Investor Confidence Project Aims To Develop Multi-Billion Dollar Energy Efficiency Finance Market

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.

The ICP encourages the funding of building energy efficiency projects by taking the variability out of the process. The project has built a coalition of both equity and debt finance companies, building owners and managers, energy service providers, insurers, engineers, utilities, and a range of NGO and public sector organizations. These experts and the ICP have come up with standardized protocols for a five-step evaluation for energy efficiency retrofits. The five-steps represent the lifecycle of a “well-conceived and well-executed energy efficiency project” and include:

1. Baselining
2. Savings projections
3. Design, construction, and commissioning operations,
4. Maintenance and monitoring,
5. Measurement and Verification (M&V)

The protocols are designed to add value to the various participants in the energy efficiency ecosystem. Project developers benefit from better access to capital resources, standardized origination processes, and the ability to benchmark projects. Building owners and managers will see a more competitive bidding process and get better rates and terms for their projects. Investors will be able to underwrite deals more efficiently by having reduced transaction costs and consistent yields. Once consistent protocols are adopted, the entire industry will benefit from smaller transaction costs, more consistent project performance, and increased access to capital. Last year, the project released its first protocol, the Energy Performance Protocol for Large Commercial (EPP-LC).

One of ICP’s partners is Noesis Energy, who we have recently profiled here. Noesis has developed a platform that connect energy efficiency projects requiring third-party funding with financing lenders. Last week, ICP and Noesis combined to conduct an interesting webinar on how the ICP Energy Performance Protocols can be leveraged as a pathway to securing investment in energy efficiency projects such as those Noesis offers.

ICP and its partners are also working on another of the Ceres report’s key conclusions. The project is working on a range of public programs focused on driving demand and overcoming barriers, such as Commercial PACE, on-bill repayment, and benchmarking programs. The ICP is just one of several ways that energy efficiency finance is entering the mainstream world of institutional investment. As Ceres and other experts have noted, building energy efficiency retrofits is a nearly $280 billion dollar investment opportunity that can save building owners more than $1 trillion over 10 years. ICP is helping private-sector financing models develop and expand to meet this huge market, so be sure to check their website and news aggregator for their latest research and webinars.

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