PACE financing allows home owners to install solar panels and repay the loans through their property tax bill. Photo source: Michael Coghlan Flickr.
Last week saw the completion of two exciting finance transactions that will increase investment in and reduce costs for clean energy projects.
In the first transaction, Renovate America, announced that it raised $50 million in venture capital funds to expand operations. The San Diego-based company develops residential Property Assessed Clean Energy (PACE) programs, which allow home owners to repay loans for energy efficiency and/or renewable generation through their property tax bill. Renovate America runs the successful HERO program, which in its first two years of operation provided $130 million in financing to homeowners in western Riverside County to retrofit their homes and reduce electricity bills.
So far this year, Renovate America has invested an additional $120 million to fund retrofits across California. EDF hopes the recently announced $50 million capital injection will not only allow Renovate America to continue its California expansion, but to expand to other states in the near future as well. We plan to work closely with Renovate America and their primary competitor Renewable Funding, which closed its venture round in April by raising $20 million. EDF’s collaboration with both companies will help additional states create residential PACE programs, attract investment for homeowners, and create jobs. Read More
Last week, Connecticut’s Clean Energy Finance and Investment Authority (“CEFIA”), the state’s Green Bank, announced the sale of $24 million in loans for clean energy retrofits of commercial properties. The loans were originated through the state’s Property Assessed Clean Energy (PACE) program, which allows property owners to access 100 percent up-front financing for energy efficiency and renewable energy improvements on their buildings. Repayment is attached to a lien on the property tax bill, making PACE loans very attractive assets for investors.
According to Jessica Bailey, Director of PACE for CEFIA, “Connecticut’s PACE program is able to provide financing for commercial property owners to implement money saving clean energy projects. Without PACE, most of these property owners might not have access to attractive financing and these projects would not be completed.” Read More
While no two “green banks” are exactly the same, the idea behind these government-created financial institutions is to dramatically expand the clean energy market. Rather than providing grants to stimulate clean energy investment, green banks use attractive interest rates and other incentives to leverage money from the private sector.
In addition to offering attractive interest rates, loan-loss reserves, and other market supports, these innovative banks draw on deep expertise from the public and private sectors to help demonstrate the profitability of clean energy investments.
By the end of the year, green banks should be up and running in Connecticut, New York, and Hawaii. We hope that California will follow soon. These states form a vanguard that has recognized the value of using a small amount of public capital to generate significant private investment in clean energy. Read More
Wayne National Forest
Up to now, the most popular and cost effective forms of financing solar projects have been leases and Power Purchase Agreements (‘PPAs’), which allow homeowners to install solar photovoltaic (PV) systems on their property and purchase power from the system’s output via a financial arrangement with a third-party developer who owns, operates, and maintains the solar panels.
Unfortunately, these creative financing mechanisms have not generally been available for commercial property owners. The only exceptions were buildings owned (or leased for a very long time) by investment-grade entities such as Google, Walmart, or a state or local government. Most small or medium businesses, office buildings, shopping centers, and apartment buildings could not access financing for money-saving solar projects as investors have been wary of extending 20-year solar financings for most commercial properties. Read More
In 2010, I began working on financial policy at EDF. Our objective was to implement policies that would allow private sector companies to profitably deliver financing solutions to residential and commercial property owners footing the upfront cost of money-saving energy efficiency and clean distributed generation (such as rooftop solar) projects. While the residential solar market was already gaining steam at the time, most of the other markets had very limited momentum. But after attending the clean energy finance conference that EDF co-hosted yesterday with Citi, energy efficiency solutions provider Elevate Energy, and law firm Wilson Sonsini Goodrich & Rosati, it appears that the market for financing clean energy projects is beginning to accelerate rapidly.
The agenda featured 12 private companies from the clean energy sector (Kilowatt Financial, Clean Power Finance, Renovate America, AFC First Financial Corp., Renewable Funding, Clean Fund, Joule Assets, Noesis Energy, SCIEnergy, Metrus Energy, Hannon Armstrong, and Honest Buildings), plus a few more in the audience, that are executing a wide range of transactions using Property Assessed Clean Energy (PACE), On-Bill Repayment, Energy Services Agreements (ESAs), and many other innovative techniques to fund the transition to a low-carbon economy. Read More
Yesterday, my colleague Scott Hofmeister described an insurance pool that California has introduced to help communities integrate Property Assessed Clean Energy (“PACE”), a unique program that allows homeowners to finance money-saving clean energy retrofits through their property tax bill. These programs are popular in Sonoma, Orange, San Diego, Riverside, San Bernardino, Kern, and Fresno Counties, and we expect them to spread rapidly throughout the state.
