Energy Efficiency Financing

Energy Efficiency

“Buildings represent roughly 40 percent of US
energy consumption. The amount of savings
available where you can do a systems engineering
approach is staggering -perhaps as much as 80
percent. So this is not really low hanging fruit. This
is really fruit lying on the ground.”

- Secretary of Energy, Steven Chu

Restorative Financial Solutions Restorative Financial
Solutions

Measures
Highest ROI
● Caulk/expansive foam sealant/weather stripping
● Quality insulation in walls, ceiling, attic
● Duct sealing
● Low flow faucet devices
● Reflective roofs and coating
● High efficiency toilets
Mid-range ROI
● High efficiency windows (in more extreme
climates)
● Tankless hot water heater
● Solar domestic hot water
Lower ROI
● Solar electric

Solutions

Water Conservation

To flush a toilet 5 to 7 gallons
To run a dishwasher 15 to 25 gallons
To wash dishes by hand 20 gallons
To water a small lawn 35 gallons
To take a shower 25 to 50 gallons
To take a bath 50 gallons
To wash a small load of 35 gallons
clothes in a washing machine
To brush teeth 2 to 5 gallons

The average American uses 149-160
gallons of water per day

Solutions

Job Creation Equity

“If a job improves the environment, but doesn’t provide
a family-supporting wage or a career ladder to move
low-income workers into higher-skilled occupations, it
is not a green-collar job….we need to create pathways
into these jobs, and the careers they represent, for
people who are at the margins..”

-Phaedra Ellis-Lamkins

Solutions

Energy Efficiency Benefit

Restorative Financial Solutions

Pre-Qualification

● Web or Phone Based Pre-screening.
● Determine if sufficient ROI can be
attained, should require positive return on
investment within a determined time
frame, e.g. 20 years.
● Use Resources such as: DEER
Database, available tax credits and
rebates and other applicable reference
data to make an initial assessment.
● Web based example: Berkeley
Calculator.


ROI Example
Description Energy Energy Energy Energy Use Energy Amount
Use % Use Cost After Cost After Saved
(MBTUs) Upgrade Upgrade Annually

Space 78.5% 233.44 $1,141 63.99 $327 $814
Heating
Space 10.5% 29.27 $646 13.64 $292 $354
Cooling
Water 6.2% 17.60 $88 17.60 $88
Heating $0
Other 4.9% 13.92 $265 13.92 $265 $0
Energy
Uses
Total 100% 284.79 $2,140 284.79 $972 $1168

Based on home in Tulsa, Oklahoma, improvements cost approximately
$5,000,

Evaluation/Signup Process

● HERS Certified Professional.
● Estimate of ROI is determined based on
work to be completed and financing.
● The amount spent, less rebates, plus
fees, is created as lien on the property.
● Homeowner receives any appropriate tax
credits.


Typical Payback Periods

Type of Investment Payback Period
Energy Efficiency Upgrades (insulation, duct 1-5 years
sealing, caulking, etc)

Water Efficiency Improvements 1 year or less
(toilet replacement, low flow showerheads and
aerators)

Solar Thermal Water Heating 7-10 years

Solar PV 20-25 years


Beyond Payback Periods

● Payback isn’t the key measure as the
improvements stay with the house when
sold.

● ROI, instead is based on the savings in
utility costs less additional expenses.

● Depends on many factors including:
interest rate, tax bracket, tax
credits/rebates, selection and cost of
upgrades.


Berkeley Example

Improvement Measure Cost (including
rebate)
Energy 30% improvement $ 4,100
Efficiency
Solar Thermal 64 sq ft. $ 7,500
Solar PV 50% of energy used $15,000

Assumptions:
5% interest rate over a 20 year period.
Based on 1000 sq ft home in Berkeley, CA
Rebates and tax credits are deducted from cost


Berkeley Example

Financial Savings
PG&E Bill (without upgrades) $2,200
Estimated PG&E (with upgrades) $700
Savings in gas and electric costs $1,500
+ Tax Savings from Interest Payments 500
+ Federal Income Tax Credit 680
- Financing Cost on Property Tax Bill -2,200
= Net Savings (Average of Years 1-10) $480
= Net Savings (Average of Years 11-25) $1,300


