Green Bank Prodcuts - Residential Solar
-
Upload
reed-hundt -
Category
Documents
-
view
103 -
download
1
description
Transcript of Green Bank Prodcuts - Residential Solar
CEFIA’s Residential Solar Financing Products
Bert Hunter, Executive VP and CIO, CEFIA
February 6, 2014
Agenda
• What’s the Situation?
• What’s the Complication?
• What’s the Resolution?
• What have we learned?
• Discussion
2
What’s the Situation? Four Macro Challenges in CT
High Energy Costs
CT has THE highest cost for electricity in the "lower 48"
Need for "Cleaner / Cheaper" Energy Sources
Programs that will diversify our energy mix into renewable/clean power
Grid Reliability
5 major storms in 2 years with unacceptable outages
Government Spending Constrained
Emergency budget deal in 2013
3
What’s the Complication? Challenges for Clean Energy Adoption
Lack of Scale in Residential & Commercial PV
• High installer margins = low volume and solar more expensive than grid
• No transparency / lack of information for customers
Financing Options Limited
• Market “trained” on subsidies and / or tax motivated
• Nationals tend to focus on select markets & towns
• Specialty lending available…at high cost and / or shorter term
• Self-financing constrained
Would-be Mass Lenders Dislike Product Risk
• Energy upgrades small cost relative to mortgage
• Low visibility to clients
• Internal bandwidth limited
• Unfamiliar with revenue generation aspect of clean energy products
4
Subsidizing entire viable solar market is part of complication
5
659,312
506,714
4,500 0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Total AddressableMarket
Economically ViableMarket
Actual Penetration
# R
es
ide
nti
al
Ro
oft
op
s
• Only 0.9% of viable market served
• ~3.9 GW of viable solar capacity remaining
• At current subsidy level, would cost state over $4 billion to penetrate 100% of market!
• Not a solution
Solar Market Size by Rooftops
Must transition from grants to loans
• Subsidizing entire market is fiscally unsustainable
• Must transition from grants to financing
• Capital can be public or private
• Want to maximize private investment, however currently not enough capital available
• Green banks will turn on faucet, draw in private capital
6
$/W kW
As installations grow, need to move from grants to loans increases
7
Reduced installed $/Watt 9% year-over-year since 2011
Lowered subsidy by 20% since 2011
Installed capacity grew 150% year-over-year since 2011
7
What’s the Resolution?
Green Banks build bridge between demand and installers
Develops a "menu" of financial products to scale-up deployment of solar PV
Lowers cost of installation with demand aggregation, scale efficiencies
Lowers cost of capital
Provides new asset classes for capital providers
Acts as a clearinghouse for information and data transparency
Provides Consumers & Installers with Access to Necessary Capital
8
CT Solar Lease CT Solar Loan Smart-E Loan
Target Market Installers Homeowners Banks
~Amount
Available $60M $5M $28M
Eligible
Technologies
Solar PV
Solar Hot Water Solar PV
Efficiency, HVAC
All renewables (PV, SHW,
Geothermal, Biomass, etc.)
Ownership No (option to purchase) Yes Yes
Down Payment? Not required if installed cost is
less than $4.50/W
Minimum of 5% of net
installed cost Not required
Interest Rate N/A (20 years) 6.49% (15 years) 4.49% (5-yr), 4.99% (7-yr),
5.99% (10-yr), 6.99% (12-yr)
FICO Min
DTI Max
640
45%
680
45%
640
45%
CEFIA offers residential solar financing for installers, homeowners, banks
• Try to provide roughly equal economic value in each product to let market identify which is most desired; constant process of market discovery
• Products must fund all upfront costs in return for power price lower than grid
9
Lease savings steady, loan savings high at end
10
$2,000
$1,500
$1,000
$500
$0
$500
$1,000
$1,500
$2,000
$2,500
$2,000
$1,500
$1,000
$500
$0
$500
$1,000
$1,500
$2,000
$2,500
Loan Savings
Lease Savings Solar Lease savings Profile • Lease is cash flow positive for
customer from day one • Long, steady stream of savings
Solar Loan Savings Profile • For Loan customer has to pay
out of pocket upfront • Cash flow positive by year
three using ITC savings • Greater savings on back end
11
Contractor (SHW, Resi. or
Comm. PV)
PV or SHW Customer
(Resi., Comm., or Muni)
CT SLII, LLC
CEFIA
Debt Syndicate led by First Niagara
Debt
Tax Equity Sub Debt Equity Loan Loss Reserve PBI (incentive) Developer services
CEFIA Holdings
, LLC
$ $
System
System, Insurance, Lease
CT Solar Lease provides local installers an important sales
tool, while customers benefit from affordable, no-money-down financing and peace of mind.
