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Proposal to encourage and incentivize privately financed energy efficiency improvements and distributed generation renewable energy

“Buildings represent roughly 40 percent of US
energy consumption. The amount of savings
available where you can do a systems engineering
approach is staggering -perhaps as much as 80
percent. So this is not really low hanging fruit. This
is really fruit lying on the ground.”
- Secretary of Energy, Steven Chu

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Proposal to encourage and incentivize privately financed energy efficiency improvements and distributed generation renewable energy

  1. 1. Energy Efficiency “Buildings represent roughly 40 percent of US energy consumption. The amount of savings available where you can do a systems engineering approach is staggering -perhaps as much as 80 percent. So this is not really low hanging fruit. This is really fruit lying on the ground.” - Secretary of Energy, Steven ChuRestorative Financial Solutions Restorative Financial Solutions
  2. 2. Measures Highest ROI ● Caulk/expansive foam sealant/weather stripping ● Quality insulation in walls, ceiling, attic ● Duct sealing ● Low flow faucet devices ● Reflective roofs and coating ● High efficiency toilets Mid-range ROI ● High efficiency windows (in more extreme climates) ● Tankless hot water heater ● Solar domestic hot water Lower ROI ● Solar electricRestorative Financial Solutions Restorative Financial Solutions
  3. 3. Water ConservationTo flush a toilet 5 to 7 gallonsTo run a dishwasher 15 to 25 gallonsTo wash dishes by hand 20 gallonsTo water a small lawn 35 gallonsTo take a shower 25 to 50 gallonsTo take a bath 50 gallonsTo wash a small load of 35 gallonsclothes in a washing machineTo brush teeth 2 to 5 gallonsThe average American uses 149-160gallons of water per day Restorative Financial Solutions Restorative Financial Solutions
  4. 4. Job Creation Equity “If a job improves the environment, but doesn’t provide a family-supporting wage or a career ladder to move low-income workers into higher-skilled occupations, it is not a green-collar job….we need to create pathways into these jobs, and the careers they represent, for people who are at the margins..” -Phaedra Ellis-LamkinsRestorative Financial Solutions Restorative Financial Solutions
  5. 5. Energy Efficiency BenefitRestorative Financial Solutions
  6. 6. Energy Efficiency BenefitRestorative Financial Solutions
  7. 7. Pre-Qualification ● Web or Phone Based Pre-screening. ● Determine if sufficient ROI can be attained, should require positive return on investment within a determined time frame, e.g. 20 years. ● Use Resources such as: DEER Database, available tax credits and rebates and other applicable reference data to make an initial assessment. ● Web based example: Berkeley Calculator.Restorative Financial Solutions
  8. 8. ROI ExampleDescription Energy Energy Energy Energy Use Energy Amount Use % Use Cost After Cost After Saved (MBTUs) Upgrade Upgrade AnnuallySpace 78.5% 233.44 $1,141 63.99 $327 $814HeatingSpace 10.5% 29.27 $646 13.64 $292 $354CoolingWater 6.2% 17.60 $88 17.60 $88Heating $0Other 4.9% 13.92 $265 13.92 $265 $0EnergyUsesTotal 100% 284.79 $2,140 284.79 $972 $1168 Based on home in Tulsa, Oklahoma, improvements cost approximately $5,000, Restorative Financial Solutions
  9. 9. Evaluation/Signup Process ● HERS Certified Professional. ● Estimate of ROI is determined based on work to be completed and financing. ● The amount spent, less rebates, plus fees, is created as lien on the property. ● Homeowner receives any appropriate tax credits.Restorative Financial Solutions
  10. 10. Typical Payback PeriodsType of Investment Payback PeriodEnergy Efficiency Upgrades (insulation, duct 1-5 yearssealing, caulking, etc)Water Efficiency Improvements 1 year or less(toilet replacement, low flow showerheads andaerators)Solar Thermal Water Heating 7-10 yearsSolar PV 20-25 years Restorative Financial Solutions
  11. 11. Beyond Payback Periods ● Payback isn’t the key measure as the improvements stay with the house when sold. ● ROI, instead is based on the savings in utility costs less additional expenses. ● Depends on many factors including: interest rate, tax bracket, tax credits/rebates, selection and cost of upgrades.Restorative Financial Solutions
  12. 12. Berkeley ExampleImprovement Measure Cost (including rebate)Energy 30% improvement $ 4,100EfficiencySolar Thermal 64 sq ft. $ 7,500Solar PV 50% of energy used $15,000 Assumptions: 5% interest rate over a 20 year period. Based on 1000 sq ft home in Berkeley, CA Rebates and tax credits are deducted from cost Restorative Financial Solutions
