Energy Exchange

Texas Picks Up The Clean Energy PACE

By Kate Zerrenner / Published: May 23, 2013

Chairman John Carona’s Property Assessed Clean Energy (PACE) bill, Senate Bill 385 (SB 385), which was sponsored by Chairman Jim Keffer in the House, is headed to the Texas Governor’s desk!  Building upon successful legislation passed in 2009 to authorize “PACE districts” in Texas, SB 385 clears some of the hurdles that prevent commercial and industrial properties from taking advantage of new financing for water and energy conservation efforts.

PACE is an innovative, market-based approach that helps alleviate the steep, upfront costs property that owners generally incur for water and energy improvements by using loans that are seamlessly repaid through an additional charge on their property tax bills.  The loan is then attached to the property, rather than the owner, and can be transferred if the property is sold.  PACE loans can be issued by city or county financing districts or financial institutions, such as banks.  Property owners who participate will start saving money on their utility bills each month as a result of water conservation, energy efficiency and/or renewable energy improvements, while repaying the loan annually when they file their taxes.  In other words, they will see net gains despite increased property taxes.  The program is entirely voluntary.

In 2009, Governor Perry signed House Bill 1937 (HB 1937) by Mike Villarreal, which established PACE districts in Texas for the first time.  Although cities and counties across the state began the process of setting up PACE districts, the entire process was derailed when the Federal Housing Finance Agency (FHFA) created an obstacle for residential PACE programs.  FHFA expressed concerns about the senior lien—that is, if a homeowner with a PACE loan defaults, the repayment of the PACE obligation would take priority over settling the mortgage.  There were also some structural concerns which would have “required the Texas legislature to amend or replace the existing statute.”  This new bill, SB 385, addresses the structural problems and applies to commercial and industrial (rather than residential) property owners, thus removing the senior lien concern from the equation. Read More »

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Hawaii Passes Bill To Democratize Clean Energy

By / Published: May 8, 2013

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 »

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A Clean Energy Paradise In The Pacific

By / Published: April 12, 2013

When people think Hawaiian paradise, usually beaches, sun and trade winds come to mind. The price of energy? Not so much.

The state actually has the highest electric rates in the nation, approximately 2 to 3 times higher than the average price on the mainland. Given these high rates and the relatively mild climate, it makes sense that Hawaii’s customers are among the lowest monthly consumers of electricity at 585 kWh per month. However, despite low energy use, Hawaii’s customers still have the highest electric bills in the nation, at a whopping $203 per month on average. That’s 20 percent higher than the next highest state’s average bill!

It’s appropriate, then, that the Aloha State is on the forefront of policy measures intended to lower energy bills by looking to energy efficiency and renewable energy. Hawaii’s sunny days, coupled with its extraordinarily high cost of electricity, make going solar a relatively attractive option. And, not to mention, a much cleaner option given that the state relies on petroleum to generate over 75 percent of its electricity. In fact, Hawaii ranks third in the nation for total installed solar electric capacity per capita. However, the upfront cost of installation remains a significant barrier to widespread adoption of clean energy technologies. Access to financing is limited to those with stellar credit, and there is little incentive for renters to pay for energy upgrades to properties they don’t own. In Hawaii, solutions that work for renters are especially important since over 40 percent of the state’s residents rent.

But all is not lost. On February 1st, the Hawaii Public Utilities Commission (PUC) delivered a blueprint of a promising on-bill program to help residents and small commercial customers — including renters — invest in cost-saving, clean energy projects. By allowing for repayment of private financing for energy efficiency and renewable projects on customers’ monthly utility bills, Hawaii would be the first-in-the-nation to offer a statewide residential and small commercial on-bill program. The program works for renters and property owners because the energy benefits and the repayment obligation transfer from tenant to tenant with the property, enabling customers to invest in projects that outlast their terms of occupancy. Read More »

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Hannon Armstrong Raises Capital For Clean Energy Finance

By Brad Copithorne / Published: April 10, 2013

Late last week, I had the chance to peruse Hannon Armstrong’s SEC filing for their upcoming Initial Public Offering (IPO), which is expected to start trading next week on April 18th.  The company is in the business of financing energy efficiency and other clean energy projects, and hopes to raise as much as $245 million.

Since 2000, Hannon Armstrong has provided or arranged over $3.9 billion of debt and equity financing deals for around 450 sustainable infrastructure projects.  To date, most of these assets have been sold to other investors.  Out of the $3.9 billion in financing deals they have arranged, Hannon Armstrong currently holds less than $200 million of these obligations on its balance sheet.  The company plans to use the IPO proceeds to increase its investments, and has already identified $110 million of financing opportunities that can be closed within 45 days of the IPO.  Additionally, the firm has secured $400 million of credit capacity from Bank of America to finance projects.

