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.
This commentary originally appeared on EDF's California Dream 2.0 blog.
I spend most of my time working to establish On-Bill Repayment programs that allow property owners to use their utility bill to repay loans for cost-saving energy efficiency or renewable energy upgrades. Many of my colleagues work on a similar program known as Property Assessed Clean Energy (“PACE”), which uses the property tax bill for repayment. Since both utility and property tax bills are usually paid, both PACE and OBR are expected to lower the cost and increase the availability of financing for clean energy projects.
Last week, I was invited to attend a meeting of the leading PACE program administrators, property owners and other market participants in the country — and was pleasantly surprised to learn how much progress is being made.
Connecticut launched their program in January and is expected to close $20 million of PACE transactions for commercial properties by year end. The Toledo, Ohio area expects to have executed $18 million of commercial transactions by the end of 2013. Sonoma County, with a population of less than 500,000, has already completed $64 million of financings for residential and commercial properties. In late 2012, CaliforniaFIRST launched a PACE program for commercial properties that has already received 130 applications.
This commentary originally appeared on EDF's California Dream 2.0 blog.
Yesterday, the California Public Utilities Commission (“CPUC”) updated their June 25 proposed decision that included implementation rules for an On-Bill Repayment (“OBR”) program for public and commercial properties. An OBR program allows property owners to finance energy efficiency upgrades on their buildings and repay the obligations through their utility bills. Banks and other private investors provide the funding and borrowers get low interest rates because the obligations are an integral part of the utility bill and, under the EDF proposal, are fully transferable upon change in ownership or occupancy.
The CPUC’s revised decision contains many of the elements necessary for a successful program including making the OBR obligation an integral part of the utility bill through a tariff. Ed Wojtowicz, VP of Finance at Honeywell recently told me, “By integrating the financing charge into the utility bill, we expect that OBR will help many towns, cities and school districts approve money saving energy efficiency projects.” We have heard similar sentiments from other market participants and are optimistic that this OBR program will accelerate money-saving clean energy investments in municipal and school properties.
Unfortunately, our California utilities — PG&E, SoCal Edison and Sempra — have been fighting OBR tooth and nail for the past two years, as they fear that a successful OBR program would increase investment in distributed solar, potentially reduce utility control of energy efficiency programs and allow other companies to have access to the utility bill and customer relationships. Over the past three weeks, the utilities have had ten separate private meetings with CPUC commissioners or staff in an attempt to halt the OBR program.
This commentary originally appeared on EDF's California Dream 2.0 blog.
For over two years, EDF has been working to establish an On-Bill Repayment program in California that would allow property owners to finance energy efficiency or renewable generation projects and repay the obligation through their utility bill. Since utility bills tend to get paid and the obligation could ‘run with the meter’, defaults are expected to be low, which will improve the availability and reduce the cost of financing. In May 2012, the California Public Utilities Commission (“CPUC”) agreed with our position and ordered the large utilities in California to develop a program for commercial properties. EDF estimates that this program could generate $5B of investment over 12 years, which is expected to support 36,000 jobs.
Unfortunately, we are still waiting for the nonresidential OBR pilot in California to be implemented and if the utilities get their way, we may be waiting for close to another full year. The California utilities appear to be fearful of change, distributed generation, and the impact of reduced demand. They have employed aggressive tactics with teams of lawyers arguing and re-arguing every potential issue, even after the issues have presumably been settled by the CPUC.
This stands in sharp contrast to what is happening in Hawaii. On March 25, the Hawaii Public Utilities Commission (“HPUC”) ordered the primary Hawaii utility, Hawaiian Electric Company, (“HECO”) to establish an OBR program for residential and commercial customers. I just returned from 3 days in Honolulu and it appears that they are working cooperatively to get the program running in the first quarter of 2014. This timetable of 12 months from HPUC order to implementation is less than half of what we seem to need in California, despite the fact that the Hawaii program covers a much broader range of property types and relies on public as well as private sources of financing.
This commentary originally appeared on EDF's Voices blog.
The European Union, the United Kingdom, Australia and the State of California have all set ambitious targets to reduce greenhouse gas emissions 80% by 2050. Given that a large share of global greenhouse gas emissions comes from transportation (including 29% of U.S. emissions), it will be very tough to meet this goal without “decarbonizing” our cars and trucks.
The most obvious solution is electric vehicles (EVs) charged by clean energy sources like solar or wind. While several startup EV companies – including Fisker, Coda and Better Place – have struggled, the Tesla car company seems to be succeeding. At least that’s the current view of the markets: Tesla shares have more than tripled since March and in May the company raised almost $1 billion in new capital.
In my last post about Connecticut’s clean energy finance efforts, I alluded to an important innovation in their Property Assessed Clean Energy (“PACE”) financing program for commercial properties. PACE programs have been in place for several years, and the basic concept is that property owners are able to pay back clean energy financing through their property tax bill over time. Rates tend to be low because property taxes are almost always paid back and the PACE assessment will survive foreclosures.
To date, PACE transactions have generally been structured as a set of fixed payments to finance retrofits managed by the property owner. Functionally, these transactions have been quite similar to loans. In the solar industry, however, the vast majority of financings have been structured as leases or power purchase agreements (PPAs) in order to fully capture the tax benefits associated with solar investments. This has generally resulted in fairly low use of PACE by solar installers and limited installations of solar on commercial properties. (Most commercial properties have large mortgages and are not good candidates for additional financing unless PACE or On-Bill Repayment (OBR) can be used to improve credit quality. The exceptions are buildings that are owned or occupied by very high quality credits, such as a large corporation or city.)
Connecticut is breaking new ground by allowing leases and PPAs to participate. The lease or PPA payments would simply become part of the property tax bill. If necessary, true-up mechanisms could be used to adjust payments and ensure that customers are not overbilled. Additionally, we understand that this flexibility will likely be available for innovative energy efficiency financing for commercial properties. EDF has long advocated for this type of flexibility (and we see this as a major benefit of OBR), but – to date – PACE programs have not incorporated this feature.
Hats off to Connecticut for once again showing us how to get things done!
Connecticut’s Clean Energy Finance and Investment Authority (“CEFIA”) was created in 2011 to help the state increase public and private investment in clean energy solutions that are cheaper and more reliable than traditional solutions. I had the chance last week to catch up with Bryan Garcia, CEFIA’s CEO, and his impressive team. I found three of their initiatives to be particularly innovative and impactful.
- Commercial PACE (C-PACE) – Property Assessed Clean Energy (PACE) is an innovative, market-based approach that helps alleviate the steep, upfront costs that property owners generally incur for energy improvements by using loans that are seamlessly repaid through an additional charge on their property tax bills. While many jurisdictions have implemented PACE programs, CEFIA has had a particularly hands-on approach of working with property owners, contractors, lenders and mortgage holders to reach agreement on transactions that meet the needs of each party. This strategy appears to be paying off as CEFIA has received 190 applications since the program was launched in April 2013. Additionally, the Connecticut program appears to be the first PACE program that supports commercial solar installations with the lowest-cost financing structures such as leases and power purchase agreements. I believe this could be a game changer for installing solar projects and plan to write about this in greater detail in a blog post coming soon. Read More