Home Energy Renovation Opportunity (HERO), a residential PACE program run by Renovate America that has partnered with the Western Riverside Council of Governments, has funded over $180 million of clean energy retrofit projects in a little more than two years of operation. These investments are expected to save homeowners more than 2 billion kilowatt-hours, reduce consumers’ utility bills by almost $500 million and avoid more than 1.4 million metric tons of CO2 emissions, or the equivalent of removing almost 300,000 passenger vehicles from the road for a full year. And notably, the HERO program is entirely funded by private investors. Read More
Two weeks ago, State Senator Kevin de León introduced a bill to establish the first “Green Bank” in California, a bold proposal that would unleash low-cost financing opportunities for clean energy projects throughout the Golden State.
I recently had the opportunity to testify at a hearing on the bill to discuss the best practices for green banks across the country and how the program would work in California.
First, a bit more on Green Banks:
At its core, the program is a clean energy finance bank set up by the state, designed to enable increased investment in clean energy projects and companies by working closely with the private sector to remove financial or structural barriers. The goal is simple: increase the amount of clean energy at a low-cost and encourage private investment by reducing the overall risk of clean energy projects. Read More
Source: The Green Leaf
EDF has been advocating for states to establish On-Bill Repayment (OBR) programs that allow property owners and tenants to finance clean energy retrofits directly through their utility bills with no upfront cost. California and Connecticut are working to establish OBR programs, but Hawaii is expected to beat them to the punch. Hawaii’s program is critical as electric rates are about double the average of mainland states and most electricity has historically been generated with dirty, expensive oil.
Given the potential of OBR to lower electricity bills, reduce that state’s carbon footprint, and expand job growth in the clean energy sector, EDF has been working closely with Hawaii and multiple private sector investors for the past year to develop their OBR program. Once formally launched later this spring, Hawaii’s program will be one of only two in the nation, preceded by New York who enacted their program in 2011.
Last year, the trade association for the utility industry, the Edison Electric Institute (EEI), published a whitepaper on the disruptive challenges facing the utility industry. In summary, EEI’s thesis was that the existing utility business model (centralized, fossil-fuel based generation) is under threat from on-site, distributed generation as more customers switch to cleaner, and often cheaper, solar power. The white paper poses an important question: How can utilities acquire the revenue needed to keep the electric grid humming and provide reliable power to all customers if a growing number of people are producing their own electricity?
In business, one of the most difficult problems that companies face is how to adapt a successful business model to technological or social changes that threaten that business model. Wang, Unisys, DEC and Amdahl were all big computer companies in the 1970’s that clung to an obsolete business model in the face of distributed computing. IBM and HP, on the other hand, adapted their business models and generally thrived.
Over the past year, we have seen several utilities tackling this challenge head-on by investing in distributed, renewable energy projects. In September, I wrote about how NextEra and NRG were voluntarily developing solar investments and how Direct Energy and Viridian were investing in solar installations developed by SolarCity. Read More
Progressive Power Providers Show a Path Forward
Traditionally, electric utilities have been in the business of providing reliable power to their customers. Prices for each class of customer are fixed by state regulators and a customer’s choice is pretty much limited to whether they want to turn on the switch or not. Much of the EDF Smart Power initiative is focused on helping to create new utility business models that change this paradigm by increasing customer choice, providing market feedback on these choices and incentivizing the use of cleaner sources of power.
Several electric utilities are getting ahead of the curve by embracing these changes. While both own large fossil fuel assets, NRG Energy and NextEra Energy have also been developing utility-scale and distributed renewable generation projects across the country. NRG Energy develops solar and other renewable projects for government, commercial and other institutional customers, and NextEra Energy, the largest generator of wind and solar power in North America, develops and finances large commercial and small utility solar projects through its subsidiary Smart Energy Capital. Cumulatively, they have provided more than 110 megawatts of distributed solar generation capacity to schools, government and commercial facilities, among others.
Over the past week, two other energy providers, Direct Energy and Viridian, have announced deals with SolarCity to offer no-upfront cost solar installations to their current and prospective customers. In many cases, these solar installations will provide clean energy at a lower cost than the customer currently pays for dirtier, fossil fuel power. Direct Energy even took it a step further by agreeing to provide part of the financing for their customers. Since there are few investors that currently finance solar projects, Direct Energy can expect to earn a very attractive return on their investment. While solar financing has been around for several years, Direct Energy and Viridian can now offer customer solutions that bundle solar installations with other energy services.