Proposal to encourage and incentivize privately financed energy efficiency improvements and...

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


MeasuresHighest 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



Water Conservation


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

35 gallons

To brush teeth 2 to 5 gallons


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

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



Energy Efficiency Benefit


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 Use %

Energy Use(MBTUs)

Energy Cost

Energy UseAfter Upgrade

Energy Cost AfterUpgrade

AmountSaved Annually

Space Heating

78.5% 233.44 $1,141 63.99 $327 $814

Space Cooling

10.5% 29.27 $646 13.64 $292 $354

Water Heating

6.2% 17.60 $88 17.60 $88$0

Other Energy Uses

4.9% 13.92 $265 13.92 $265 $0

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 PeriodEnergy Efficiency Upgrades (insulation, duct sealing, caulking, etc)

1-5 years

Water Efficiency Improvements(toilet replacement, low flow showerheads and aerators)

1 year or less

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


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

Improvement Measure Cost (including rebate)

Energy Efficiency

30% improvement $ 4,100

Solar Thermal 64 sq ft. $ 7,500Solar PV 50% of energy used $15,000

Berkeley Example


Financial SavingsPG&E Bill (without upgrades) $2,200Estimated PG&E (with upgrades) $700Savings 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

Total Available Funds City

Fees

Labor

Materials

Work

To

Property

Obligation

To

Pay

Segmented as needed


Example of Short Run Returns

● Assumptions:○ $500M placed○ 7% interest rate○ 20-year amortization○ $2.5M annual servicing fee○ $1.5M annual other

expenses

● Unleveraged Returns:○ 6.2% ROI

● Leveraged Returns:○ Assuming 3% cost of capital○ 9.4% ROI at 50% investor

capital○ 19% ROI at 20% investor

capital


How Supply of Money Increases

S = supplyD = demand

Quantity

Price


Example of Long Run Returns

● Assumptions:○ $500M placed○ 5% interest rate○ 20-year amortization○ $2.5M annual servicing

fee○ $1.5M annual other

expenses

● Unleveraged Returns:○ 4.2% ROI

● Leveraged Returns:○ Assuming 3% cost of capital○ 5.4% ROI at 50% investor

capital○ 9% ROI at 20% investor

capital

AlternativesFederal 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 ConsumerGoods 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


Restorative Financial SolutionsRestorative Financial Solutions

Low Interest Rate

Easily Scalable?

Broad Scope of Efficiency Upgrades?

Addresses Marketing/

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


● 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


Real-time Information Improves Conservation

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


Proposal to encourage and incentivize privately financed energy efficiency improvements and...

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Transcript of Proposal to encourage and incentivize privately financed energy efficiency improvements and...