Financing Distributed Energy Services for Residents and Businesses Glenn Barnes UNC Environmental Finance Center www.efc.unc.edu
Session Objectives Highlight the differences in centralized versus decentralized services Examine current local government roles in providing decentralized energy services Discuss potential future models
Local Government as Provider of Centralized Services *Sewer Image, Available at http://www.southdacola.com/blog/2011/01/sioux-fallsdelicate-sewer-system/, May 26, 2011. *Trash Image, Available at http://www.villageatoakhill.com/news.htm, May 26, 2011.
Local Government as Provider of Decentralized Services?? *Solar Image, Available at http://eath4energy-homeelectricity.maxupdates.tv/guide-for-home-solar-panels/, May 30, 2011. *Insulation Image, Available at http://www.mustknowhow.com/index.php/airconditioning/wall-air-conditioners-and-insulation, May 30, 2011.
Local Government Roles in Providing Distributed Energy Services One role we have discussed already setting a good example for the community and modeling potential energy projects
Local Government Roles in Providing Distributed Energy Services Provider of Low Income Energy Efficiency Services Provider of Energy Finance Programs Provider of Distributed Energy Services that provide Economic Development benefits
Provider of Low Income Housing Energy Services
Provider of Low Income Housing Energy Services Providing grants under Housing Authority powers (G.S. 160A-456(b) for cities and G.S. 153A-376(b) for counties) to rehabilitate affordable housing Such rehabilitation might include weatherization including insulation or resealing of houses or retrofitting with energy efficient appliances
Provider of Low Income Housing Energy Services Example: Chapel Hill weatherization of public housing facilities A project between the UNC School of Law Weatherization Working Group and the Town of Chapel Hill
Provider of Energy Finance Programs Providing funds or finances to private individuals or organizations to pay for distributed services Current legislation in North Carolina that aids a local government in creating funding mechanisms is HB1829 (2009)
Why A Finance Program? Way to focus government resources on the community at large Increase the impact of limited funds Can work in tandem with rebate programs to make energy efficiency more affordable Puts responsibility on customers
Two Huge Developments in Energy Finance Over the Past Few Years Property Assessed Clean Energy, or PACE, which started in Berkeley, CA ARRA
Second Big Development: ARRA
ARRA Energy Efficiency and Conservation Block Grants Better Buildings Grants State Energy Program Grants Weatherization Grants
Roadmap to a Self-Sustaining Private Market Grantees currently are building programs at different points along the spectrum, as appropriate to their capabilities and the risk appetite of their financial partners Risk of Defaults Revolving Loan Funds Public Funds Public Funds Loan Loss Reserve Programs Credit Enhancements from Public Funds Self-Sustaining Private Market Private Market Confidence in Manageable Risk Loan Capital Public Capital Funding Public Capital Funding Private Capital Funding Open, Private Competiti Capital ve Funding Private Market Administrat ion Self- Administered Private Partner- Administered Private Lender Administered Private Lender Administered
Energy Finance Programs Two main program elements Finance program design Sources of capital Programs around the country mix and match designs an sources of capital
Program Design Revolving loan programs Loan securitization programs (loan loss reserves) Rebate programs
Sources of Capital Public sources like ARRA funding, general fund revenues, rate payer capital The bond market Private sector capital that may include a publicly-funded credit enhancement
Fannie Mae Energy Loan Program Small-scale energy investments at rates of between 14 to 16 percent for periods of 8 to 9 years Capital comes directly from Fannie Mae with an expectation/requirement of return on their capital in the range of 12 to 13 percent
PowerSAVER New program from Federal Housing Authority announced on December 9 Will offer homeowners up to $25,000 to make energy-efficient improvements of their choice
Revolving Loan Fund Government loans out its own money to residents and businesses Example: Carrboro Commercial Energy Efficiency Revolving Loan Fund
Interest Rate Buy-Down Cash paid to lenders to lower the interest rate that borrowers pay Example: Connecticut pilot program to buy down interest rate of Fannie Mae energy loan program
Loan Loss Reserve Pools Credit enhancement to securitize private lending Advantage is that lending pool stays unless there are defaults Examples: Michigan Saves, Keystone Help (Pennsylvania), Greensboro
PACE Property owners assessed for cost of energy improvement through their property tax bills Many residential programs on hold Example: Commercial program in Boulder County, CO funded by QECBs
Large Rebates Example: Durham s Neighborhood Energy Retrofit Program Typical retrofit package was $800 to $2,000. Eligible residents received the upgrades for $200 to $300 Now doing broader base home program
Smaller Rebates Example: Chapel Hill WISE Maximum subsidies of $1,500 for larger scale home energy retrofits
Lessons Learned Financing programs are complex and not widely understood by customers, so do not hesitate to ask for help and it will take time Technical Assistance available on program design questions, financial modeling, legal issues, help with contracts/rfps, etc.
Lessons Learned An advantage of financing programs is that dollars last, as long as there are few defaults Remember that you will need to pay for program management and administration for as long as you operate the program
Lessons Learned You should care a great deal about program design and sources of capital. Your customers don t care about this. They just want a good rate for the energy improvements they want/need to make
Lessons Learned Take the time to understand the potential market for energy finance programs. Do a market snapshot. Think about specific types of residents or businesses to target. And don t neglect the program marketing piece.
Lessons Learned Think about your competition. What other programs are available to potential borrowers in your jurisdiction? Do they compliment your finance program or conflict with it? Can you team up?
Lessons Learned If you are planning to include private lending in your program, take the time to meet with lenders, explain your program goals, and listen to their needs before designing the lender RFP There are no off-the-shelf program designs that will work
Provider of Distributed Energy Services that Create Economic Development Benefits Providing small businesses with loans to accomplish energy efficiency goals which in turn provide economic development benefits either through the creation of jobs or the services that the business provides to the community
Potential Models for the Future Creation of a Sustainable Energy Business Improvement District (BID) Creation of a Stand Alone Local North Carolina Sustainable Energy Utility
Creation of a Sustainable Energy Business Improvement District Authority for this would come from G.S. 160A-536, which allows for a city council to create a special district for downtown revitalization projects Services such as installation of solar panels, upgrades to water heaters or a.c. units, or other green services such as a green street lighting program or extensive recycling services
Creation of a Sustainable Energy Business Improvement District District can be financed with General Fund Dollars, Special Assessments, Public Enterprise money, BID Tax revenue, or several bonding options (General obligation bonds or Special Obligation bonds, etc.) This is an innovation, because it doesn t appear that any city in NC has done this yet
Stand Alone NC Sustainable Energy Utility Can do this if you provide public power The question is whether an interested local government can provide the distributed energy efficiency and/or renewable energy services without being a full-fledged public power authority Would likely require changes to Public Enterprise statutes
Questions? www.efc.unc.edu
Resources for Communities
http://www1.eere.energy.gov/wip/solutionce nter/financialproducts/default.html
Comprehensive guide developed by technical assistance team Available for free at Solution Center
http://www.eereblogs.energy.gov/tap/
http://www.nga.org/portal/site/nga/menuitem.9123e83a1f 6786440ddcbeeb501010a0/?vgnextoid=d3822327672dd 210VgnVCM1000005e00100aRCRD Primarily for states but programs are similar for local governments as well
DSIRE Database http://www.dsireusa.org/
SELF Database www.naseo.org/resources/selfs
Question: How can millions of Americans be persuaded to divert valued time and resources into upgrading their homes? What We Did: Case studies of 14 residential energy efficiency programs Review of relevant marketing and behavioral research reports and presentations 48