.25x debt service coverage

Benefits – Tulare County PACE

• Property acquires capital improvements and reduces operating expenses. (No cost to the owner - 100% financing)

• Increase in operating income and cash flow net of cost of PACE• PACE financing is non-recourse – no guaranty• PACE is off balance sheet – Does not affect future

borrowing• PACE transfers with the sale of the property. Owner only

pays for the improvements during ownership period.

Reduced Operating Expenses – Increase in Cash Flow

Tom Millhoff – Ag/Food Practice Leader, HelioPower

E: TMillhoff@HelioPower.com C: 775.830.0448

Twitter: @tmillhoff www.LinkedIn.com/in/FoodEnergy

Jeff Bradshaw – District Sales Manager, RainBird

E: JeffBradshaw@RainBird.com  C: 559.593.9814

Jean Dunn – CEO, Structured Finance

E: LJDunn@strucfinance.com   P: 760.304.4371

Thank You!