RUS Funding for Efficiency Projects James F. Elliott

Acting Deputy Assistant Administrator Rural Utilities Service – Electric Program

Benefits of Energy Efficiency

•  Reduced costs to end users of energy

•  Power system load modification leading to reduction in overall system demand

•  More efficient use of electric capacity at the distribution, transmission, and generation levels

•  Possibility of deferred power generation capacity

•  EE programs and support functions can create jobs

Recovery Through Retrofit

•  In May 2009 Vice President Biden charged the White House Council on Environmental Quality (CEQ) with developing a proposal for Federal Action that will grow green job opportunities and boost energy savings by retrofitting homes for energy efficiency

•  CEQ has facilitated an interagency process to develop a report with recommendations with specific Federal actions addressing barriers to the development of a national-scale home retrofit market

•  The CEQ RTR Team is comprised of multiple Federal Agencies including Energy, Agriculture, Labor, Housing, EPA and others

Rural Economic Development Energy Efficiency Effort (REDEEE)

•  REDEEE is the USDA team supporting Recovery Through Retrofit

•  REDEEE consists of Rural Utilities Service, Rural Housing Service, Rural Business Service and Community Facilities

•  USDA’s Rural Development programs are a perfect vehicle for supporting energy efficiency for housing, businesses, farms and utilities

Recovery Through Retrofit Barriers

•  Barriers to improving home energy efficiency improvements:

–  Access to Information – Consumers do not have access to reliable and straightforward information about home energy retrofits

–  Access to Financing – The upfront costs of home energy efficiency improvements are often beyond the average homeowners budget

–  Access to Skilled Workers – There are currently not enough skilled workers and entrepreneurs to accommodate retrofit programs on a national scale

Potential Funding Associated with REDEEE

Rural Business / Cooperative Service

•  Rural Economic Loan Program

Rural Housing Program •  502 Guaranteed Program •  502 Direct Program •  504 Direct Program

Community Facilities

•  Direct Loans

•  Direct Guarantees

•  Grants

Rural Utilities Service

•  Federal Financing Bank

Rural Business REDLG Program

Rural Economic Development Loan (REDL) and Grant (REDG) Programs provide financing to eligible Rural Utilities Service electric or telecommunications borrowers (Intermediaries)

–  Promotes rural economic development –  Promotes job creation projects

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Rural Utilities Service (RUS) Energy Resource Conservation (ERC) Program

•  Eligible to RUS borrowers with active loans •  Provides deferments of principal to allow for energy efficiency

improvements: –  caulking, weather-stripping, heat pumps systems, water heaters,

central heating and air conditioning system replacements, ceiling/flooring/duct insulation, and storm and thermal windows

•  42 current ERC deferments provide annual funding of $13.8 million for efficiency improvements

•  365 RUS have participated providing $205 million in energy efficiency investment

Recovery Through Retrofit RD-DOE�Home Energy Score (HES) Rural Pilots

SC: Central Electric Power Cooperative

IN: Hoosier Energy Rural Electric Cooperative

VA: Central Virginia Electric Cooperative

TX: United Electric Cooperative Services

Home Energy Score (HES) Rural Pilots

South Carolina Rural Electric Assoc – SC •  Group includes 20 consumer owned electric cooperatives &

a wholesale power supply cooperative •  200 homes targeted for HES Pilot

Hoosier Energy Rural Electric Cooperative – IN •  G&T Cooperative with 18 members based in Bloomington,

Indiana •  100 homes targeted for HES Pilot

Home Energy Score (HES) Rural Pilots

United Electric Cooperative Services, Inc. - TX •  Electric Distribution Cooperative based in Cleburne, Texas •  250 homes targeted for HES Pilot

Central Virginia Electric Power Cooperative - VA •  Electric Distribution Cooperative based in Arrington,

Virginia •  200 homes targeted for HES Pilot

Energy Efficiency (EE) Loans at RUS

•  2008 Farm Bill explicitly identifies energy efficiency as an eligible RUS loan purpose

•  RUS expects to publish a proposed rule imminently which will launch a new program focused on retail energy efficiency

•  A purpose of the proposed EE program is to foster the creation of new and permanent jobs in rural areas

Energy Efficiency Loans at RUS

•  This is an opportunity for USDA to partner with sister departments such as DOE

•  The regulation will allow new financing opportunities for RUS borrowers to provide energy efficiency and weatherization activities to businesses and homeowners in rural America

•  The program is to be funded out of existing authority and appropriations

RUS Electric Program – Retail Lending Footprint

•  Currently over 90% of rural electric cooperatives (RUS’s primary borrowers) have some form of energy efficiency program.

