Making Energy Efficiency Easy to Finance

Beforesolar or renewable energy sources are installed on buildings, buildingsneed to be more energy efficient.  That means better weatherization andinsulation, smarter lighting and controls, and more efficient heatingand cooling.

But the chief obstacle that prevents solar frombeing installed — high upfront costs — is the same obstacle thatprevents energy efficiency (EE) measures from being implemented. CalCEF Innovations, the market strategy and public policy arm of the California Clean Energy Fund (CalCEF), released a white paper titled: "Energy Efficiency Paying the Way: New Financing Solutions Remove First Cost Hurdles." The report uncovers EE financing options and explores six new modelsfor EE financing.  The report also includes some illustrative casestudies.

Here are the programs and case studies:

  • Clean Energy Works Program: An initiative in Portland, OR providescomprehensive financing through long-term loans and technicalassistance to local homeowners.
  • Property Assessed Clean Energy (PACE):  Government programs offerproperty owners 20-year loans for EE that are repaid through propertytax assessments.   
  • On-Bill Financing: San Diego Gas & Electric’s program is anexample of the 100% financing terms for EE that small and medium-sizedcustomers receive with loan repayments included on the regular utilitybill.
  • Utility Aggregated EE Deployment:Ice Energy partners with utilities to deploy large numbers of ThermalEnergy Storage units under a single financing structure at no cost tocustomers. 
  • Efficiency Services Agreement: Metrus Energy offers industrial andcommercial customers a PPA-like solution to finance and implement EEprojects with repayment based on a cost per avoided unit of realizedenergy savings.
  • Managed Energy Services Agreement: Transcend Equity finances and implements EE upgrades at commercial buildings and takes responsibility for repaying a customer’s utility bill.

We reported on the PACE program as deployed by Renewable Funding here

The Energy Services Agreement as deployed by Metrus Energy is another method of making EE affordable.

Metrus Energy is funded by Go Green Capitalwith the goal of executing ESAs — Efficiency Service Agreements.  ESAsbear some similarity to the PPA (Power Purchase Agreement) model, butthey are energy efficiency programs instituted at large industrial orcommercial facilities.  Metrus’ ESA eliminates the obstacle of initialup-front cost for customers, making it easier for a business toinstitute efficiency measures.  ESAs typically have terms of less thanten years with a customer repayment obligation based on a set cost perunit of avoided energy use.  The bottom line — customers use energysavings to pay for efficiency upgrades.

We spoke with Metrus Energy founder and CEO Bob Hinkle. 

There are several key points about Metrus’ Energy Service Agreement according to Hinkle:

  • The customer has zero first-cost and pays for projects using energy savings
  • The customer’s electric bill is the same or lower
  • Metrus takes on the performance risk of the project
  • Metrus covers select maintenance costs on the project

The ESA from Metrus Energy allows the customer to finance alarge retrofit project (on average $2 million to $4 million) with nofirst cost.  The cost of the agreement is based on the avoided cost ofenergy.  Hinkle notes, "Lighting has the quickest payback, but morecapital intensive items like boilers are tougher and carry a longerpayback."

Metrus works with Energy Service Companies (ESCOs),but while ESCOs are focused on construction and implementation, Metrusprovides the financing piece.  Metrus provides customers with a serviceagreeement structure, much like their traditional utility bill.

Metrusjust closed a big initial project with a customer and an ESCO.  It’s alarge-scale energy efficiency retrofit project at BAE Systems’Merrimack, N.H. facility, installed by Siemens Industry, and financedunder Metrus’ ESA by Bank of America. The project is scheduled forcompletion in 2010 and Metrus claims it will result in energy savingsequivalent to more than one million annual kilowatt hours (kWh).

BAE Systems is only paying for the value of actual and verifiedsavings, with customer repayment based on a cost per avoided unit ofrealized energy savings.

The American Council for an Energy Efficient Economy expects there to be a $250 billion market for efficiency upgrades in the commercial and industrial sector over the next decade.

Afounding father of EE policy in the U.S., Art Rosenfeld, is a CalCEFboard member and retired Commissioner of the California EnergyCommission. According to Rosenfeld, “Energy efficiency should be thefoundation of our clean energy infrastructure."

And according to CEO Hinkle, "The goal is avoiding capital outlay and saving money right out of the gate."



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