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Deloitte Sustainability: Financing Models and Opportunities in the Green Building Construction Market in North America
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Deloitte Sustainability: Financing Models and Opportunities in the Green Building Construction Market in North America


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Presented at a round table of the Commission for Environmental Cooperation and its Trilateral Green Building Construction Task Force during GreenBuild in San Francisco, California, on November 13, …

Presented at a round table of the Commission for Environmental Cooperation and its Trilateral Green Building Construction Task Force during GreenBuild in San Francisco, California, on November 13, 2012.

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  • 15: At least 15 green building certification programs in North America (Deloitte, 2012); also green building covers at least 15 sustainable practices in property construction and renovation (based on residential US label Green Built). >>> This makes the definition of GB difficult; we have focused on financing targeted at energy efficiency, RE energy and water conservation because this is what has received the most attention in NA thus far. However, it bears interesting lessons applicable to other BG practices such as the use of sustainable construction materials, or the redevelopment of brownfield sites. 553 Global market size of US$ 553 billion in 2009 (Green Market Research, 2010)152,432 Total of 152,432 accredited LEED assessors in North America (Deloitte, 2012)173 In the US, US$ 173 billion in GDP and 2.4 million jobs in 2000-08 (UNEPFI, 2010)774 LEED-certified buildings grew from 8 to 774 in 2005-2012 in Canada (CGBC website)900,000 Since 2007 over 900,000 green mortgages granted to homeowners in Mexico (CONAVI website)
  • Underlined examples are ones that we have examined in detail. We have looked at:Governance and Policy Context: Name of body(-ies) responsible for creating and managing the financing model.Funding Source : Government, private or mixed funding and how funds are sourced.Timing in Project Cycle: Moment in project cycle when finance is made available to building owners (upfront, after expenses are incurred or variable). Repayment Vehicle: Financial measures taken for repaymentAsset Class: Whether financing model applies to new built or building retrofits in single-unit or multi-unit residential buildings, commercial buildings, industrial buildings, and/or municipal, universities, schools and hospitals (MUSH).Eligible Project: Green building measures that are eligible to receive funding. Geographic Scope: Jurisdiction(s) where funding is available. Project Funding (%): Percentage of the project capital costs covered by the financing model. Operational Time Frame: Time period during which the financing model has been active. Aggregated Financing Deployed: Total sum of available financing deployed. Description: Overview of how the financing model functions.Market traction: Indicators providing an account of how the financing model has been received by building owners and investors.Stated goals and benefits : Goals and benefits stated by the organization responsible for setting up the financing model, prior to implementation.Achievements and effectiveness : Results achieved, and comparison with stated objectives.Advantages: Features of the financing model which contribute to its success based on published reviews*.Challenges Obstacles to financing scale and market traction faced by the financing model based on published reviews*.Enabling factors for enhanced market traction: Conditions that would enhance the market traction of the financing model based on published reviews* and a number of discussions with expert.
  • Transcript

