By: Matt Golden, Senior Energy Finance Consultant, Environmental Defense Fund
New Energy and Loan Performance Data Project Uses Latest in Data Science to Help Capital Markets Engage in Efficiency Lending
Environmental Defense Fund’s Investor Confidence Project (ICP) and the Clean Energy Finance Center (CEFC), in partnership with state and local lending programs, financial organizations and a range of additional stakeholders, are collecting, aggregating and analyzing loan performance and energy savings data from energy efficiency upgrades in residential and commercial buildings.
The Energy and Loan Performance Data Project represents the first concerted effort to combine data from some of the largest US energy efficiency programs in an attempt to develop an actuarially significant dataset to help engage the capital markets.
Nearly 40% of US energy is consumed by both residential and commercial buildings. Realizing all of the available cost-effective energy efficiency savings would require roughly $279 billion of investment, resulting in more than $1 trillion in energy savings over ten years. However, currently, only 1% of all US investments are made in energy efficiency projects. Our goal for this project is to help lay the foundation that will enable organizations to tap into this vast potential market.
This commentary originally appeared on EDF's California Dream 2.0 blog.
By: Kate Daniel, EDF Climate Corps Fellow
Kate Daniel, Climate Corps Fellow
Great news for California and the future of energy efficiency in Sacramento.
Today I took part in an announcement by Sacramento Mayor Kevin Johnson unveiling the nation’s largest Property Assessed Clean Energy (PACE) project in the country — and potentially a huge boost for businesses in the state’s capital.
Launched by Clean Energy Sacramento, the property owners of Metro Center, Metzler Real Estate, will now be able to take advantage of PACE financing to fund $3.1 million in energy efficient upgrades, including high efficiency rooftop units for heating and cooling and a state-of-the-art building management system. Ultimately, these upgrades will save $140,000 in annual utility costs for the property.
This project is not just good news for Metro and Metzler, but for the entire Sacramento region. Here’s how it works: Under the PACE program Metzler will receive private funding from Ygrene Energy Fund, who covers the upfront costs of the project Metzler pays the costs back on their property tax bill while Johnson Controls will design and implement the upgrades.
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
This commentary, authored by James Lester, originally appeared on Cleantech Finance.
Last month, we discussed an influential new report by Ceres and the Investor Network on Climate Risk (INCR), Power Factor: Institutional Investors’ Policy Priorities Can Bring Energy Efficiency to Scale. The report detailed several policies that if put in place, could unlock broad-based financing from institutional investors for energy efficiency, a potential several hundred billion dollar investment opportunity.
Among the issues that prevent large scale energy efficiency financing, Ceres and others have found that there is no systematic method to measure the accuracy of the initial predicted energy and financial savings of each project. There is not a robust fundamental way to make sure the upgrades are performing after they have been completed. The Environmental Defense Fund (EDF) and a collection of expert partners are working to change that.
EDF has worked with a variety of industry experts to design a straightforward set of protocols that define a clear road-map from efficiency opportunity to an investment quality project with reliable returns and access to markets. The project, known as the Investor Confidence Project (ICP) hopes to enable a market for investment quality energy efficiency projects, by reducing transaction costs and engineering overhead, while increasing the reliability and consistency of savings. Read More
At EDF we are always on the lookout for innovative clean energy financing models, especially those that complement On-Bill Repayment (admittedly, one of our favorites). When we heard about EnergyRM’s recent financing approach – which uses a combination of an Energy Service Agreement (ESA), innovative measurement and verification (M&V) and utility bill repayment – we had to find out more.
EnergyRM’s Metered Energy Efficiency Transaction Structure (MEETS) went live on the Bullitt Foundation headquarters building last month. The promise of MEETS, developed by Rob Harmon’s EnergyRM, was quickly all over the news, including the New York Times.
Quick Factoid: The name Rob Harmon may be familiar to energy enthusiasts – he pioneered the Renewable Energy Credit (REC) 15 years ago. The REC served to catalyze the renewables industry. Harmon hopes his newest innovation will do the same for the efficiency market.
MEETS relies on EnergyRM’s DeltaMeter, a proprietary energy modeling software, to report energy savings in real time. The DeltaMeter seeks to address a perennial Achilles heel of many energy efficiency transactions: measurement and verification of energy savings. EDF is addressing this same problem head-on by working with stakeholders to establish protocols and standards for efficiency projects through the Investor Confidence Project. This complex problem, which has traditionally been part science and part art, has been impervious to a silver bullet solution. Lots of interested folks are itching to take a look inside the DeltaMeter black box and see how EnergyRM plans to solve it. Read More
This commentary originally appeared on EDF's California Dream 2.0 Blog
Last week, the California Public Utilities Commission (“CPUC”) issued a proposed decision with the final implementation rules to create the nation’s first On-Bill Repayment (“OBR”) program for commercial properties. If properly constructed, the program is expected to allow building owners to finance clean energy retrofits with third party capital and repay the obligation through their utility bills.
