The Developer’s Perspective –

A Biomass Plant

Chuck Grecco

Managing Director

Cate Street Capital

Environmental Business Council of New England

Energy Environment Economy

Berlin, New Hampshire

75 Megawatt Biomass Facility

Berlin Station – Burgess BioPower

Power to Persevere

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“Many of life’s failures are people who did not

realize how close they were to success when

they gave up” - Thomas Edison

“This project encountered numerous hurdles

and at times, it seemed like it would never

come to fruition.” - John Hallé – Cate Street

Ground Breaking Ceremony, October 2011

Project Development Requires Long, Steady Commitment...

Berlin Mill – Long History

4

2006 2008

1917

New Beginning

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Prior to Construction After Construction

75 MW Biomass Facility

2008 2013

Key Project Hurdles

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Major components that were seen as critical to the successful development:

1. Committed Renewable Energy Environment

– NH RPS 25% by 2025; Strong Alternative Compliance Payment

– REC Class Distinction – Active Trading Market

2. Long Term Power Purchase Agreement

– Established Base Energy Price and REC Discounted to ACP

– Wood Price Adjustment Mechanism – Indexed to Utility Owned Facility

– Unique End of Term – Cumulative Reduction Account

3. Long Term Fuel Supply Agreement

– Correlated with Wood Price Adjustment – Price/Supply

– Risk Transfer – Bonded Support/Owner Control

More Hurdles….

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4. EPC Contract & Contractor – Babcock & Wilcox

– Effectively Handling Boiler Conversion Risk/Experience

– Control Price and Schedule – RFP Process/Conversion Analysis

– Full Wrap EPC with Performance and Schedule

5. Project Structure & Tax Utilization

– Traditional Project Finance – Untraditional Structure

– Combination of Fixed, Floating and Subordinated Debt

– Utilization and Monetization of both 1603 and New Market Tax Credits

6. SEC Permitting and PUC Approval – Time & Effort

– Year Long Permit Review Process – NH SEC (all inclusive process)

– Year Long Contentious Public Utility Commission – Competitor Objection

Key Project Attributes

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Low-cost Conversion of Existing Boiler – Saves Time and Money

Turning Brown to Green – Renewable Energy Using Local Fuel

Established Forestry Marketplace and Existing Infrastructure

Local Economic Benefits – Highest Unemployment Rate in NH

Long Term Contracts – PPA, Fuel, Taxes, Ash, Water, Sewerage, etc.

Structured Flexible Debt – e.g. Floating (cash sweep/targeted amortization)

Extensive use of 1603 and New Market Tax Credits – Monetized

Cooperative Relationship with Utility, Government and Lenders

Fitch Ratings Agreed - Assigned Investment Grade (BBB-)

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State-of-the-Art Design

BFB Boiler

PJFF

Baghouse

SCR

Condensers

Turbine /

Generator

Wood Yard

Looking upward into existing boiler

after removal of bottom section

State-of-the-art emissions control equipment

Design maximizes boiler capacity and plant efficiency,

while minimizing modifications.

The Burgess BioPower plant is amongst the

cleanest biomass-fired plants in the U.S.

Wood Yard – Fully Automated

• Flexibility (Automated and Manual)

• Redundancy (2 Screws)

• Low Cost – Winter Capability

• Extremely Quiet Operation

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Senior Secured Project Debt

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Senior Secured Project Debt

$150MM fixed rate notes

Maturity: Construction + 18 years

Traditional fully amortizing project debt structure

Prudential Capital Group, Pacific Life, Athene Asset Management

$50MM floating rate notes

Legal maturity: Construction + 9 years

Scheduled maturity: Construction + 7 years

Amortization deferrable without event of default

Prudential Capital Group

Lead Lender – Prudential Capital Selected Early In the Process

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Integrated Tax / Subordinated Debt

