Using Public Funds to Finance Energy Efficiency Projects Dan Clarkson Vice President Energy Efficiency Finance Corp.
Dec 20, 2015
Using Public Funds to Finance Energy Efficiency Projects
Dan ClarksonVice President
Energy Efficiency Finance Corp.
Why Invest in Energy Efficiency?•Govt. facilities: save energy costs & meet
deferred maintenance needs •Residential, commercial, industrial & non-profit facilities
•Target EE measures that pay for themselves via energy cost savings
• Policy rationale: Local economic development; sustainable
economy Job growth in the trades -- Green JobsReduce emissions; achieve climate goalsEnergy security in face of volatile energy
prices
Market Segment
Loan Product Types of Financial Institutions (FIs)
ResidentialSingle Family • loans, both secured and unsecured • commercial banks
• credit unions• specialized non-bank FIs & CDFI
Multi-Family • loans, both secured and unsecured• tax-exempt bond debt possible for
qualifying low-income housing• ESCO
• commercial banks• credit unions• leasing companies• bond purchasers
Commercial Small loan/lease are typical commercial banks
credit unionsLarge (as well as industrial)
loan/lease Energy Savings Performance
Contracting (ESCO) QECBs possible Tax-exempt industrial development
bonds for industry
commercial banks credit unions specialized EE FIs contractors/ESCOs private equity investors
Institutional Government tax-exempt bond
tax-exempt lease ESCO
Tax-exempt & lease purchasers capital markets transactions
possible
501C (3) tax-exempt bond loan/lease QECBs possible
Commercial banks credit unions bond purchasers specialized EE FIs
Credit Enhancement Overview• Goals: pioneer new finance products, expand risk horizons,
broaden access to finance, extend tenors, reduce rates
• Risk sharing: instrumental to support Financial Institution (FI)
energy efficiency (EE) & renewable energy (RE) lending
• Credit enhancements can support a range of finance models: FI
loan facilities, bond issues, utility on-bill financing, etc.
• Credit enhancement structures include:– Loan Loss Reserve Funds– Debt Service Reserve Funds– Subordinated Debt Structures
Bellingham-Whatcom Community Energy Challenge
Goal: How do we simplify the complex process
of investing in energy efficiency for home and business owners?
Loan Loss Reserve Funds
• “Portfolio approach” to credit structuring
• Achieve significant leverage of public funds, e.g. ARRA and
other grants
• As a % of total loan portfolio principal = 2-10%
• Cover first losses on a portfolio of EE/RE loans
• EECBG & SEP funds can be used for LRFs
Loan Loss Reserves Leverage Commercial Finance
Escrow Account
Loss Reserve
Fund$1,000,000
EECBGs &WA EECE Grant
Financial Institution
Loans
Borrowers
Municipalities
Total Target Number of Loans: 900 Residential & 75 Small Commercial
Community Energy Challenge
• Use City & County EECBGs and WA State SEP Credit
Enhancement Grant for LRF and interest rate buydowns
• RFP process conducted for FI Partner
• Implementing Agreements with FI Partner:
– LRF Agreement: account definitions, risk-sharing formula,
event of loss, recoveries, etc.
– Program Agreement: marketing, loan origination
……..Customers
MECSMMFS
Turnkey project & services &
equity
Energy Services Agreement (ESA) for
turnkey EE project development,
implementation, services & financing
Long-term steam supply; green energy
Seattle Steam
Steam & ESA payments
EE project payments;
Escrow services agreement
SeniorLender
Investor
Loan & debt service
Equity & returns
Seattle Steam Company & MMFS: Energy Efficiency Project Development & Finance Program
State DOC
Sub-loan
Seattle City Light
elec. savingsincentives
Wells Lock box
acct
Washington State Housing Finance Commission EE Finance Program Diagram
USDOE
WA Dept of Commerce
ARRA SEP funds
WSHFC:SEF
MMFS, Contractor
End-Users/Borrowers:• 501c3’s;• Multi-family housing
BondPurchaser
EECE Grant Agreement
Marketing; project development; Turnkey EE projects & services
Program Agreement
Financing Agreements (deal-by-deal)
Program Agreement
DSRF
Notes:1. EECE Grant Agreement & Program Agreements executed at Program start.2. Financing agreements done case-by-case. Stream-lined documentation developed with bond counsel3. Grant funds deposited with Bond Purchaser for use as debt service reserve fund or subordinated 0% co-financing.
John MacLean, EEFC, [email protected]
Tax-exempt Lease Purchase Financing for Energy Efficiency Projects in Local Government Facilities
• Typically 10 year tenors at fixed rates in the 4% range currently; longer tenors possible• Lease-purchase can be entered into expeditiously; includes “non-appropriations” clause; voter bond approval not required• Eligible Borrowers: local governments and political sub-divisions; EE projects in publicly-owned facilities are eligible • Local governments can do individual transactions or participate in WA State Treasurer “LOCAL” pooled lease purchase finance program• Can be combined with ESCO project implementation; often used with the Dept. of General Administration’s Energy Service Performance Contracting program
Energy Efficiency Finance Corp.
EEFC is a financial advisory firm that assists its clients to design and implement energy efficiency and renewable energy finance programs that:
• Sustain funds over time• Leverage private capital• Innovate
Thank You
Dan Clarkson206.310.8733
www.eefinance.net
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Proposal Outline
• Loan Terms
• LRF Terms
• Approach to Credit and Underwriting Guidelines
• Loan Marketing, Origination and Administration
• Qualifications & Experience, Officers and Staffing
• Technical Assistance & Training Needs
• Additional Statements & Materials