The good news is the CPUC’s proposed decision contains the vast majority of the program elements necessary to create a flourishing financing market for energy efficiency and renewable projects. The CPUC ordered robust disclosure to tenants and property owners of any OBR obligation in place, required a centralized program administrator to reduce expenses for market participants, required an equitable share of partial payments between the utility and the lender and agreed that nonpayment of an OBR obligation will result in the same collection procedures from the utility as nonpayment of an electricity charge.
Unfortunately, constructing a successful financing program is much like building a boat. A boat with 90% of its hull in place will not travel very far. The proposed decision appears to also have a potentially fatal flaw. The CPUC has required all subsequent owners and tenants of a property to provide consent to ‘accepting’ the OBR obligation, but does not specifically state what will happen if the consent is not given.
OBR can work for lenders when it significantly reduces risk and simplifies the underwriting decision. ‘If the lights are still on, then the lender is getting paid’ is a simple rule that will provide significant comfort to ratings agencies and credit committees. Downtown office buildings and suburban shopping malls are foreclosed on a regular basis, but in almost all cases the lights stay on. If an OBR obligation is sure to be paid — even after a foreclosure — the availability of investment and cost of financing will improve dramatically. Read More
This commentary, authored by Andy Darrell, originally appeared on EDF Voices.
Last Tuesday, I caught a ferry from the lower Manhattan waterfront (just south of the substation that shorted out so dramatically in the midst of Hurricane Sandy) to the Brooklyn Navy Yard. There, Mayor Michael Bloomberg unveiled his vision of a New York that will be far better able to withstand the battering from giant storms that, thanks to climate change, are likely to arrive with increased frequency and fury.
The Mayor began by noting some stark facts:
- “We expect that by mid-century up to one quarter of all of New York City’s land area, where 800,000 residents live today, will be in the floodplain.”
- “[Wi]ithin FEMA’s new 100-year flood maps there are more than 500million square feet of New York City buildings – equivalent to the entire city of Minneapolis.”
- “About two-thirds of our major substations and nearly all the city’s power plants are in flood plains today.”
- “A day without power can cost New York City more than a billion dollars.”
A lot of media attention in the wake of the speech focused on Bloomberg’s call for levees and seawalls to keep rising waters at bay. But embedded in the address was also an ambitious but practical rethinking of how New York City makes and uses energy. The plan frames a future in which solar, wind and microgrids play a much larger role in the city: Read More
Energy efficiency is one of the fastest and most affordable ways to reduce harmful pollution. Why, then, aren’t we financing more energy efficiency upgrades?
Well, simply put, there are quite a few barriers that must be addressed and broken down before energy efficiency skyrockets. Yes, there are already many buildings that have set the bar high for others to follow, but some investor and lender hesitancies still exist that we need to overcome.
Furthermore, the efficiency market cannot create itself. And it is currently stifled, despite investors’ eagerness to take part.
The problem, as the investment community sees it, is that there is no secondary market for energy efficiency loans. In other words, the pool of loans is currently not large enough to make these investments worthwhile for institutional investors. Furthermore, there is a lack of uniform standards for energy efficiency loans, limited data on loan and project performance and an insufficient pipeline of projects. There are also challenges to bringing efficiency to scale, namely:
- the split incentive—disconnect between the building owner and the residents, who actually pay the utility bill;
- utility disincentives—utilities generally make money by selling more energy, not by reducing wasted energy; and
- limited information available to consumers on their energy use.
This blog post was written by guest blogger Matt Golden, Senior Energy Finance Consultant.
The EDF Investor Confidence Project (ICP) is a multi-year initiative to help spur growth in the commercial energy efficiency retrofit market by reducing transaction costs and engineering overhead, and increasing the reliability and consistency of savings. EDF has worked with a cross-functional team of industry experts to assemble existing technical standards and best practices into a straightforward Energy Performance Protocol (EPP) that defines a standard investment quality energy efficiency project to enable deal-flow and investment.
In November of 2012, we released the initial version of the Energy Performance Protocol for Large Commercial (EPP-LC). We received encouraging reviews from industry allies and many industry leaders have committed to join our growing ICP Ally program, a broad based network of organizations that helps us develop, test, and implement the ICP Protocols.
New Release: Large Commercial – Version 1.1
Building on our initial success and market feedback, ICP is now releasing a new and updated version 1.1 of the EPP-LC, which incorporates a wide array of important improvements that will streamline the project development process and improve results.
Our ICP team is incredibly grateful to all individuals that contributed their time and energy to this process resulting in a more streamlined protocol, especially our committed team of experts who dedicated untold hours and contributed a wide array of industry, research, and public sector experience.