RUS FY12 Funding and EE

•  RUS Electric Program FY12 Funding Level –  $6.6 Billion –  Distribution, Transmission, Renewables, Smart Grid,

Carbon Capture and Sequestration, Energy Efficiency

•  Not targeted at specific energy efficiency technologies but allows borrowers to utilize a wide variety of energy efficiency products and services

•  Envisioned to include a relending program that enables borrowers to lend to businesses or homeowners. Ultimate consumer could repay the loan through on-bill financing

RUS Energy Efficiency Loan Program

•  General Provisions RUS financed Energy Efficiency Programs must:

–  Be developed and implemented by an eligible borrower and applied within its service territory

–  Provide for the use of State and local funds where available to supplement RUS loan funds

–  Incorporate the applicant’s policy applicable to the interconnection of distributed resources

–  Incorporate a quality assurance plan

General Provisions Continued

•  RUS financed Energy Efficiency Programs must:

–  Demonstrate that the program can be expected to be cost effective

–  Show that the program will have no net negative cumulative impact on the borrower's financial condition

–  Result in energy savings or peak demand reduction –  Be approved in writing by RUS prior to the investment of

funds for which reimbursement will be requested

Financial Structures for Consumer Loans

•  Loans made to a RUS borrower’s consumers located in a rural area where: –  Consumers may be wholesale or retail –  Loans may be secured or unsecured –  Loan receivables are owned by the eligible borrower

 

•  Loans may be serviced directly by the Eligible Borrower or by a financial institution

•  The rate charged the Consumer should be less than or equal to the Treasury rate plus 1%

Eligible Activities and Investments

•  All energy efficiency measures on a consumer premises that would typically transfer with title under applicable state law

•  Distributed Generation: On or off grid renewable energy systems; Fuel cells

•  Demand side management (DSM) investments •  Energy audits •  Consumer education and outreach programs •  Power factor correction equipment on the Consumer side of the

meter •  Re-lamping to more energy efficient lighting •  Other investments approved by RUS as part of an EE Program

Performance Thresholds

•  Appliance upgrades must achieve a reduction in energy consumption for the appliance equal to or greater than 20%

•  Cooling system improvements must be designed to achieve a SEER increase of not less than 20%, and the improved SEER rating must be greater than or equal to the minimum applicable SEER standard promulgated by the U.S. Department of Energy for the cooling system

•  Building envelope improvements must be designed to achieve a reduction of annualized baseline energy consumption (measured in Btus) greater than 10% for the building

Performance Thresholds Continued

•  Projects that involve fuel switching must demonstrate an annualized energy reduction in dollars per million Btu of 20%

•  Energy audit recommendations when taken together must achieve an overall reduction in annualized energy consumption of at least 10%

•  Heating system improvements must demonstrate an annualized energy reduction in dollars per million Btu of at least 20%

•  Other activities must demonstrate energy savings which will be determined on a case by case basis by RUS, but in any event not less than a 10% improvement in energy efficiency

Business Plans

•  Eligible EE Program must have a business plan which: –  Identifies the responsible management team –  Identifies target consumers and promotional activities –  Lists targeted activities and investments and corresponding expected

efficiency gains –  Estimates dollars to be invested in each activity or investment –  Describes the use of contractors to deliver the program –  Describes the process for documenting and perfecting collateral

arrangements –  Contains an assessment of risks including an estimate of prospective

consumer loan losses consistent with an established loan loss reserve

Quality Assurance Plans

•  Eligible EE Programs must have a quality assurance plan with the following elements: –  The use of qualified energy managers or professional engineers to evaluate

program activities and investments –  Energy audits shall be performed for energy efficiency investments

involving the building envelope at a consumer premises –  Energy audits must be performed by certified energy auditors –  Follow up audits shall be performed within one year –  Single system upgrades (such as a ground source heat pump) must be

designed and installed by certified and insured professionals

Loan Provisions

•  Maximum term for loans shall be 15 years unless the loans relate to ground source loop investments which may be up to 30 years

•  Loan feasibility must be demonstrated for all loans •  Loans shall be secured •  Loan advances shall be on a reimbursement basis except for

an initial advance of up to 5% of the total loan amount •  Loan Amounts

–  May not exceed 100% of Net Utility Plant less total outstanding debt –  Consumer education and outreach programs may not exceed 4% of

the total loan amount

Other Required Support Documentation

•  Comparison of projected annual growth in demand before and after incorporating the EE Program

•  An itemized estimate of the energy savings and peak demand reduction to be obtained for each category of eligible activities and investments to be pursued

•  A report of discussions and coordination conducted with the utilities power supplier

•  An estimate of the amount of direct investment in utility-owned generation to be deferred as a result of the EE Program

•  A description of efforts to identify state and local sources of funding and how they are to be integrated in the EE Program