3. Increasing acceptance ratesAchieving goals requires a new understanding of the market and a framework for focusing limited resources on target segments and selected finance mechanisms 2
10. Target: Low Penetration Rates 5 Cost of Capital: Low High Penetration: Low High I II IV III High Penetration/Low Cost of Capital = Efficient Market High Penetration/High Cost of Capital = Mixed Market Low Penetration/Low Cost of Capital = Non-Financial Barriers Low Penetration/High Cost of Capital = Inefficient Finance Market
11. Target: MA Residential Financing Market 6 -* Residential Owner (Reactive) - Average cost for EE Loan product to EE program/borrower based on Fannie Mae rates. -** HEAT Loan lenders provide capital to Massachusetts efficiency programs at a rate of prime + 100bps with a floor of 5%
12. Target: Reactive Residential Market 7 Cost of Capital: Low High Penetration: Low High I II Pro-active Reactive IV III Rental High Penetration/Low Cost of Capital = Efficient Market High Penetration/High Cost of Capital = Mixed Market Low Penetration/Low Cost of Capital = Non-Financial Barriers Low Penetration/High Cost of Capital = Inefficient Finance Market
18. Design: Serve Reactive Customers Reactive customers have different needs vs. proactive customers: Financing should to reflect customer needs and motivations: Contractor delivered financing Fast (point-of-sale) financing approval Attractive terms & features 9
19. Design: Transition Reactive Customers into Proactive Programs Create tiered financing offerings and incentivize proactive behavior to encourage desired behavior: Help customers choose efficient solution at critical decision point Offer proactive opportunities to reduce financing costs and think more holistically about efficiency (Mass SAVE assessment) 10
20.
21. Encourage conversion to proactive loan product with qualifying event (assessment) increasing loan loss velocity.Leverage existing products to increase scale Incorporate HEAT Loan program 11
22. Closing: Many Elements Exist - Key is Getting the Right Mix 12 Source: Merrian Fuller, report dated May 21,2009
23. Closing: Good News & Challenges Good News: We are not reinventing the wheel. Most elements discussed exist in the private market and are well understood by lenders. Challenge: Take existing market solutions and tailor them to address the unique aspects of energy efficiency. 13
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