Energy Exchange

San Diego Outage Triggers A Green Grid Revolution (in author)!

I landed at San Diego International Airport at 4pm on Thursday.  Since I sat towards the front of the plane, I was one of the first people to walk up the corridor.  Suddenly, the lights went out.  “Perfect timing,” the woman in front of me said.

As I walked through the airport, the lights were off, the lines had grown long.  Cell phones weren’t working, and I was reminded of a zombie movie I had seen.  Waiting in the late afternoon heat, I tried to remember the exact words in my colleague’s quickly written agreement to pick me up and drive me to the event.

I hoped that it was just the airport, but as we inched our way through the traffic, it was clear that San Diego had ground to a halt.  Gas stations became crowded with people who literally ran out of gas and couldn’t get home.  As the sunlight waned, we rushed to buy provisions (water, protein bars, etc.) at an Albertsons – possible only because it had installed fuel cells or solar panels.  From the freeway we could see that University of California San Diego, which has its own microgrid, was also lit up thanks to distributed generation. 

We learned that a transmission problem in Arizona had caused a possible sequence of events that included the protective functions at the nuclear power plant turning the plant off and lead to extensive power outages throughout San Diego, southern California, and parts of Mexico.  The funny part?  I was with a colleague from San Diego Gas and Electric, traveling to speak about our collaborative smart grid planning effort.  We couldn’t help but think about how the smart grid could have helped here. 

Storage and advanced grid sensing and control technologies could have isolated the problem at its source and kept it from growing.  The smart grid’s ability to incorporate larger amounts of renewable energy could have kept electricity flowing.  Microgrids – with their own local generation and smart technologies – could have switched to an off-grid mode and remained powered through the outage.  Buildings with demand response capabilities and appropriately designed roof top solar or other forms of distributed generation, could have reduced their consumption and used smart technologies to share their power with businesses running critical equipment or with people who need air conditioning or medical equipment to maintain their health.

Source: AP Photo/Gregory Bull

Smart grids can play an even bigger role after an outage is over: Electricity production is a huge source of air and water pollution– emissions from U.S. electricity production make up 30% of domestic climate change pollution and over 6% of global emissions.  A thoughtfully-designed smart grid could reduce harmful emissions by up to 30% and fight against the tragedy of more than 34,000 deaths a year from power plant pollution – more lives than are lost on U.S. highways.

A greener grid will also put us at the forefront of the world’s competitive clean energy economy.  A recently released Duke University report commissioned by EDF identified smart grid companies already flourishing in 37 states at 315 locations—including headquarters, manufacturing plants and hardware/software development facilities.

All of this adds up: the green grid revolution will create as many as 180,000 domestic jobs per year while saving lives.  Now that’s worth standing up for.

Posted in California, Grid Modernization / Read 1 Response

Using Financial Innovation To Break Down Barriers to Energy Efficiency Upgrades – Part 2: Residential Buildings

Energy Efficiency Financing Blog Series

By: Brad Copithorne, EDF’s Energy & Financial Policy Specialist

In Part 1 of this blog series, we examined how several innovative companies have developed a structure to finance energy efficiency projects in commercial buildings.  This structure, an Energy Services Agreement (ESA), provides building owners access to capital, solves the split incentive issue and eliminates exposure to performance risk on the project.  In Part 2, we examine another innovative financing solution that will provide capital to residential projects.

McKinsey recently estimated that there is over $225 billion of available cost effective energy efficiency investment opportunities available in the residential sector.  If these investments are made, energy consumption in the residential sector will decline by 28% by the end of this decade.  Unfortunately, most homeowners do not have access to low-cost sources of capital to pay for the upfront costs of the retrofits.

On-Bill Repayment

On-bill repayment (OBR) programs allow customers to repay third-party loans for energy efficiency and renewable energy investments through their utility bills.  Utility bills generally have very low default rates because nobody wants their power turned off.   Loans tied to the utility bills should also have low default rates which will allow lowered costs for borrowers and increased availability of credit.

During the past decade, various utilities have successfully piloted more than a dozen on-bill finance programs.  These programs have used utility, ratepayer, public or mission-driven capital which has greatly limited scalability.  An OBR program, on the other hand, uses entirely third party capital from profit motivated investors such as banks.  Since this is a much larger pool of capital, the supply of funds will increase to meet demand.

