Energy Efficiency Financing Presented by: Paul Schueller, Franklin Energy Services

Energy Efficiency Financing
Presented by:
Paul Schueller, Franklin Energy Services
Nels Andersen, Franklin Energy Services
Presentation Outline:
• Audience survey
• How does financing factor into your energy efficiency
projects?
• Barriers to energy efficiency projects
• Where does financing fit within energy efficiency
project implementation?
• Sources of financing
• Financing tools
Top Financial Barriers to Pursuing Energy Efficiency
Insufficient internal capital budget
Competition for other capital investments
Appropriate financing options available
No Goal
Difficulty obtaining external financing at
attractive rates and terms
Goal
Balance sheet debt limitations
Inability to secure external financing
0%
5%
10%
15%
20%
25%
30%
35%
Organizations with public goals and external financing
implemented 84% more measures and are 2.7 times
more likely to increase investments next year than
organizations with neither
Source: Energy Efficiency Indicator, 2013 Global Results - Institute for Building Efficiency
Energy Efficiency Project Process Flow
Energy
Efficiency
Measure
Identification
Estimation of
Energy
Savings
Economic
Evaluation of
Costs/Benefits
• Awareness of
available
technologies
• Facility
assessment
• Engineering
parameters
• Calculations of
energy use, pre
and post
• Project cash
flows, pre and
post
• Cost of capital,
discount rate
Identification of
Funding
Source
• Capital budget vs.
O&M budget
• Financing
• Incentives
• Alternatives:
• Performance
contracting, etc.
Implementation
• Project
development
• Coordination with
operations
• Installation
Common Financing Options
•
•
•
•
Bank Financing
Energy Savings Performance Contracting
Energy Service Agreements
Power Purchase Agreements
Bank Financing
•
•
•
•
Project treated as any other type of capital investment
Loan terms are based on credit worthiness
Relatively simple transaction
Project size and complexity will determine which bank type
(local, regional, national) is most suited for a particular
project
Advantages
Disadvantages
•
•
•
•
• Lack of familiarity with energy efficiency projects and
their characteristics
• Cash flow from savings typically not included
• Ability to secure financing solely dependent on credit
score
• On balance sheet transaction
Typically lowest transaction costs
Can leverage existing relationships
Easiest contract structures
Easily combined with incentive programs
Paid-From-Savings Energy Efficiency Project Financing
Energy, O&M Costs
Avoided costs due to
energy price increases
Pre –
Project
Energy
Costs
Savings Used to Pay for
Retrofit Measures
Savings
Post-Project Energy Costs
Financing Term (years)
Time
Energy Savings Performance Contracting (ESPC)
•
•
•
•
•
Savings exceeds payments over the term of the contract, i.e. pay from savings
Usually administered by Energy Service Companies (ESCO)
Typically have long paybacks
Most prevalent with federal and municipal buildings (MUSH market)
Building owners with strong credit or access to low cost debt commonly prefer to
self-finance
• Examples of companies that provide ESPCs:
• ESCOs – Johnson Controls, Burns & McDonnell, Honeywell, Siemens
(https://www.naesco.org/organizations/companies.aspx?MemberTypeID=3)
• Financiers – Bostonia Group, Catalyst Financial, Hannon Armstrong
Advantages
Disadvantages
•
•
•
•
•
•
•
•
•
Reduces project risk
Enables financing of comprehensive projects
Standard contracts and approaches
Easily combined with incentive programs
Relies on measurement and verification
Significant negotiation and documentation
Substantial transaction costs
Dependent on credit worthiness
Difficult to finance smaller projects (<$500,000).
Energy Service Agreements (ESA)
• Third party entities negotiate ESAs, arrange/provide capital,
develop projects and manage installed equipment for large
industrial and commercial projects
• A Special Purpose Entity (SPE) typically finances the cost of the
efficiency improvements, owns the equipment, and returns cash
flows to the investors
• The SPE owns all tax incentives, carbon credits, and government
grants or rebates
• Fixed payment is based on a cost per avoided energy basis, e.g.
$/kWh.
• Examples of companies that provide ESAs:
• Metrus Energy, Catalyst Financial, Green City Finance, Clean
Feet Investors, SCIenergy
Advantages
• Transactions are off-balance sheet
• Projects can be initiated with no up-front cost
• Due to the SPE structure, risk is limited to each individual
deal
• Relies on measurement and verification
Disadvantages
•
•
•
•
Significant negotiation and documentation
Substantial transaction costs
Difficult to finance smaller projects (<$500,000)
New FASB rules on off-balance sheet projects might
limit the model
Power Purchase Agreements (PPA)
• A contract between a power provider and a customer
• Typically used for renewable energy and co-generation projects
• Equipment is owned by the producer and sited on the customers
property
• The customer contracts to purchase the power produced over a
set number of years
• Fixed payment is based on a cost per avoided energy basis, e.g.
$/kWh
• Examples of companies that provide PPAs:
• Catalyst Financial, CitiGreen, Sunpower
Advantages
Disadvantages
• Costs established from the beginning and fixed for the
duration of the contract
• No up-front cost to the buyer to install the equipment
• The provider provides the necessary capital
• Provider assumes responsibility for equipment
operations and maintenance costs
• Expected volume of electricity produced is stipulated,
with various, predetermined, results for generation above
and below agreed upon levels
• Usually some combination of tax credits, rebates and
carbon credits are used to improve the investment profile
of the renewable installation
• Buyer does not obtain the benefits of ownership of the
asset
• Arrangement results in a long-term lease on the
property
• Long contract terms
• Total project cost typically more expensive than bank
financing
Department of Energy Financing and Support Programs
• Office of Energy Efficiency and Renewable Energy (EERE) financing portal:
• https://www1.eere.energy.gov/financing/
• EERE Loan Guarantee Program:
• http://www.lgprogram.energy.gov/
• Mostly involve alternative generation, transmission, and vehicles and advanced fuel processing
• Solicitations for Business, Industry, and Universities
• https://www1.eere.energy.gov/financing/business.html
• Typically solicit advanced manufacturing and demonstration projects that reduce energy
• Better Buildings, Better Plants Program
• http://www1.eere.energy.gov/manufacturing/tech_assistance/betterplants/
• Not a funding source, provides technical assistance and national recognition
Additional Resources
• Cash Flow Opportunity Calculator:
• http://www.energystar.gov/buildings/facility-owners-andmanagers/existing-buildings/find-financing/calculate-returns-energyefficiency
• Energy Efficiency Financing – Models and Strategies:
• http://www.cleanenergyfinancecenter.org/wp-content/uploads/EEFinancing-Models-and-Strategies-Oct.-2011.pdf
• Energy Star Buildings Upgrade Manual – Chapter 4, Financing:
• http://www.energystar.gov/ia/business/EPA_BUM_CH4_Financing.pdf