Money is tight. But not necessarily for projects involved with increasing
energy efficiency. Some innovative financing techniques are emerging to allow
customers to make improvements without incurring initial out-of-pocket costs.
Energy efficiency has emerged as the most palpable and least controversial
way to make environmental changes. And even though time to earn a
return-on-investment is often short, such projects are often sidelined until
homeowners or companies figure out ways to pay for them. Policymakers and
businesses are therefore joining forces so as to enable the cost-effective
implementation of energy-saving techniques.
"It's the best of times and the worst of times for energy efficiency," says
Bob Hinkle, president and chief executive of Metrus Energy in San Francisco that
performs energy efficiency retrofits. "It is the best of times because it is now
well accepted as the right thing to do from an economic and environmental
perspective. But it remains difficult to implement projects because capital is
still constrained."
In the case of Metrus, after auditing the premises of large industrial and
commercial customers, it will discuss the work that can be done and where the
savings can be had. It will then fine-tune its ideas based upon what those
businesses hope to achieve.
So, for example, it may suggest simple solutions ranging from the
installation of modern lighting and automatic controls to more complicated ones
that involve the replacing of furnaces and boilers. After, it estimates both the
costs and the potential savings. Metrus, which is working with BAE Systems and
Siemens, is paid on a per-units-of-electricity-avoided basis -- a formula that
is derived in advance of any work.
Innovative financing strategies are also available for smaller commercial
businesses and for homeowners. San Diego Gas & Electric, for example, offers
full financing to those operations that install energy efficiency measures and
one that allows them to repay the loans over five years through their regular
utility bills.
While the energy savings are expected to exceed the ultimate loan repayments,
the process is a challenging one. That's because utilities are generally
reluctant to use shareholder money to make loans or involve regulators in these
transactions.
Residential customers have other opportunities, although they typically have
to be authorized through legislation. Take Palm Springs, Calif.: It has a
program that offers tax lien financing that extends 10 to 20 years. As such,
property owners can then get full financing -- money that is repaid through
their regular tax bill. Again, the energy savings is expected to be greater than
that assessment. If the home should change hands during this time, the
government would still have a lien on the property.
Bright Spot
While such creative financing can serve a useful purpose, customers will
oftentimes still need access to loans from commercial banks. That remains
problematic.
Energy efficiency programs, however, are a bright spot. Some lending
institutions as well as venture capitalists understand the potential. The
former, for example, may realize that companies taking such steps will reduce
their overhead and become more profitable. The latter, meanwhile, understands
the potential for growth.
"Energy efficiency is in the sweet spot of many venture capital investors in
terms of skill sets and funding parameters, particularly given its basis in
information technology," says John de Yonge, Americas Research Director of
Cleantech for Ernst & Young. "Consequently, we may see investor
participation in clean-tech broaden."
The global consulting firm says that venture capitalists funding grew by 11
percent to 61 rounds in the energy efficiency category in 2009. Such a grouping,
which entails investments in the intelligent utility, amounts to more than any
other segment in the cleantech area. Altogether, such ventures raised nearly
$600 million in 2009 with $252 million of that coming in the fourth quarter when
the economy really turned.
As a percentage of all such clean energy deals, energy efficiency financing
grew from 24 percent in 2008 to 32 percent in 2009. By comparison, other
clean-tech segments saw their ability to attract capital fall by 16 percent from
the year before.
Tough lending policies along with an environmental awareness are prompting
some states to actively promote energy efficiency. Consider the California
Energy Commission, which provides financing for schools, hospitals and local
governments through low-interest loans for both feasibility studies and the
actual installation. It has made about $40 million available and in some cases,
the entities can earn 100 percent financing.
Some utilities, meanwhile, recognize the potential, although they would
typically get regulatory relief if they have to go out of pocket. Xcel Energy in
Colorado, for example, was required to spend $63 million in 2009 and must spend
another $80 million this year. The expansion in its energy efficiency program
had come in response to state law and policies adopted by its utility
commissioners.