Install
CEFIA currently provides five forms of support for solar lease product
11
80% of CT Solar Loan sold to Mosaic and Hampshire Foundation to replenish, relend capital
12
Crowdsourcing Platform
Foundation
CEFIA (CT Solar Loan
LLC)
Sungage & LeaseDimensions
PV Contractor
Residential PV Customer
$ $
$
$ from loan repayments (100%)
$ Contract
Install
Monthly Loan Payment Loan Agreement
CT Solar Loan provides local installers an important sales tool, while customers can take the 30% ITC and benefit from long-term, low cost capital that allows them to own PV
CEFIA
Sub Debt
$ from loan repayments (20%)
12
Smart-E Loan product targets local banks with loan loss reserve from CEFIA
13
Community Banks and Credit Unions CEFIA
PV, RE, EE or HVAC Contractor
Residential PV, RE, EE, HVAC Customers
Loan Loss Reserve tiered Min. Underwriting Guidelines Technical Project Approval
$
$
Install $
Technical Approval
13
Cost of loan is only better than cost of grant if default rate is low enough
• Goal is to transition from grants to loans, but key is finding good loans
• If credit risk is too high, may be better to give grant
14
Cost of Loan = Loan Amount x Expected Default Rate Cost of Subsidy = Amount of Subsidy
If expected default rate is high enough, better to do grant
CEFIA provides credit enhancements to enable more favorable terms from private lender
• All three residential solar financing products have loan loss reserve credit enhancements to increase economic value for customers
• A loan loss reserve enables banks to offer better terms because CEFIA shares in each loss, capped at a total amount of potential losses
• Private lender has reassurance of payback, but still has to cover portion of losses – ensures quality underwriting practices
15
CT Solar Lease CT Solar Loan Smart-E Loan
Target Market Installers Homeowners Banks
Capital for
Financing $60M $5M $28M
Size of Loan
Loss Reserve
$3.5M
$300K $2.5M
Terms of LLR Used to smooth DSCR to reduce
risk to tax equity from leverage
Covers P&I for
delinquencies >90 days
7.5% of Loan Balance for
FICOs 680 and up
15% of Loan Balance for
FICOs 640-679
Aggregating demand lowers costs and attracts cheaper capital
• Demand aggregation brings scale efficiencies to installation, lowers costs of projects
• Also takes step toward obtaining scale needed to draw private capital at low costs
Demand Aggregation CEFIA Credit-Enhanced
Product Market Transformation
CT Solar Loan
CT Solar Lease II
Smart-E Loans
9% year-over-year reduction in residential installed $/W since 2011 150% year-over-year CAGR in installed kW since 2011
16
Providing customers with actionable data and options creates demand
17
• CEFIA brings impartial source of data to communicate with installers and customers
• Roof-by-roof analysis can be done cheaply, and empowers customers
Transparency drives confidence in market stability
18
• CEFIA regularly provides industry stakeholders, customers with data on status of the market
• Installers know what average costs are
• Customers and installers know what subsidy level is and when it will be reduced
• Transparency creates trust in CEFIA
Lessons are green banks attract private capital, customer acquisition key to success
• Good Program Design Attracts Capital
– Green Banks can design products and programs that make it more attractive for private capital to fund Solar PV and Energy Efficiency
• Marketing and Customer Acquisition are the Keys to Programmatic Success
– Volume is the main challenge, programmatic success and design tweaks will stem from robust customer demand; transparency / data sharing, marketing and customer acquisition are all tools Green Banks have to stimulate demand
19
Credit scores, training, and time are primary challenges
• Banks don’t like FICOs below 680
– Require credit enhancements
– Solar Lease 2 achieves 640 FICO (limit on exposure as % of portfolio); Smart-E doubles credit enhancement for 640-679; Solar Loan - not yet
• Training is essential
– Contractors, lenders require focused investment in training
– Critical to channel marketing strategy
• Real innovation takes time
– Huge time investment to develop program design, capital partners, docs
– CEFIA shares its structures, documentation. NYSERDA has done so as well. We hope other Green Banks will follow our lead to save others time!
