The document outlines the benefits and structure of operating leases for renewable energy projects, particularly photovoltaic systems, highlighting their non-capitalized nature and potential tax advantages for non-profits. It discusses the establishment of a special purpose entity (SPE) for project development and financing, including details on government grants and cost savings associated with energy production. An example project showcases financial metrics including an expected return on investment through energy savings and incentives over a ten-year lease period.

1. Mark@circularenergy.com 512.826.4767
ATX Faith Facility Managers Forum
Presented by: Mark Rangel
2/26/15

2. Mark@circularenergy.com 512.826.4767
Operating Lease Defined
• Operating Lease, or “Off Balance Sheet
Financing”
• An operating lease is not capitalized; it is
accounted for as a rental expense
• For the lessor, the asset being leased is accounted
for as an asset and is depreciated, which allows the
lessor to offer a less expensive financing
• Allows non-profits to tap into tax credits that only
for-profit entities can use
• Do not result in assets or liabilities being recorded
on the lessee's balance sheet, which can improve
the lessee's financial ratios

3. • A "special purpose entity" (SPE) will be created to develop, build,
maintain and operate the asset for the contracted period.
• SPE will be comprised of donors with a tax liability.
• SPE will maintain ownership of the PV system for at least 6 years
and no longer than the contract period.
• Circular Energy will assist in creating the SPE and the operating
lease. Circular Energy will also help manage the SPE throughout the
lease term.
Mark@circularenergy.com 512.826.4767
Special Purpose Entity

4. P3 – Public Private Partnership
(Non-profit)
SPE
Developer
(Utility)
Incentives
PV System
Revenue
PV Expense
Tax Equity
Energy
Savings
(Financing Partner)

5. •1603 Treasury grant is in lieu of ITC – covers 30% of project cost
•Developer establishes a wholly owned limited liability company to serve as the
project holding entity and eventually, the grant applicant (Project LLC).
•Project LLC enters into a binding written contract with a vendor to manufacture
eligible energy equipment, the cost of which is expected to exceed five percent of
the total cost of the qualifying energy project into which such equipment will be
incorporated. (To prevent the risk of cost overruns or scope changes causing the
project to fail the 5% Safe Harbor, Project LLC will want to target a seven to 10
percent threshold, instead of the bare minimum.)
•During 2011, Project LLC will title to, and delivery of, the manufactured property at
a location controlled by Project LLC.
•After the equipment is provided to Project LLC, the property is dedicated to one or
more projects, ensuring that sufficient grandfathered equipment is included in each
project to satisfy the 5% Safe Harbor for each project.
•Project LLC files separate grant applications for each project by the grant
application deadline of September 30, 2012. If a project is not placed in service by
such date, Project LLC provides additional information to complete the application
within 90 days of the project’s placed in service date.
1603 Treasury Grant & Safe Harbor

6. Mark@circularenergy.com 512.826.4767
Example Project
• System size: 260 kW
• Roof-top Area: 20k Sqft
• Project Price: ~$600k
• PV Energy Production: 368,200kWh
• Current Cost of Energy: $0.07/kWh
• Annual Energy Cost Escalator: 4%
• Inverter Replace Cost Included
• Austin Energy Production Based Incentive (PBI) pays $0.09/kWh
for 10 years

7. Investment Details
Zero Down
Operating Lease: 10 years at 1.599% interest
Annual Lease Payments:
Residual Amount in Year 11:
$50,830
$112,000
Average Yearly Savings: $27,000
Yearly Austin Energy Incentive
Credits:
$30,000
(Energy Savings: $681k) + (AE Incentive: $301k) = (Total Reduction in Energy
Bills: $982k)
If you do nothing, buying energy from the grid will cost you (-$681,000)
Max Out of Pocket: (-$69,426)
Net Present Value: $206,711.62
Levelized Cost of Energy: $0.0405/kWh
Effectively Planting 6,838 trees
Mark@circularenergy.com 512.826.4767

8. $49 $17,440
-$69,426
$335,020
-$681,347
-$800,000
-$600,000
-$400,000
-$200,000
$0
$200,000
$400,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Net Cumulative Cash Flows
Status Quo - Cumulative Electricity Costs
Cash Flow – Operating Lease

9. Cash Flow – Cash Purchase
-$511,396
$393,501
-$681,347
-$800,000
-$600,000
-$400,000
-$200,000
$0
$200,000
$400,000
$600,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Net Cumulative Cash Flows
Status Quo - Cumulative Electricity Costs

10. Mark@circularenergy.com 512.826.4767
Levelized Cost of Energy (LCOE)
$0.09
•Utility
$0.0405
•Financed
$0.038
•Cash
The levelized cost of energy (LCOE) calculator provides a simple calculator for distributed
generation (DG) renewable energy technologies that compares the combination of
capital costs, operations and maintenance (O&M), performance, and fuel costs over the
life of the system.