Esco Utility Financing


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Esco Utility Financing

  1. 1. DOE Webinar<br />National Renewable Energy Laboratory<br />Financing Energy Efficiency <br />for the Commercial Market Sector<br />Presented by Harcourt Brown & Carey<br />June 29, 2011<br />
  2. 2. U.S. Commercial Building Sector Metrics<br />Commercial Sector:<br />80 billion square feet <br />Typically consume $2.00 per square foot per year<br />Represent 46% of US building energy use<br />Consumes $120 billion per year <br />A $120 billion EE investment:<br />Reduce consumption by 25% <br />Save $30 billion per year<br />Representing a 4 year payback (McKinsey Report)<br />
  3. 3. Why Does the Commercial Sector Waste Energy?<br />Energy typically represents only 2% – 4% of operating costs<br />Buying EE is complex and risky, buying energy is simple and risk free<br />EE generally requires a capital investment<br />Commercial enterprises have limited access to capital and use it to achieve their core mission<br />Use of capital for non-core projects such as EE requires “C” level support<br />50% of commercial space is leased and tenant pays for energy<br />Leased space has very restrictive mortgage covenants<br />
  4. 4. The Opportunity<br />Offer EE as a service, not a capital investment, so that it can compete with the risk-free simplicity of buying energy<br />Modify the ESCo business model typically offered to government clients which:<br />Maximizes capital investment<br />Decouples savings performance from compensation (provides a fixed amount guarantee based mostly on stipulated savings)<br />Generally requires user to balance sheet the investment<br />The new ESCo model would:<br />Minimize the capital investment<br />Pay the ESCo based on actual savings ($/kWh, therm)<br />Provide EE as a service w/ no impact the balance sheet<br />
  5. 5. The Roadmap<br />The following models describe steps to incrementally transform the Commercial EE market<br />Model #1 proposes conventional bank financing with a separation of credit risk and energy saving performance risk<br />Model #3 pays the ESCo on actual savings but shifts the credit risk to a public entity<br />Model #4 uses bond financing as the source of capital<br />Model #5 a Utility procures DSM from an ESCo franchise<br />
  6. 6. Model #1: Bank Loan Financing<br />Bank<br />3. $<br />Credit Risk Assumed by:<br /><ul><li>Bank
  7. 7. State guarantee fund
  8. 8. Bank/State loss share</li></ul>Performance RiskAssumed by:<br /><ul><li>ESCos
  9. 9. State guarantee fund
  10. 10. Third-party insurer</li></ul>1. $<br />3. $<br />2. $<br />Contractor Installed<br />Property Owner<br />E<br />Key:<br />$ = Cash Flow<br />E = Energy Efficient Installation<br />
  11. 11. Model #2: Energy Services with Savings Based Compensation<br />Capital Source<br />State or Utility Subsidy<br /><ul><li>Loan loss reserve
  12. 12. Interest rate buy-down
  13. 13. Balance sheet support</li></ul>1.$<br />5.$<br />2.$<br />ESCo<br />3.E<br />4.$<br />Initial Installation:<br /><ul><li>Installs improvements
  14. 14. Recommissions facility
  15. 15. Trains staff
  16. 16. Sets up M & V process</li></ul>Ongoing Servicing:<br /><ul><li>Measure savings
  17. 17. Continuously invest in improvements
  18. 18. Continuously recommission facility
  19. 19. Perform maintenance</li></ul>Compensation:<br /><ul><li>Calculate savings
  20. 20. Adjust for operation, weather, loads, and price
  21. 21. Invoice based on units of energy saved at predetermined price</li></ul>Property Owner<br />3.E<br />Key:<br />$ = Cash Flow<br />E = Energy Efficient Installation<br />4.$<br />
  22. 22. Model #3: Leveraged Bond Financing for ESCos<br />Utility<br />Bond Purchaser<br />Trustee & Conduit Issuer<br />Special Purpose Entity<br />Program Administrator<br />C<br />1.$<br />2.$<br />3.$<br />C<br />ESCo<br />5.$<br />4.$<br />Property Owner<br />Key:<br />$ = Cash Flow<br />C = Contract<br />
  23. 23. Model #4: ESCo “City Block” DSM Facility <br />Utility<br />ESCo #1<br />ESCo #2<br />ESCo #3<br />Block A<br /><ul><li>2 million SF
  24. 24. $500k savings
  25. 25. 100 kW dispatchable</li></ul>Block C<br /><ul><li>2 million SF
  26. 26. $500k savings </li></ul>Block E<br /><ul><li>2 million SF
  27. 27. $500k savings </li></ul>Block D<br /><ul><li>2 million SF
  28. 28. $500k savings
  29. 29. 100 kW dispatchable</li></ul>Block F<br /><ul><li>2 million SF
  30. 30. $500k savings </li></ul>Block B<br /><ul><li>2 million SF
  31. 31. $500k savings </li>