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Financing Commercial EE Trends in North America BPIE Investing In Energy Efficiency Brussels, Belgium 2014
Financing Commercial EE
Trends in North America
BPIE Investing In Energy Efficiency
Brussels, Belgium 2014
The Energy Efficiency Gap
Retrofit
Opportunities
Building Owners
And Investors
Near-Term: Low Deal-Flow
• High Transaction Costs
• Lack of Demand
• High Cost of Capital
• Standardization
• Risk Management
• Data
Long-Term: Engage Capital Markets
Barriers to Energy Efficiency Projects
Credit: Institute for Building Efficiency, JCI
Pay for it (Self-Fund)
• Pay For a project out of internal capital budget or by taking out corporate debt
• On-balance sheet
• Customer retains all savings but assumes project performance risk
• Capital budget constraints often lead to single measure, short-term projects that limit savings and don't optimize total building performance
Tax Exempt Bonds (for the government)
• Up to 100% Financing for 15 to 20 year terms
• On-balance sheet
• Low cost of capital fie lax exempt financing rates
• Limited to public sector customers with Large-scale projects due to the high cost of bond issuance
Lease It
• Up to 100% financing via a capital or operating lease
• 5 to10 year lease terms (longer terms, up to 15 years, are possible for tax exempt customers]
• On-balance sheet (upcoming GAP accounting changes will likely eliminate the use of operating leases)
• Relatively flexible on credit quality
• Best For big ticket equipment
Get A C-PACE Assessment
• Customer owns project performance risk due to fixed lease payments
• Up to100% financing for 15 to 20 year terms
• Obligation is secured by priority lien an real properly
• Customer payments are Iced PACE repayment is bed to property, not present owner
• Requires mortgage holder consent, which may be time consuming and tough to get
• Emphasis on commercial real-estate
Managed Energy Service Agreements (MESA)
• 100% financing off-balance sheet Can fund king (5-10 year) payback period projects
• Cash flow neutral pricing payments set equal to historical utility costs
• Providers manage projects and costs, assume performance risk
• MESA provider takes control over customer utility relationship (MESA provider pays customer utility)
• Strong customer credit profit emphasis on commercial real estate
Energy Service Agreements (ESA)
• 100% financing Off-balance sheet Can fund long (5-10 year payback period projects
• Cash flow positive prior payments set below current historical utility costs and based on per unit energy swings (i.e. “negawatt” charge)
• Providers manage projects and costs. assume performance risk and give advice
• Ability to fund multi-facility Projects
• Strong customer credit profile, emphasis on owner-occupied facilities
Breaking Down Barriers to EE Finance
How can you lend
money to a
bankruptcy remote
LLC SPE?
How does a EE
effect rental rates,
resale, turn time,
& maintenance?
How do I know if
the savings will
really be there?
Breaking Down Barriers to EE Finance
• Benchmarking
• Asset Labeling
• Disclosure
Benchmarking to Address Asset Risk
Value of EE in Tenant Occupied Buildings
Credit: Institute for Building Efficiency, JCI
Breaking Down Barriers to EE Finance
• On-Bill Repayment
• Commercial PACE
• Green Banks
Property Assessed Clean Energy (PACE)
Commercial PACE
Commercial PACE
• 26 active PACE
programs / platforms
ready to fund projects
• More than 250
commercial PACE
projects completed
• Nearly $75 million in
funded projects
• More than $250 million
in PACE project
applications
On-Bill Repayment
Green Banks
The purpose of a state green bank is to use public funds
and authority to lower the cost and increase the amount of
private financing for clean energy technology
Green Banks
The purpose of a state green bank is to use public funds
and authority to lower the cost and increase the amount of
private financing for clean energy technology
Breaking Down Barriers to EE Finance
PROJECT
FINANCE
Long-term financing
of projects based
upon the projected
cash flows of the
project rather than
the balance sheets of
its sponsors.
ICP Addressing Performance Risk
• Savings Uncertainty – Lots of winners and losers (variance)
– Many approaches to savings estimation, installation, commissioning
• Project Origination Costs – Lack of standards puts engineering overhead on each firm
– Difficult to diligence and manage performance and operation risks
• Actuarial Data – Lack of data standards and agreement on measurement approaches
– Insufficient data on financial and energy performance
What Is An Energy Efficiency Project?
BASELINING
• Existing Building
• Drawings
• Weather File
• Energy Usage
• Energy Rates
• Occupancy
Energy Performance Protocols
SAVINGS
• Model File
• Calibration Data
• Bid Packages
• Certifications
COMMISSION
• Cx Plan
• Cx Authority
• Test Procedures
• Facilities Req.
OPERATIONS
• BMS Points
• Fault Plan
• Maintenance
Plan
MEASUREME
• M&V Model
• Regression
Model
• Adjustments
• Impact
• Baseline
Adjustments
Cx
INVESTOR READY ENERGY EFFICIENCY ™
ICP Credentialed Software Providers
Stakeholder Value of Standardization
www.EEperformance.org
Investor Confidence Project
www.EEperformance.org
Matt Golden
ICP Project Director
Environmental Defense Fund
+1 415.902.4546
Panama Bartholomy
ICP Europe Director
Environmental Defense Fund
+31 6 81024282