External Benefits

● Economic
● Social
● Environmental


Economic Benefits

● Job Creation
○ Local jobs are created for HERs auditors
and installation contractors
○ Wages are funneled into local economy
○ Unemployment is reduced
○ Need for social services is reduced


Economic Benefits

● Tax Revenues:
○ Sales tax on materials purchased
○ Building permits & local associated fees
○ Payroll taxes for workers
○ Sales tax on items purchased with
increased wages


Economic Benefits

● Multiplier Effect:
○ Minimum Cost savings = 32% of energy bills or
$350/annualy
○ $1.65 Energy savings return for $1 invested
○ $3 Total multiplier effect for $1 invested
○ $20 Increase in home value for every $1
decrease in annual energy costs


Social Benefits

● Increased property values
● Increased pride of ownership
● Increases comfort of home
● Improves energy affordability,
making housing more affordable.


Environmental Benefits

● Buildings use 40% of U.S. energy.
● Reduce carbon dioxide emissions by
1.8 tons annually per weatherized
home.
● Decreases national energy
consumption by the equivalent of 18
million barrels of oil annually.
● Water conservation measures save
both power & water.
● Reduces the future need for coal fired
power plants.


Environmental Benefits

Energy efficiency is the fastest,
cheapest, and cleanest resource we
have… it is not conservation or
deprivation. It is getting what we want
for less. America has the largest
efficiency reserves in the world!”

(NRDC, 9/08)


Why is this work not getting done?

$$$,$$$


A Model Solution: California’s AB-811

● Declares Public Purpose Served
● Contractual Assessments or Tax Liens
● Municipal Flexibility
● Cities can use ARRA Funds for program
● Solves Two Major Problems
○ Up front Costs
○ Landlord / Tenant Split Incentive


The Money: Potential Sources

● City Coffers
○ Cities are stretched to fiscal limits
○ Would require taking funds from other programs
○ Limited financial capabilities in best of times
● General Obligation Bonds
○ Often requires vote
○ Stagnant Capital / Not enough capital
● Private Financing Community - Best Solution
○ Huge potential resource pool
○ Structure allows no unused funds
○ Minimal to no costs or potential liabilities
○ Structure can allow for flexibility


The Money: Collateral and Investment
Vehicle
● Secured by Tax Lien
○ Extremely safe position in front of mortgage
● Note and Revenue Stream sold into Private
Market
○ Much larger source of funding
○ Feedback loops (pricing and secondary market)
● Sale Replenishes Municipal Capacity to Continue
Work
○ Flexibility to work at appropriate pace, make
adjustments, etc.
● Municipality gets Servicing Fee
○ Offsets minimal costs and can even provide some
additional financial resources


Money Flow - Example of a Region

$500 Million
Segment
Total ed as
Available needed
Obligation Funds
City
To
Pay Fees
Work
To Labor

Property Materials


Example of Short Run Returns

● Assumptions: ● Unleveraged Returns:
○ $500M placed ○ 6.2% ROI
○ 7% interest rate ● Leveraged Returns:
○ 20-year amortization ○ Assuming 3% cost of capital
○ $2.5M annual servicing fee ○ 9.4% ROI at 50% investor
○ $1.5M annual other capital
expenses ○ 19% ROI at 20% investor
capital


How Supply of Money Increases

Price

Quanti
ty
S = supply
D = demand


Example of Long Run Returns

● Assumptions: ● Unleveraged Returns:
○ $500M placed ○ 4.2% ROI
○ 5% interest rate ● Leveraged Returns:
○ 20-year amortization ○ Assuming 3% cost of capital
○ $2.5M annual servicing ○ 5.4% ROI at 50% investor
fee capital
○ $1.5M annual other ○ 9% ROI at 20% investor
expenses capital