20
Green bank must address four key questions
• Public Policy Goals • Communication /
Coordination
• Existing Market Channels • Role of Incentives • Standardization • Education / Data
• Installers • Lenders • Utilities / Regulatory
framework
• Financing • Program / incentive
design • Transparency
Gaps in the Market
State of the Market
Migration from
Incentives to
Financing
Key Drivers of Scale
21
Appendix
Burt Hunter, Executive VP and Chief Investment Officer Clean Energy Finance and Investment Authority 860.563.0015 [email protected]
CT Solar Lease CT Solar Loan Smart-E Loan
What Makes It
Special?
Hassle- and worry-free. No
money down
Low monthly payment, long
term makes owning solar
affordable
Quick, flexible financing from
your local bank
Targeted # of
Transactions,
Year 1
984 123 1200
YTD 178 72 82
Residential solar financing product attributes and goals
23
Value of CEFIA’s Products for PV Customers
CT Solar Lease CT Solar Loan Smart-E Loan
What Makes It Special?
Hassle- and worry-free, no money
down
Low monthly payment makes purchasing solar
affordable
Quick and easy financing from your local bank
Own Your Solar?
No (option to purchase)
Yes Yes
Down Payment? Not required if installed cost ≤
$4.50/W
Minimum of 5% of installed cost
Not required
Terms 20 years 15 years 5 - 12 years
24
24
CEFIA drew multiple private investors into single product for Solar Lease
Role Major Risk(s) How Addressed
Tax Equity Recapture caused by
default
Loan Loss Reserve PBI
CEFIA Equity Assurant Bundle
Lend to CT SLII at a % of capital for “build”
cost
Not enough cash for
debt service
Interest rate risk
Loan Loss Reserve PBI
Assurant Bundle Rate swap
Subordinated Debt Equity
Fund Developer
Customers can’t or won’t pay lease
Install / Contractor
Risk - PR
Loan Loss Reserve PBI
Assurant Bundle
25
Each component of Solar Lease serves specific purpose in making deal work for partners and customers
Performance-Based Incentive
Loan Loss Reserve
Equity Subordinated
Debt
What it is
- Statutorily-mandated incentive
- Applies to all resi.
leased systems in CT
- Current rate is $0.18/kWh
- $3.5M repurposed ARRA-SEP funding
- First loss for deficiencies in lease payments
- CEFIA “developer equity”, bundling working capital loan to the fund, leases, systems, and arranges insurance products
- CEFIA contributes sub debt at a reduced rate
- 2-½%; 20-Yrs - Fully
amortizing behind Senior
Why it was used
Cost of $ = f(R*P(R))
R=Return
- Increase R for equity investors
- Increase P(R) for debt investors by diversifying sources of cash flows
- Increase P(R) for all investors by enhancing cash flow covenants (effectively improves DSCR)
- Result: very cost-effective interest rate
- Increase P(R) for bank syndicate and US Bank
- Increase R for CEFIA (channel to clean energy programs)
- Increase P(R) for debt syndicate
- Increase R for US Bank and CEFIA
26
- Contracts with Assurant - Ensures each project meets
contractor and equipment requirements:
- 20-year inverter warranty
- 25-year panel warranty
- Wraps Contractor Workmanship and Manufacturer Warranty -
- Fulfills warranty even in event of manufacturer bankruptcy
- Provides Property, Liability,
and Casualty Insurance for install
- Authorizes and pays for repair
- Assurant Sub-
Contractor - Provides
“Boots on the Ground” for repairs from all causes
- Contractor must warranty
workmanship for minimum of 6 years
- CEFIA holds back 1.75% of each install as assurance
PV Contractor
CEFIA contracts with insurer to cover panel damage
27
"1-Call"
Resolution
FOR HOMEOWNER
Installer
Workmanship
(ROLL A TRUCK)
OEM
Warranty
(ROLL A TRUCK)
Property
Insurance
(ADJUSTER DISPATCHED)
Simple
"Handle by Phone"
Issues
(HOMEOWNER)
Assurant (NYSE: AIZ) is a leader in niche insurance
products
• $27B assets
• $8B annual revenue • > $1 billion from warranty
mgmt
• Market capitalization ~$3B
• No. 310 on Fortune 500
• No. 1024 on Forbes Global 2000
• Operations in 12 countries
• 14,500+ employees worldwide
• AM Best’s “A” rated