  13. 13. Berkeley ExampleFinancial SavingsPG&E Bill (without upgrades) $2,200Estimated PG&E (with upgrades) $700Savings in gas and electric costs $1,500+ Tax Savings from Interest Payments 500+ Federal Income Tax Credit 680- Financing Cost on Property Tax Bill -2,200= Net Savings (Average of Years 1-10) $480= Net Savings (Average of Years 11-25) $1,300 Restorative Financial Solutions
  14. 14. External Benefits ● Economic ● Social ● EnvironmentalRestorative Financial Solutions
  15. 15. Economic Benefits ● Job Creation ○ Local jobs are created for HERs auditors and installation contractors ○ Wages are funneled into local economy ○ Unemployment is reduced ○ Need for social services is reducedRestorative Financial Solutions
  16. 16. Economic Benefits ● Tax Revenues: ○ Sales tax on materials purchased ○ Building permits & local associated fees ○ Payroll taxes for workers ○ Sales tax on items purchased with increased wagesRestorative Financial Solutions
  17. 17. Economic Benefits ● Multiplier Effect: ○ Minimum Cost savings = 32% of energy bills or $350/annualy ○ $1.65 Energy savings return for $1 invested ○ $3 Total multiplier effect for $1 invested ○ $20 Increase in home value for every $1 decrease in annual energy costsRestorative Financial Solutions
  18. 18. Social Benefits ● Increased property values ● Increased pride of ownership ● Increases comfort of home ● Improves energy affordability, making housing more affordable.Restorative Financial Solutions
  19. 19. Environmental Benefits ● Buildings use 40% of U.S. energy. ● Reduce carbon dioxide emissions by 1.8 tons annually per weatherized home. ● Decreases national energy consumption by the equivalent of 18 million barrels of oil annually. ● Water conservation measures save both power & water. ● Reduces the future need for coal fired power plants.Restorative Financial Solutions
  20. 20. Environmental Benefits Energy efficiency is the fastest, cheapest, and cleanest resource we have… it is not conservation or deprivation. It is getting what we want for less. America has the largest efficiency reserves in the world!” (NRDC, 9/08)Restorative Financial Solutions
  21. 21. Why is this work not getting done? $$$,$$$Restorative Financial Solutions
  22. 22. A Model Solution: California’s AB-811 ● Declares Public Purpose Served ● Contractual Assessments or Tax Liens ● Municipal Flexibility ● Cities can use ARRA Funds for program ● Solves Two Major Problems ○ Up front Costs ○ Landlord / Tenant Split IncentiveRestorative Financial Solutions
  23. 23. The Money: Potential Sources ● City Coffers ○ Cities are stretched to fiscal limits ○ Would require taking funds from other programs ○ Limited financial capabilities in best of times ● General Obligation Bonds ○ Often requires vote ○ Stagnant Capital / Not enough capital ● Private Financing Community - Best Solution ○ Huge potential resource pool ○ Structure allows no unused funds ○ Minimal to no costs or potential liabilities ○ Structure can allow for flexibilityRestorative Financial Solutions
  24. 24. The Money: Collateral and Investment Vehicle ● Secured by Tax Lien ○ Extremely safe position in front of mortgage ● Note and Revenue Stream sold into Private Market ○ Much larger source of funding ○ Feedback loops (pricing and secondary market) ● Sale Replenishes Municipal Capacity to Continue Work ○ Flexibility to work at appropriate pace, make adjustments, etc. ● Municipality gets Servicing Fee ○ Offsets minimal costs and can even provide some additional financial resourcesRestorative Financial Solutions
  25. 25. Money Flow - Example of a Region $500 Million Segment Total ed as Available neededObligation Funds CityToPay Fees Work To Labor Property MaterialsRestorative Financial Solutions
  26. 26. Example of Short Run Returns● Assumptions: ● Unleveraged Returns: ○ $500M placed ○ 6.2% ROI ○ 7% interest rate ● Leveraged Returns: ○ 20-year amortization ○ Assuming 3% cost of capital ○ $2.5M annual servicing fee ○ 9.4% ROI at 50% investor ○ $1.5M annual other capital expenses ○ 19% ROI at 20% investor capitalRestorative Financial Solutions
  27. 27. How Supply of Money Increases Price Quanti ty S = supply D = demand Restorative Financial Solutions
  28. 28. Example of Long Run Returns● Assumptions: ● Unleveraged Returns: ○ $500M placed ○ 4.2% ROI ○ 5% interest rate ● Leveraged Returns: ○ 20-year amortization ○ Assuming 3% cost of capital ○ $2.5M annual servicing ○ 5.4% ROI at 50% investor fee capital ○ $1.5M annual other ○ 9% ROI at 20% investor expenses capital Restorative Financial Solutions