    • 1. Financing Models andOpportunities in the GreenBuilding ConstructionMarket in North AmericaRound Table of theCommission for EnvironmentalCooperation Trilateral GreenBuilding Construction TaskForceDavid Greenall, Deloitte SustainabilitySan Francisco – November 13, 2012
    • 2. Highlights Green buildings by the numbers Financing among other barriers to investment Landscape of financing in North America Key questions for achieving green building financing scale and market traction1 © 2012 Deloitte Global Services Limited
    • 3. Green Building by the Numbers 15 553 173 774 152,432 900,0002 © 2012 Deloitte Global Services Limited
    • 4. Financing and Other Barriers to InvestmentFinancing issues (in green) underline a number of the barriers to investmentfrequently reported in the literature and in stakeholder surveys. • ‘Split incentives’ • Absence of policies between landlords incentivizing and tenants investment • Absence of secondary • High upfront capital markets (illiquidity) cost • Uncertainty about Barriers to • Complexity to choose Return on Investment green the right technology, and high perceived building installer and label risk investment • Budgets do not • Long pay back periods prioritize greening • Limitation of external financing products3 © 2012 Deloitte Global Services Limited
    • 5. North American Green Build FinanceLandscape
    • 6. Increasing Diversity of Financing Models Used‘Traditional financing’ • Major role in financing residential and • Vancouver‟s Home Energy Loan Program Loans, commercial sectors in North America • ecoENERGY Retrofitsubsidies/grants, • Problem with scale and discontinuation • Commercial Building Incentive Program & tax incentives • Toronto development charge refund • Assisted Housing Stability and Green Retrofit Investments Program • Active role in the US since the mid-80s • Connecticut Small Business Energy ESCO on-bill Advantage • Strong penetration in the MUSH sector financing • United Illuminating • National Grid • Mix of government and private funding • Harvard Green Campus Fund • Most successful in the MUSH sector • Texas LoanSTARRevolving funds • Toronto Atmospheric Fund • Enables long-term repayment terms • Mexico‟s Hipoteca VerdeGreen lease and • Colorado Energy Star mortgage • Mexico‟s most successful green mortgage • NAMA for Sustainable Housing in Mexico building financing scheme for residential owners 5 ©2011 Deloitte Global Services Limited
    • 7. Increasing Diversity of Financing Models Used (cont.)‘Innovative’ financing • Enabled by government, with capital market funding • Berkeley FIRST • Reduced risk thanks to property lien and repayment • Los Angeles County Commercial PACE PACE through property tax bills • Opposition in the from US mortgage lenders Energy Savings • ESCO-based model • Johnson Controls Performance • Repayment through shared savings contracts Contracting • Public-private partnerships relying on cost Sustainable • Delaware Sustainable Energy Utility savings sharing Energy Utility • Strong penetration in the MUSH sectorPublic policy gap compared to Europe • Administration and funding shared between • UK Green Deal government, utilities and financial institutionsPay As You Save • Obligation attached to property, and complemented by “Golden Rule‟ that savings always exceed or equal repayments • Funding made available to meet carbon • UK Carbon Emission Reduction Target Carbon market reduction targets • UK Feed-in-Tariff funding & feed- • Requires creation of commodity market • UK Renewable Heat Incentive in-tariff 6 ©2011 Deloitte Global Services Limited
    • 8. Distribution of Green Building Financing Across AssetClassesOverall, single-unit residential and MUSH asset classes have received considerable attention from„traditional financing‟ vehicles. Multi-unit residential and commercial assets are being targeted by„innovative financing‟ instruments.Description Residential Commercial Industrial MUSH* Vancouver‟s Home Energy Loan ProgramLoan Assisted Housing Stability and Green Retrofit Investments Program ecoEnergy Retrofit- Home ProgramSubsidy andGrant Commercial Building Incentive ProgramTax Incentive Toronto Development Charge Refund IncentiveESCO On-bill Connecticut Small Business EnergyFinancing Advantage Mexico‟s Hipoteca VerdeGreen Lease & Colorado‟s ENERGY STAR MortgageMortgages Mexico‟s NAMAESPC Johnson Controls ESPC Berkley FIRSTPACE LA Country Commercial PACESEU Delaware‟s SEU: Harvard‟s Green Loan FundRevolving Funds Texas LoanSTAR Toronto Atmospheric Fund Toronto Atmospheric Fund7 © 2012 Deloitte Global Services Limited
    • 9. Roles of Government and Private Sector FundingOverall, government has provided a larger share of financing in Canada, compared to US and Mexico,where utilities and mortgage lenders have been active. Financial institutions are playing a key role in„innovative‟ financing instruments. Private funding Government Selected funding Utilities „Open market‟ Consumers investors Loan Subsidy and Grant Tax Credit & Rebate ESCO On-bill Financing Green Lease & Mortgages ESPC PACE SEU Revolving Funds Pay As You Save Carbon Market Funding and Feed-In Tariffs8 © 2012 Deloitte Global Services Limited
    • 10. ‘Trigger’ Role of Government in Seed Funding andGovernanceEven in financing instruments relying on private capital, government plays a large role byproviding seed funding and governance support 80% 70% 60% 50% 40% Seed funding 30% Governance 20% 10% 0% Public Private Mixed9 © 2012 Deloitte Global Services Limited
    • 11. Overview of Risk Transfer Arrangements withinFinancing ModelsMost common forms of risk transfer are use of collateral (e.g. property), credit enhancementor debt guarantee reserve, and aggregation/securitization. 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Credit Use of collateral Aggregation and enhancement/debt securitization guarantee fund/insurance10 © 2012 Deloitte Global Services Limited
    • 12. Key Questions on Green Building FinancingScale and Market Traction
    • 13. Framing the Discussion • What are the essential conditions for a green building financing model to achieve financing scale and market traction in North America? • More specifically, what lessons have been learnt from past and ongoing financing models on the most effective:  Funding sources.  Governance structures  Risk transfer/security mechanisms.  Data measurement and verification processes. • What specific financing models, asset classes and locations have the best chances of success in achieving financing scale and market traction? 12 © 2012 Deloitte Global Services Limited
    • 14. Overview of Questions for Discussion 1. Can financing 3. How can 2. Are financing alone increase financing models models based on the market be redeployed public-private penetration of towards asset partnerships green classes that have required? building measures? been underserved? 6. Do we have the 4. What security 7. Are there right policies and and risk transfer 5. Is aggregation an financing models measurement/verifi strategies have important success in the US and cation methods in been successful in factor to achieve Canada that can be place to guarantee increasing scale and market tailored and increased resource financing scale and traction? implemented in efficiency and cost market traction? Mexico? savings?13 © 2012 Deloitte Global Services Limited
    • 15. Break out Discussions• Objective 1: get feedback on what are the essential ingredients to achieve greater financing scale and market traction across Canada, Mexico and the US.• Objective 2: Inform Phase 2 of this project aimed at identifying up to 3 high-potential financing models and promoting a potential financing pilot.• Format: 20-minute discussion per table on one of the questions about financing scale and market traction, followed by a plenary summary and wrap up.• Resources: one handout per person, and one moderator and flipchart per table.14 © 2012 Deloitte Global Services Limited
    • 16. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of memberfirms, each of which is a legally separate and independent entity. Please see for a detailed description of the legalstructure of Deloitte Touche Tohmatsu Limited and its member firms.Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globallyconnected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service toclients, delivering the insights they need to address their most complex business challenges. Deloitte‟s approximately 195,000 professionals arecommitted to becoming the standard of excellence.This communication is for internal distribution and use only among personnel of Deloitte Touche Tohmatsu Limited, its member firms, and theirrelated entities (collectively, the “Deloitte Network”) None of the Deloitte Network shall be responsible for any loss whatsoever sustained by anyperson who relies on this publication.© 2012 Deloitte Global Services Limited