Customer has simple panel problem resolution through insurer
28
CT Solar Loan uses subordinated debt and loan loss reserve to enhance credit
Role Major Risk(s) How Addressed
Senior Lenders to CT Solar Loan
Not enough cash for debt service
Loan Loss Reserve
Subordinated Debt
Subordinated Debt
Customers can’t or won’t pay loan
Install / Contractor
Risk - PR
Loan Loss Reserve CEFIA Rebate
Sungage
29
Credit Enhancement
Tool
Expected Performance Based Buydown
Loan Loss Reserve Subordinated Debt
What it is - Statutorily-mandated incentive
- Applies to all resi. host-owned systems in CT
- Current amount is $1.25/W for the first 5kW and $0.75/W for greater than 5kW and up to 10kW
- $300,000 repurposed ARRA-SEP funds
- First loss for deficiencies in loan payments
- CEFIA leverages 80% of the loan payment streams
- 20% is kept as subordinated debt
Why it was used
Cost of $ = f(R*P(R))
R=Return
- Increases R for investors
- Increases P(R) for investors by reducing required investment per system
- Increase P(R) for all investors
- Increase P(R) for senior debt
- Increase R for CEFIA
CT Solar Loan components increase economic value, ensure payback to lender
30
Smart E-Loan credit enhancements deploy more private capital at lower costs
Role Major Risk(s) How Addressed
Primary Lenders and Servicers
Customers can’t or won’t pay loan
Loan Loss Reserve
Technical Origination
31
Smart-E Financing Terms
Eligible Contractors HES, HPwES, BPI-certified, or other contractor authorized by utilities or CEFIA (CEFIA runs QA/QC inspection process)
Eligible measures Any measure (or combination) that qualifies for CEFIA, utility or CEEF incentive or rebate, with a focus on oil-to-gas conversions
20% of total amount financed can go toward related non-energy measures like roof repair, asbestos remediation, etc.
Borrower Credit Criteria (option to offer only Class A)
Class A: 680+ Class B: 640 to 679 Debt-to-Income: 45%
LOAN LOSS RESERVE 7.5% 15%
Term (years) 5 7 10 121
Interest rate (not to exceed, may be lower depending on lending institution)
4.49% 4.99% 5.99% 6.99%
Eligible Homes 1-4 Units
Loan Amount Minimum $3,000 Maximum $25,000 (min/max, may be higher depending on lending institution)
Participating lenders Participating banks and credit unions
1 CEFIA places deposits = 15% of original PBO of loans >10Y
32
Tiered loan loss reserve & underwriting guidelines align lender and green bank interests
32
Smart-E Loans: Green Bank Credit Enhancements Used
Credit Enhancement Tool
Expected Performance Based Buydown
Loan Loss Reserve
What it is - Statutorily-mandated incentive
- Applies to all resi. host-owned systems in CT
- Current amount is $1.25/W for the first 5kW and $0.75/W for greater than 5kW and up to 10kW
- $2.5M repurposed ARRA-SEP funds
- Covers up to 100% of lender losses of eligible loans
- Lenders take first 1.5% loss to align interests
Why it was used
Cost of $ = f(R*P(R))
R=Return
- Increases P(R) for lenders by reducing required investment per system
- Increase P(R) for lenders - Increases willingness to
extend LOWER rates for LONGER periods due to
LESS expected loss
33
Smart-E (12 Year – PV): Annual Homeowner Cash Flows
$2,000
$1,500
$1,000
$500
$0
$500
$1,000
$1,500
$2,000
$2,500
(savings)
(25 years)
34
Value of ITC essentially covers net payments due over 12 year term
34
Smart-E Loan effect of term on annual cash flows for Whole-House Solution
REFERENCES Net installed costs and average savings based on numbers provided by CL&P. Calculation assumes gas rate of $1.40/ccf and oil rate of $4.00/gallon as well as an energy price escalator of 2.99%
35
5-year term
7-year term
10-year term
12-year term
35
Different forms of credit enhancements serve specific purpose in supporting loan
• Anything that provides a potential lender or investor additional reassurance that the assets will perform, resulting in more favorable terms for the borrower
Source: SEEAction Credit Enhancement Guide
36
Green Bank Academy
Washington, DC February 6-7, 2014
www.greenbankacademy.com
37