Based on extensive consultation with key stakeholders, including banks, the three California investor-owned utilities, project developers and others, EDF believes that an OBR program can be successfully launched statewide in California using entirely private capital, and provide building owners with low-cost funding for energy efficiency and renewable projects.   EDF is currently in discussions with California utilities and regulators on creating an OBR program for the state.

EDF estimates that a statewide OBR program that would generate $2.7 billion of annual investment in energy efficiency and renewable projects.  Over 20,000 installation jobs would be created and after 5 years, annual CO2 emissions would decline by 7 million tons.

On-Bill Repayment: Step By Step

  • Approved contractors and utilities identify projects, and then help building owners apply for a loan to pay for upgrades. 
  • The contractor provides the homeowner with an estimate of the expected monthly energy savings and up-front upgrade costs.  
  • If the loan is approved by a 3rd-party lender, the contractor will execute the project. 
  • Expert, objective inspectors (managed by either the utility or a government entity) validate the estimate of projected savings and that the upgrades are properly installed. 
  • Homeowners pay a combined monthly bill for both energy and loan repayment.  The program would require that savings exceed debt service, so the customer would see a reduction in their monthly utility bill.

Example: Homeowner

Current utility bill: $350 per month
Investments: Solar panels, duct sealing, controls and new refrigerator
Expected utility bill savings: $225 per month
Investment loan: $20,000
Loan terms: 
–          Interest rate on loan: 6.25%
–          15 years repayment schedule
–          Monthly payment: $170

Utility bill after retrofit:  $125
Utility bill + loan payment:  $295

Savings: $55 per month (savings will grow as utility energy rates increase)

Program Terms

  • Any building with a meter would be eligible including commercial, industrial, public, multifamily and single family residential buildings.
  • Eligible measures would include approved list of renewable and energy efficiency projects.
  • Contractors and lenders would be subject to pre-approval.
  • Projected first year savings would need to exceed debt service by a comfortable margin. 
  • Lender would have no ability to request a customer disconnection but partial bill payments would be allocated proportionally between lender and utility.  The utility would follow all standard disconnect procedures.

Innovations In Energy Efficiency Finance

Next week EDF and Citi are co-hosting a conference for institutional investors, real estate owners and project developers on energy efficiency finance.  Both ESAs and on-bill repayment will be discussed extensively.  Our next blog post will report on the outcomes of the conference.

Posted in Energy Efficiency / Tagged , | Read 2 Responses

Jobs For Today AND Tomorrow

 The President’s response to the call for jobs now is necessarily focused on short-term triggers.  But, we must simultaneously seed the jobs for the next two to five years, or we will just keep putting ourselves back into the same hole.  These so-called “medium term jobs” must come from growth sectors in the global economy where the U.S. has skills and ideas to offer.  To me, the most promising of those sectors are health care and clean energy & resource management.

Source: Veterans News Now

It is in the latter area that the U.S. needs to, as David Brooks recently described, “set the table” with policies that create customers for the many small to large businesses that are striving to participate in this new sector.  In our survey of clean energy businesses, 73% are small businesses with less than 50 employees.  Of these, according to market research by Frost & Sullivan, one third believed that the failure to pass clean energy legislation last year had an effect on their business and 7 out of 10 thought their sales would increase if the U.S. passed new policies to reduce greenhouse gases.

When business of all sizes know that they are going to have customers – not just today from a short term stimulus or other plan, but customers derived from a long term commitment by our country to move to clean energy and less air pollution – they can  hire permanent employees.   In California, where the state has been slowly but steadily setting the table with rules for cleaner vehicles, a renewable portfolio standard, the Global Warming Solutions Act and energy efficient building codes, the clean energy sector is a growing source of jobs.  For example, according to Next 10 report from May 2011, jobs in manufacturing of clean energy and resource management activities grew 19% between 1995 and 2008 while total manufacturing employment in the state dropped 9%.

Without creating customers, “clean energy jobs” workforce training programs become a bridge to nowhere, the promise of clean energy jobs falters and businesses remain faced with lots of uncertainty and a natural reluctance to permanently hire new people.  The National Infrastructure Bank and rebuilding schools will hopefully create customers for some of these firms.  But what businesses really need to hire people is the prospect of customers over the medium-term.  We need Presidential leadership on federal clean energy policies to help deliver a steady-stream of customers and seed the jobs of tomorrow.

