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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
