If data analytics reveals an opportunity for a deeper retrofit or equipment replacement in your portfolio, there are many attractive financial structures that could be applicable. CleanSource Capital, an affiliate of Abundant Power, can help you structure and finance your project using traditional lease or debt financing or working with emerging products such as on-bill finance, PACE, ESA, QECBs or subsidized loan. In addition, CleanSource Capital specializes in managing several government-sponsored energy efficiency finance programs that may apply in certain jurisdictions. We have domaine expertise in the following financing structures:
QUALIFIED ENERGY CONSERVATIONS BONDS (QECBS)
Qualified Energy Conservation Bonds (“QECBs”) are available to provide subsidized financing for a broad range of “energy conservation purposes”, including energy efficiency, water conservation, renewable energy and alternative fuels. A total of $3.2 billion in QECBs have been authorized since 2009, which in turn have been allocated to the States based on population, with the larger states such as California and Texas receiving the largest allocations ($381M and $252M respectively) and the smaller States , the smallest (e.g. Wyoming $5M and Vermont $6M). Each State has then sub-allocated a portion of its total allocation to local governments (counties and cities) with populations in excess of 100,000 based on the proportion that local government’s population represents to the State’s total population, with the State retaining the balance of the allocation. The subsidy afforded by the QECBs is in the form of a direct payment from the U.S. Treasury calculated at the lesser of the actual interest rate on the financing or 70% of the qualified tax credit rate published by the IRS as of the date of the financing and fixed over the life of the financing. Historically, this direct payment has been in the range of 3.0%. So, if a project in need of funding is based in a State and/or Locale with available allocations, the overall cost of funding may be substantially reduced over the life of the project through the subsidy made available from the use of QECBs in the financing structure. Abundant’s affiliate, CleanSource, has expertise in using QECBs to fund funding public and private energy efficiency and conservation projects through both traditional transaction structures as well as conduit structures under Green Community Programs.
ENERGY SERVICE AGREEMENT
The Efficiency Services Agreement (ESA) creates pay-for-performance energy efficiency financing for your upgrade with no upfront cost. Through the ESA, a third-party project developer pays for 100% of the development and construction costs. After a project is operational, customers take a portion of the realized savings from reduced energy consumption to make service payments to the developer. ESA’s are analogous to power purchase agreements (PPAs) which have been utilized over the last decade to finance solar projects. However, ESA service payments are based on actual energy units that are saved (i.e., avoided kilowatt hours of electricity) and depending on the structure may allow for off-credit financing.
EFFICIENCY RETROFIT LEASE
The Efficiency Retrofit Lease allows customers to implement an efficiency project without an upfront cost. A third-party developer funds 100% of the development and construction costs with repayment based on a fixed, recurring lease payment. Lease payments are designed to be less than the cost savings created by the project, thereby providing customers with immediate cash flow benefits in addition to avoiding upfront capital costs. The Efficiency Retrofit Lease can be either an operating lease or a capital lease and is designed for customers who do not require ongoing maintenance services or the accounting treatment offered by the Efficiency Services Agreement (ESA).
PROPERTY ASSESSED CLEAN ENERGY
Property Assessed Clean Energy (PACE) is an emerging energy efficiency finance solution that is available in many regions across the country. In areas with PACE-enabling legislation, building owners have flexibility to arrange their own source of capital under the PACE mechanism. Under a PACE-financed project, a lender covers all upfront costs and customer repayments are made via a special assessment on the customer’s property tax bill. As with regular property taxes, the special assessment is secured by a senior lien on the property and remains an obligation of the building, not the owner, until repaid. For this reason, PACE financing is particularly well suited for projects in commercial real estate. Depending on the state, PACE programs may also allow financings with terms of up to 20 years, allowing for deeper energy retrofits with longer payback periods.
ON BILL FINANCE
On-bill financing refers to a loan made to a utility customer – such as a homeowner or a commercial building owner – to pay for energy efficiency improvements to the customer’s house or building. The regular monthly loan payments are collected by the utility on the utility bill until the loan is repaid. An on-bill program may be administered by the utility directly or by a state energy office or other similar entity in conjunction with the utility. A program could be limited to particular types of customers, such as commercial building owners, commercial tenants, residential homeowners, or could include them all. In most on-bill programs, the loan funds are provided directly by the utility or program administrator and the repayment risk is held by the same entity. One possibility is for an outside lender such as a financial institution to originate and fund the on-bill loans, while the utility would provide certain payment processing and servicing functions. This arrangement could present many advantages, but it also raises additional questions. This type of arrangement has received considerable attention recently, and some have deemed the arrangement “on-bill repayment” instead of “on-bill financing” to distinguish the two types of program structures.
STATE LOAN PROGRAMS
Clean Source Capital designs and delivers energy efficiency financing programs in partnership with states, local governments and utilities nationwide. We bring a unique combination of skills to our clients to customize solutions that create impact and scale.