Posted in Energy Efficiency, Grid Modernization, Jobs, Renewable Energy, Washington, DC / Read 2 Responses

Using Financial Innovation To Break Down Barriers To Energy Efficiency Upgrades – Part 1: Commercial Buildings

Energy Efficiency Financing Blog Series

By: Brad Copithorne, EDF’s Energy & Financial Policy Specialist

Energy efficiency is the fastest, most cost-effective way to reduce greenhouse gas (GHG) emissions in the United States.  In many cases, energy efficiency (“EE”) projects can provide extremely attractive financial returns.  Using data from a 2009 McKinsey study, EDF estimates that there are at least $40 billion of investment opportunities for EE projects in commercial buildings that will provide annual returns in excess of 20%.  Despite this attractive potential, few of these EE projects are being funded in commercial buildings.

Over the past 12 months, EDF has engaged in an extensive dialogue with dozens of key industry participants to determine the barriers that are preventing development of this market.  We spoke with leading owners of real estate, lenders, institutional investors, EE project developers, academics and other nonprofits.  Based on this work, EDF has identified three primary market barriers that are preventing investment in EE projects for commercial buildings (for further details, see our recent white paper Show Me The Money: How Energy Efficiency Financing Makes Dollars And Sense):

1)     Lack of debt capacity – Most commercial buildings cannot borrow additional funds and/or have a first mortgage that includes a limitation on additional indebtedness that prevents incremental borrowing.

2)    Split incentives – Under the terms of most commercial leases, tenants pay for many operating expenses including energy costs.  Landlords, however, must absorb most capital expenses.  For an EE project this may mean that the landlord pays for the project but tenants capture the bulk of the savings.

3)    Lack of confidence in projected energy savings – Many building owners and lenders are skeptical that EE projects will achieve projected energy savings.


Energy Services Agreement – Part of the Solution

EDF has been working closely with several entrepreneurs to develop and promote a financing structure that may solve the debt capacity, split incentive and projection of savings barriers.  The structure, known as an Energy Services Agreement (“ESA”), allows an investor to agree to provide energy to a building at a price based on the building’s historical costs.  The investor pays for EE upgrades and then uses the savings to provide a return on investment.

For example, imagine a building that currently pays $100,000 per month for electricity and an investor that spends $2MM to reduce the monthly expense to $60,000.  The investor collects the $40,000 in monthly savings for 6 years in order to generate a return on invested capital.  From the building owner’s perspective, all payments are operating expense so they can be passed directly to tenants (solves split incentive) and the building incurs no additional debt.  The investor takes the risk that the project may not generate expected savings.

We have been working closely with several companies in this space, including Transcend Equity, Metrus Energy, Green Campus Partners, Serious Energy, Abundant Power, Sustainable Development Capital and GEAR Energy.  Each of them has a slightly different structure and/or target market, but EDF is optimistic that these companies, among others, will be able to change how energy efficiency retrofits are financed for commercial buildings.

Innovations in Energy Efficiency Finance Conference

Citi and EDF are co-hosting a daylong conference on energy efficiency finance on September 20, 2011 to examine innovative financing solutions for energy efficiency projects in the commercial, residential and public sectors.  Stay tuned.

Posted in Energy Efficiency / Comments are closed

Just What The Doctor Ordered: Prescription For Green Savings

By: Martin Hill, 2011 Climate Corps Public Sector Fellow at Morehouse College in Atlanta, Georgia; MPA Candidate 2012 at Clark Atlanta University

Morehouse School Of Medicine (MSM) continues to strive to be a world-class leader amongst medical institutions regarding “energy efficiency”. It is a small tucked-away medical institution in Atlanta, Georgia that serves the community in many capacities.  MSM continues to strive for a healthier world whether it is through personal care or environmental health.

MSM is no stranger to energy efficiency; Director of Facilities, Mr. Alonzo Jones, conducted an Energy and Water Conservation Audit identifying key energy saving projects to implement once funding becomes available. The Doctor’s prescription, if implemented, will save energy and money as well as reduce the institution’s carbon footprint by improving air quality through the reduction of greenhouse gas emissions.

