Source: Chuck Abbe
Four years ago, I joined Environmental Defense Fund to work on climate policy as I believe that the issue is one of the most critical challenges of our era. I felt that my background working on Wall Street could be put to good use in crafting finance policies that help fight climate change. I chose EDF because they are the environmental organization that best understands how to use market mechanisms to deliver environmental solutions.
Tomorrow will be my last day at EDF, but I am not leaving because of any disappointment with the organization or any decline in my commitment on climate issues. At this point in time, new market mechanisms to finance clean energy are in place. The biggest contribution I can make is to switch to the private sector and demonstrate how well these mechanisms can deliver job-creating private investment.
Over the past several years, On-Bill Repayment (“OBR”) and Property Assessed Clean Energy (“PACE”) programs have been developed that are expected to allow for significantly increased investment in energy efficiency and solar generation projects. State of the art PACE programs are up and running in California for commercial and residential properties, and in Connecticut and Ohio for commercial properties. Texas and New Jersey are expected to also launch programs in coming months. Later this year, Hawaii is expected to start the country’s first open-source OBR program that EDF helped design. 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
Hawaii recently topped the national rankings for energy saving initiatives for the second year in a row. In August, the Energy Services Coalition (ESC) granted the state its ‘Race to the Top’ award for modeling excellence in energy and water efficiency. ESC’s Race to the Top challenge ranks states based on investment per capita in energy savings performance contracting. Hawaii leads with $132.25 per capita, followed by Ohio with $108.58 and Kansas with $97.77. The national average hangs at a low $37.20.
Hawaii sets a strong example for outstanding, innovative energy savings performance contracting. Performance contracts are commonly used for public-sector buildings, especially schools, which often cannot afford the upfront costs attributed to energy and water efficiency upgrades. Under many performance contracts, contractors pay the upfront costs and even guarantee net energy savings for the building owner. The contractor then recoups the investment through a portion of the resulting energy savings. This payment structure enables school districts and other public-sector entities to upgrade existing buildings with improved energy efficiency and without the worry of high upfront costs. To see why upgrades are so important for school buildings, see my other blog post here.
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.
Last week, Hawaii passed a landmark bill, SB 1087, which will allow the state to create and issue a “Green Infrastructure Bond.” This bond structure will secure low-cost financing for a variety of clean energy installations, with a focus on reaching populations that cannot afford or do not have access to these energy saving improvements today. The bond proceeds will be used to fund an on-bill program currently under development at the Hawaii Public Utilities Commission (PUC). The on-bill program, which is very much in line with EDF’s recommendations for on-bill repayment (OBR), will provide access to low-cost financing for clean energy projects for residential and small commercial customers.
The bill’s intent is to use this low-cost capital to expand access to affordable clean energy for all of Hawaii’s consumers, acknowledging that “Existing programs and incentives do not serve the entire spectrum of the customer market, particularly those customers who lack access to capital or who cannot afford the large upfront costs required-thus creating an underserved market.” Funding projects with a focus on serving populations that do not have access to other means of financing is especially important in the Aloha State, where electricity rates are the highest in the nation.
The state will issue the bonds and then repay bondholders with funds collected from a utility surcharge, providing a secure form of repayment. The framework enables a portion of the existing Public Benefits Fee (PBF), currently charged to customers, to be redirected so that overall customer bills are not expected to increase. Read More