Our understanding is that the majority of the company’s projects are energy efficiency retrofits for the federal government or municipal properties, universities, schools or hospitals – often referred to collectively as the MUSH market.  These properties tend to be attractive to lenders because the owners generally have high credit quality and the buildings are not generally mortgaged.  Read More »

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Solar Market Needs New Investors To Continue Growth

By Brad Copithorne / Published: April 2, 2013

The recent headlines for solar power have been encouraging.  According to the Solar Energy Industries Association (SEIA), the cost to install solar is declining as panel prices fell by 41% in the fourth quarter of 2012 versus the previous year.  This helped US solar installations to grow by around 75% in 2012, from 1,855 megawatts (MW) in 2011 to 3,300 MW.  (For comparison, the average coal plant in the US has a capacity of about 650 MW).  Even better, they forecast that installations will continue to climb to an estimated 9,000 MW in 2016.

Unfortunately, lack of investment capital may be a barrier to realizing this vision.  If we do not have enough funding, these projects will never be built.  Bloomberg New Energy Finance forecasts that the industry will need $3.1 billion of equity investment in 2013, compared to $1.8 billion in 2012.  Environmental Defense Fund (EDF) is committed to helping expand the roster of investors in solar projects, as investing in these projects is often not only highly profitable but also a major contribution to the sustainability of our planet.

Large investors have developed two strategies to invest in solar projects.  The traditional method is to make investments in large, utility scale projects.  More recently, residential solar developers have created funds for investors to take stakes in a large number of residential and small commercial projects.  The latter strategy has made ‘no-money down’ solar available for homeowners who do not have the upfront capital to purchase solar systems, which can cost up to $15,000 or more.

Unfortunately, these investment strategies can be quite complex and are generally attractive only for corporations and certain wealthy individuals. To understand why, we need to explore the tax incentives for solar investors.  The federal government provides tax breaks for solar investors to accelerate deals, develop a robust market that is expected to lower costs over time and allow investors to capture part of the societal benefit of avoiding development of more fossil fuel power plants.  EDF believes that this is a very good idea. Read More »

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Chasing Green: Going Solar By Paying Your Utility Bill

By Brad Copithorne / Published: March 22, 2013

This commentary was originally posted on our EDF Voices blog.

Source: SolarPowerForYou/Flickr

So far, my experience is that environmentalists and business executives often speak different languages. Take the basic idea of sustainability. To an environmentalist, sustainability, as applied to a business, refers to the amount of environmental damage it will cause over time. To a business person, the term refers to the ability of the business to generate profits and so sustain itself.

In other words, there is a profound difference between the “green” that environmentalists are focused on and the “green” that businesses must generate to survive.

At EDF, I am trying to bring those two camps together. Broadly defined, my work involves creating opportunities for companies to make profits by selling products that benefit the environment, usually by reducing carbon emissions. My belief is that, with the right incentives and market structures, the profit motive can be a powerful force for change. Green companies that hire workers also create new advocates for environmental policy.

A study by McKinsey, the big consulting outfit, has shown that there are potentially hundreds of billions of dollars in energy efficiency investments that could yield annual returns of 7% to 20%. At a time of historically low yields on fixed income investments, like bonds, those are pretty good numbers.

Mostly, I focus on increasing investment in energy efficiency and renewable generation projects for homes, offices and other commercial properties. In many cases we can lower a building’s utility bills, including financing costs, while also reducing carbon emissions.

Take investments in solar technologies. I am lucky enough to have pretty good credit and was able to get a solar installer to finance a rooftop installation that provided my wife and I with immediate savings. Unfortunately, many homeowners do not currently qualify for financing. So EDF is working to decrease financing costs and increase availability of capital for such projects through a program called On-Bill Repayment (“OBR”).

OBR can help a building owner finance, say, a rooftop solar array, with money put up by an third part investor, and then repay that loan through his or her monthly utility bill. The costs of the loan are reduced because the loan is part of the legally binding rate tariff for the property, and will remain in place even after a foreclosure.

Once we have OBR in place, far more homeowners should be able to finance the upfront cost of installing energy efficiency or solar projects that lower their bills. This creates jobs, saves money and is good for the planet. What’s not to like?

Take California. The state is expected to initiate an OBR program for commercial properties in about 4-6 months. EDF’s economists estimate that this program over the next 12 years will lead to about $7 billion in third-party clean energy investment, create 50,000 job-years that cannot be exported. Over the same period, OBR will the cut carbon emissions by 10.3 million tons, the equivalent to replacing 180,000 gasoline cars for 12 years with solar-powered electric vehicles. And the environmental benefit will continue to grow as we add residential customers and expand to other states.

OBR is just one way in which business and the environment can coexist. In future blog posts, I will look at other ways to achieve the same end.

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