Everyone on the facilities staff has been a doctor in their own way, which is evident in their high level of dedication displayed regarding energy efficiency projects from plumbing to the Heating Ventilation Air Conditioning (HVAC) system here at MSM. Furthermore, as I worked tirelessly with the Facilities Management Team, we discovered a cure to off-setting a few capital projects with rebates offered via Georgia Power, including incentives for lighting upgrades and energy efficient HVAC systems.

Morehouse School of Medicine has demonstrated the institution’s strong commitment to energy efficiency and serves as an example of environmental stewardship among other institutions in the medical field.

EDF Climate Corps Public Sector (CCPS) trains graduate students to identify energy efficiency savings in colleges, universities, local governments and houses of worship. The program focuses on partnerships with minority serving institutions and diverse communities. Apply as a CCPS fellow, read our blog posts and follow us on Twitter to get regular updates about this program.

Posted in EDF Climate Corps / Comments are closed

Catalyzing Change: Sustainability In A Southern Town – Part 2

By Kealy Devoy, 2011 Climate Corps Public Sector Fellow at the Town of Cary, NC; MEM Candidate at Duke University’s Nicholas School of the Environment

If there’s one thing I’ve learned while working in the environmental arena, it is that change does not happen in a vacuum. We need to actively involve as many people in the organization as possible. Generating buy-in for workplace sustainability can be challenging, but with a few key strategies, we can start winning people over.

In my last post, I outlined seven core steps to catalyzing change within an organization, and talked about how the Town of Cary has implemented the first step. Those seven steps are:

  1. Make it official.
  2. Identify the changers.
  3. Change is not binary.
  4. Operate in parallel.
  5. The Rule of 7.
  6. Market internally and externally.
  7. Celebrate successes.

Steps two through four are about how to initiate change. Here’s what I’ve been up to over the past few weeks:

#2: Identify The Changers

The changers are the people who are excited about sustainability. They have ideas, enthusiasm, and momentum. If the organization has many departments, finding changers in various parts of the organization will promote sustainability in each department. Through these changers, you can develop relationships with different individuals and departments on their terms. The initial focus should be on why sustainability is important, and what the benefits of pursuing it are.

One project I am working on focuses on energy efficiency improvements for the Town’s fire stations. The Fire Chief gave me a list of changers from each of the seven Cary Fire Stations who were chosen based on an interest in energy and environmental issues. Having someone at each station who is excited by sustainability has been exceedingly helpful in building buy-in.

#3: Change Is Not Binary

Sustainability is not simply green or not. There are many facets of sustainability, all of which are steps in the right direction. It is important to tackle only as many projects as your organization can handle. Start small, minimize risk, and pick the low-hanging fruit. You don’t need to be generating all of your power from solar panels by tomorrow in order to be sustainable.

Energy efficiency is a great way to get started. Many projects involve low-to-no cost, such as turning down temperatures on hot water heaters and enforcing thermostat temperature set points. Other projects have short payback periods, like upgrading exit signs to LEDs. Still more projects, like preventative maintenance of HVAC systems, have co-benefits including improved occupant comfort and better indoor air quality.

#4: Operate in Parallel

Because the route to a sustainable organization is ongoing and ever-evolving, we should use many simultaneous tools to catalyze change. These include comprehensive strategic plans, various investment structures, capital projects, maintenance programs, and more.

One important consideration here is the impact of these projects on the facilities and maintenance staff. The Town chooses to operate in parallel not only in pursuing projects, but also with how to implement these projects so that their facilities team does not get overwhelmed. Namely, they choose their in-house projects wisely, and hire contractors for the rest.

These three steps are an important part of initiating change within an organization. The next three steps are all about how to communicate this change effectively and efficiently. Check back soon for more on the remaining three steps!

This post reflects the personal opinions of Kealy Devoy, and does not reflect the positions, strategies, or opinions of the Town of Cary.

EDF Climate Corps Public Sector (CCPS) trains graduate students to identify energy efficiency savings in colleges, universities, local governments and houses of worship. The program focuses on partnerships with minority serving institutions and diverse communities. Apply as a CCPS fellow, read our blog posts and follow us on Twitter to get regular updates about this program.

Posted in EDF Climate Corps / Comments are closed