using public funds to finance energy efficiency projects dan clarkson vice president energy...

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, jmaclean@eefinance.net

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

dclarkson@eefinance.net

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