$55MM - Section 1603 Cash Grant

Safe Harbor Achieved – 30% of the basis eligible

$55M monetized as cash grant bridge loan

Proceeds used to fund the NMTC leveraged loan

Interest is capitalized until receipt of cash grant

Net proceeds after receipt of grant flow to Owners

$65MM in New Market Tax Credit Allocation

5 Separate Allocatees – Allocate 39% Tax Credit – 7 Years

Subordinated debt component funded with 1603 Proceeds

Monetizing NMTC Tax Credit – $17MM in Project Equity – U.S. Bancorp

All NMTC obligations are subordinated to senior secured lenders

NMTC Very Complex Process – BUT – Provides Low Cost Funds

Berlin Station Simplified Deal Diagram

NMTC

Allocatee (s)

Manager(s)

Debt Service

Operating Company (Lessee) Leases site & facility from Project Company

§1603 Grant Applicant & Recipient

NMTC Leverage Lender

Investment Pooling Fund LLC (owns 99.99% of CDE)

NMTC Equity Investor Purchases Tax Credits

NMTCs

Subordinated

Debt Service

NMTC Equity

NMTCs

B

Senior Loans Project Company (Lessor) Senior Secured Note Issuer & SPE Project & Real Estate Owner

QALICB

Right of Use Agreement

A

Equity

Subordinated A Loans

Sub B Loans

NMTC Leveraged

Loan

Leases Assets & Operations

Senior Secured

Note Issuers

Debt Service

Bank

Trustee for Issuer Administers Loan

Disbursements & Servicing

Entity #1 Owns 99% of QALICB

Debt Service

Payments

CDE Fees Paid

Entity #3

Entity #2 Owns 1% of QALICB

Entity #4 .

§1603 Grant Bridge Loan Borrower.

Lease Payments

Multiple Subsidiary CDEs

CDE #1

CDE #2

CDE #3

CDE #4

CDE #5

§1603 Bridge Loan Used to Fund NMTC

Subordinated

Direct Loan

IPF Reserves

CDE Fees

Pre-Development Equity

Site Evaluation Committee

What Works

• One-Stop Shop – PERFECT

• State View As Opposed to

Local View Only

• Ensures Quality Projects (3 Legs)

• Considers environment, energy

supply, economy and the

public’s health and welfare

• Comprehensive, high-level

approach geared toward

"balancing" these impacts

What Needs Help

• Court based proceeding,

without court enforcement

• 15 Members – too many and

too many without focus

• Lack of financing and project

development expertise on the

committee

• Lengthy process with too

many appeal avenues

• Limited local involvement

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SEC’s Balancing Act

• Energy facilities face technological, regulatory, social and operational

challenges, while stakeholders are demanding more accountability,

transparency, and results.

• In such a climate, both business and governments need an independent

partner who will empower them to make decisions with confidence.

• A partner who will enable them to become safer, smarter, and greener

decisions.

• A partner that focused on the important facts without getting into too

much detail.

• A partner who finds the right balance between perceived short-term

goals, without making long-term mistakes.

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SEC’s Potential Changes

• Chairperson with power to seek outside expertise – including on financing

and development related matters

• A properly sized committee (5 members) with direct access to appropriate

state agency expertise and counsel

• Focus on items within SEC control, not all “unrelated” aspects of a project –

15 members encourages “fishing exercise – not focused questions”

• A process that encourages involvement (more local!!), but discourages

competitors and those biased groups that consistently state the same

objections to every application

• A process that establishes time lines and meets them – developers need

transparency and predictability

• Ever changing landscape requires maintaining and enforcing long-term state

goals as opposed to current rate based focus

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Berlin’s Success – Community

Involvement

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SEC – remain focused on one purpose – to safeguard New Hampshire’s

life, property and the environment for all residents.

• Encourage developers to get

local support or identify issues in

some form prior to SEC

• Ensure public’s voice is heard –

more local meetings

• SEC needs to communicate it

decisions +/- to the community

• Balance maximizing NH’s assets,

including human resources with

need for out-of-state resources

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Burgess BioPower…

Berlin, New Hampshire

75 Megawatt Biomass Facility