Alternatives
Federal Energy-Efficient Mortgages

● Finances Energy-Efficiency Measures
- New/Existing Construction
● Insured
● Fannie Mae/Freddie Mac Loans -
Partnership with Energy Star System
- Larger Loans


Pros & Cons of Mortgage-Based Credit

● Pros:
- Improved Access
- Debt-to-Income Qualifying Ratios
- Lenders Federally-Insured
● Cons:
- Loans from $6,000 - $8,000
- HERS Inspection
- Cost-Prohibitive
- Redundant in Some Cases
- Most Borrowers Used Funds for Consumer
Goods Rather than Energy Efficiency Upgrades
- ”Poorly Marketed and Little-Used”


CA Energy Commission

● Loans for Efficiency Upgrades
Eligible:
Public Schools, Colleges, Hospitals, Cities, Counties,
Special Districts, Public Care Institutions

● Interest: 3.95% Fixed

● Finances 100% of Improvements


Pros & Cons of CA Energy Commission

● Pros:
- New and Existing Construction
- Lower Interest Rates
- Several Types of Efficiency Upgrades Financed
● Cons:
- Not Scalable
- Public Institutions Only
- Does Not Directly Address Water Efficiency


Berkeley’s Financing Initiative for
Renewable and Solar Technology (FIRST)

● Photovoltaic (PV) Systems
● Interest Rate: 7.75%
- Paid for by Sale of Municipal Bonds
- SF Launching Similar Program


Pros & Cons, Berkeley FIRST

● Pros:
- Long-Term Repayment Plan
- Little/No Up-Front Cost
- Easy Online Application
- Residential/Commercial
● Cons:
- High Interest Rate
- Limited Scope - Solar Only
- Doesn’t Directly Address Water Efficiency
- In Pilot, Demand Far Exceeded Supply
- Only One Source of Funding


Low Interest Easily Broad Scope of Addresses
Efficiency Marketing/
Rate Scalable?
Upgrades?
Education

RFS
   

Berkeley
FIRST 
CA Energy
Commission  

EEMs



Education Increases Conservation and
ROI


Reaching Stakeholders
● Outreach should target stakeholders
○ Cities and Counties
○ Community Members
○ Property, Business Owners & Contractors

● “Kick Start Funding” for Cities/Counties
○ Fund first year local gov. staff person to implement
program
○ American Recovery and Reinvestment Act (ARRA)
● Implementing Program Locally
○ Educate community - mailings via property tax/utility
bills
○ Streamline permitting for EE improvements
○ Green Retrofit Contractors can market themselves
and the program


Conservation Requires Education and
Feedback

● Domestic energy consumption is largely
invisible to millions of users and this is a
prime cause of waste – for both water and
energy

● Feedback is necessary to learn effectively
and change behavior


Technology Increases Conservation and
ROI

● Smart Grid Technology

● Smart Meters coupled with Feedback
Software
○ Linked to Energy Retrofits
○ Enhance returns on investments


Example: Google’s PowerMeter Software


Real-time Information Improves
Conservation
● Give People
○ Real-time information about their usage
○ Real-time notifications about peak usage
○ Offer real time pricing that provides discounts for
non-peak usage
● People will voluntarily reduce their usage
during peak times

● Study participants ended up saving 10%
on their bills over the previous year, and
peak-time usage went down 15%
*GridWise TM Olympic Peninsula Project


Funding Energy Efficiency and
Conservation
● To implement all the proposed energy
efficiency enhancements would cost
trillions of dollars

● Our proposed financing mechanism of
secured loans moves money from private
sector


Benefits of Restorative Financial
Solutions – Renewable Funding
Mechanism
● Extremely Secure – Tax Liens
● Increased Leverage – Federal Loan Guarantees
increase ROI
● Increases Scale – National Level
● Creates Green Jobs – energy retrofits
● Assists Banking Industry
● Protects Environment
● Improves Economy
● Program is Self-Sustaining after first year


Presentation by:

● Katie Branagh
● Rebecca Busse
● Denice Dade
● Adam Feldman
● Rudi Halbright
● Robyn Smith


Energy Efficiency Financing

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