  29. 29. Alternatives Federal Energy-Efficient Mortgages ● Finances Energy-Efficiency Measures - New/Existing Construction ● Insured ● Fannie Mae/Freddie Mac Loans - Partnership with Energy Star System - Larger LoansRestorative Financial Solutions
  30. 30. Pros & Cons of Mortgage-Based Credit ● Pros: - Improved Access - Debt-to-Income Qualifying Ratios - Lenders Federally-Insured ● Cons: - Loans from $6,000 - $8,000 - HERS Inspection - Cost-Prohibitive - Redundant in Some Cases - Most Borrowers Used Funds for Consumer Goods Rather than Energy Efficiency Upgrades - ”Poorly Marketed and Little-Used”Restorative Financial Solutions
  31. 31. CA Energy Commission ● Loans for Efficiency Upgrades Eligible: Public Schools, Colleges, Hospitals, Cities, Counties, Special Districts, Public Care Institutions ● Interest: 3.95% Fixed ● Finances 100% of ImprovementsRestorative Financial Solutions
  32. 32. Pros & Cons of CA Energy Commission ● Pros: - New and Existing Construction - Lower Interest Rates - Several Types of Efficiency Upgrades Financed ● Cons: - Not Scalable - Public Institutions Only - Does Not Directly Address Water EfficiencyRestorative Financial Solutions
  33. 33. Berkeley’s Financing Initiative for Renewable and Solar Technology (FIRST) ● Photovoltaic (PV) Systems ● Interest Rate: 7.75% - Paid for by Sale of Municipal Bonds - SF Launching Similar ProgramRestorative Financial Solutions
  34. 34. Pros & Cons, Berkeley FIRST ● Pros: - Long-Term Repayment Plan - Little/No Up-Front Cost - Easy Online Application - Residential/Commercial ● Cons: - High Interest Rate - Limited Scope - Solar Only - Doesn’t Directly Address Water Efficiency - In Pilot, Demand Far Exceeded Supply - Only One Source of FundingRestorative Financial Solutions
  35. 35. Low Interest Easily Broad Scope of Addresses Efficiency Marketing/ Rate Scalable? Upgrades? Education RFS     Berkeley FIRST  CA Energy Commission   EEMs Restorative Financial Solutions
  36. 36. Education Increases Conservation and ROIRestorative Financial Solutions
  37. 37. Reaching Stakeholders ● Outreach should target stakeholders ○ Cities and Counties ○ Community Members ○ Property, Business Owners & Contractors ● “Kick Start Funding” for Cities/Counties ○ Fund first year local gov. staff person to implement program ○ American Recovery and Reinvestment Act (ARRA) ● Implementing Program Locally ○ Educate community - mailings via property tax/utility bills ○ Streamline permitting for EE improvements ○ Green Retrofit Contractors can market themselves and the programRestorative Financial Solutions
  38. 38. Conservation Requires Education and Feedback ● Domestic energy consumption is largely invisible to millions of users and this is a prime cause of waste – for both water and energy ● Feedback is necessary to learn effectively and change behaviorRestorative Financial Solutions
  39. 39. Technology Increases Conservation and ROI ● Smart Grid Technology ● Smart Meters coupled with Feedback Software ○ Linked to Energy Retrofits ○ Enhance returns on investmentsRestorative Financial Solutions
  40. 40. Example: Google’s PowerMeter SoftwareRestorative Financial Solutions
  41. 41. Real-time Information Improves Conservation ● Give People ○ Real-time information about their usage ○ Real-time notifications about peak usage ○ Offer real time pricing that provides discounts for non-peak usage ● People will voluntarily reduce their usage during peak times ● Study participants ended up saving 10% on their bills over the previous year, and peak-time usage went down 15% *GridWise TM Olympic Peninsula ProjectRestorative Financial Solutions
  42. 42. Funding Energy Efficiency and Conservation ● To implement all the proposed energy efficiency enhancements would cost trillions of dollars ● Our proposed financing mechanism of secured loans moves money from private sectorRestorative Financial Solutions
  43. 43. Benefits of Restorative Financial Solutions – Renewable Funding Mechanism ● Extremely Secure – Tax Liens ● Increased Leverage – Federal Loan Guarantees increase ROI ● Increases Scale – National Level ● Creates Green Jobs – energy retrofits ● Assists Banking Industry ● Protects Environment ● Improves Economy ● Program is Self-Sustaining after first yearRestorative Financial Solutions
  44. 44. Presentation by: ● Katie Branagh ● Rebecca Busse ● Denice Dade ● Adam Feldman ● Rudi Halbright ● Robyn SmithRestorative Financial Solutions