Commission Report Features Financing Recommendations to Double U.S. Energy Efficiency

Kat Friedrich, Clean Energy Finance Center
February 21, 2013 | 3 Comments

The Alliance to Save Energy's Commission on National Energy Policy included financing as one of the central recommendations in its recent report, "Energy 2030: Doubling U.S. Energy Productivity by 2030." The commission consists of some of the key leaders in energy policy and business in the United States.

The commission’s plan would use financing programs and policies to unleash hundreds of billions of dollars of capital to support trillions of dollars of potential energy savings.

According to the commission, energy savings performance contracts and utility energy service contracts, which focus on government-owned buildings, are the main energy efficiency financing methods which are active in the market. Although these models work well, their scope is not broad enough to have a broad nationwide impact on energy efficiency.

To open the door to new energy efficiency financing opportunities, the commission recommends:

creating a secondary market for efficiency loans
setting up state and local programs to resell loans to investors in secondary markets
initiating on-bill repayment and on-bill financing programs
improving federal regulations to support financing efficiency through property taxes and trusts
attaching energy efficiency incentives to mortgages
setting up tax policies that encourage industrial investment in efficiency
increasing real estate buyers’ awareness through ratings and information
providing customers with their energy use data

Creating a Secondary Market

There is no robust secondary market for energy efficiency loans because there is no uniform system for evaluating these loans. In secondary markets, investors buy loans which have already been issued. If institutional investors could buy large quantities of energy efficiency loans, that would create a market for energy efficiency lending.

To remove this barrier and allow investors access to the market, the commission recommends that consistent underwriting guidelines, contract language, and data requirements for energy efficiency investment be developed.

The report also recommends that state and local governments set up programs to resell groups of loans to investors in secondary markets. These programs would be similar to the new Warehouse for Energy Efficiency Loans (WHEEL) program.

Revising Policies and Initiating Programs

New state and local programs could use on-bill repayment or property taxes to fund energy efficiency. On-bill repayment programs provide customers with the opportunity to pay for energy efficiency improvements over time through their utility bills. Third-party lenders pay for the upfront costs. On-bill financing programs are similar to on-bill repayment programs, but are financed by utility or ratepayer capital.

Revising federal regulations could make it easier for energy efficiency financing to develop. For example, real estate investment trusts are one potential vehicle for efficiency.

Improving federal regulations related to residential property assessed clean energy (PACE) would remove the current roadblocks that obstruct these programs. Federal constraints do not exist for commercial PACE.

Federal regulations could also build energy efficiency incentives into mortgage programs. If mortgage programs included incentives for energy efficiency, that would steer the housing market toward more efficient choices. It would also encourage people to retrofit their homes before selling them.

Changing federal tax policies could encourage industries to engage in capital investments which might also support energy efficiency. These policies could also target specific energy efficiency measures.

Making Efficiency Information Visible

The commission recommends increasing awareness of energy efficiency on a national level. Making energy data transparent, available and easy to understand is one step toward improving public understanding of energy use. It is also important for financial markets, which need high-quality data on the actual energy savings associated with various types of energy efficiency projects.

Energy efficiency rating systems for buildings can give real estate buyers and sellers a visual incentive to pay attention to energy use. Manufacturers can also use ratings for appliances and other products.

Allowing utility customers and third parties access to standardized energy data can empower customers to track their energy savings. For this approach to succeed, state regulators would need to set up rules to ensure customer privacy.

This story was originally published by the Clean Energy Finance Center (CEFC). You can subscribe to future stories from the Clean Energy Finance Source by visiting the CEFC's news page.

Lead image: Recycle lightbulb via Shutterstock

3 Comments

Patrick O'Leary
February 22, 2013

Finetuning an existing energy market will have little effect. All the current parties will try to do what worked yesterdday.

Futura Solar has a game-chnager, a multiple solar benefit roofing system for low profile commercial buildings. No fancy gadgetry involved. Low profile commercial buildings are charactorized by large collector surfaces (roof & southwall). Presently little is done to harvest the full value of the solar energy and routinely deliver it to the business beneath that roof, a natural customer.

There are daylighting and SWH systems and PV/PPA installations, and they are a start. But these are single benefit systems. There are PV/Thermal systems that go those one step better and show that the market is evolving.

Futura's Sawtooth combines daylighting, solar thermal (air & water) and includes PV as an option. There are also incidental benefits that give the system its distinct advantage, eliminating additional electro-mechanical building equipment that adds significant amperage pull to the monthly bill.

As I mentioned, there is no fancy gadgetry. Sawtooth roofing is well proven. Added solar benfits make the final bit of difference.

For the RE to make a significant difference, it must be married to EE in a productive fashion. Then 'Solar' will make a difference.

Anatoly Arov
February 22, 2013

Until local utilities will not have incentives for energy savings (now they are looking for ways to increase their energy sales and make more profit) which are at least equal to profit lost by reduction of sales there will be no interest from them.
Second - I have device that allows to save energy 25-50% for industrial and consumers. Companies do not have appetite to do anything to incorporate this in their consumer and industrial products and consumers can not do this because it invalidates warranty or a lot of other reasons. Amasing amount of Companies talking and inventing solutions for reduction of energy consumption during max. use, in which utilities are very interested.

Joel Fairstein
February 22, 2013

The measures suggested in the article are excellent regarding utilities making energy usage more visible. That said, I believe the proposed financing programs are adding a layer of expense and red tape.

A more efficient model would mandate public utilities send an energy auditor and installer to seal each leaky home or business in one step. (The current model involves complicated forms and multiple visits to the site by auditors and third-party installers).

A one-step efficiency makeover program would be a much better utility investment than new power installations for the utility. Financing would not be necessary.

If the average home utility bill can be decreased by 10% with low-level measures, the energy savings over 10 years would likely range from $2000 to $4000 per home.

That leaves the issue of upgrading to more efficient HVAC systems, windows, and seldom-mentioned solar awnings. Since the large rental market would complicate financing options (why should renters be stuck with the bill?) the onus for big-ticket improvements should be on the property owner. The utilities can provide the impetus through better energy usage information as suggested in the article. Financing instruments already exists via home equity loans and lines of credit for businesses, but banks would need to be persuaded energy efficiency loans are smart investments.

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Kat Friedrich

Katherine Friedrich has a graduate degree from the Nelson Institute for Environmental Studies. Half of her coursework was in journalism. She has done research on energy-efficient behavior and diversity-conscious science communication. She...