On April 15, delegates at the Bloomberg New Energy Finance Future of Energy Summit 2015 in New York City nominated four winning innovations to accelerate finance for clean energy.
These high-impact “interventions” were chosen from 52 ideas submitted to Finance for Resilience (FiRe) this year. FiRe is an open and action-oriented platform that collects and develops ideas that can add at least $1 billion to clean energy investment in their first three years.
The winners included two distributed financing innovations and two solutions for finance architecture: Pay As You Save® (PAYS®) Financing, Global Solar Lease Financing, Clean Energy Credit Check, and CarbonCount for Green Bonds.
At the summit’s culminating session, eight finalists pitched their interventions to a crowd of energy experts from the private and public sectors who then voted for the most high-impact, scalable solutions.
The top 24 interventions selected at FiRe 2015 are profiled in the FiRe 2015 Book.
Pay As You Save Financing
Pay As You Save Financing addresses the $40 billion energy efficiency and renewable energy market, opening access to $10 billion in financing primarily for residential and commercial utility customers. With PAYS, customers elect distributed energy upgrades with no upfront cost. The utility pays the installers directly and then recovers its investments through a monthly tariff. Importantly, the monthly PAYS charge is less than the utility savings generated by the upgrade, resulting in an immediate and sustained net positive cash flow for customers.
Speaking during a finalist pitch, Holmes Hummel, founder of Clean Energy Works and champion of this project, emphasized the success the program has had in reaching markets that are traditionally hard to serve – such as renters, low-income households, and credit-strapped public-sector entities.
Hummel said, “Pay As You Save clears some of those most serious barriers by offering a solution that has no consumer debt, lien or loans.”
According to Hummel, the program’s pilots in Kansas and Kentucky have seen customers signing up for upgrades at five times the rate of similar debt-based programs. Also, because the tariffs are fully transferable to successive tenants, the utility charge-off rate for PAYS defaults has been 10 times less than that of consumer lending models.
In the post-pitch Q&A, David Sandalow, inaugural fellow at the Center on Global Energy Policy at Columbia University, asked Hummel about the impact of regulatory and legal barriers that have hindered earlier programs such as property-assessed clean energy.
In response, Hummel said PAYS’ advantage is that it does not require approval on a jurisdiction-by-jurisdiction basis for tax collectors. Kansas and Kentucky utility regulators approved tariff transfers to successive customers without requiring liens on the properties.
Global Financing aims to overcome existing barriers to solar deployment in emerging economies by establishing solar lease financing programs where none currently exist. Brad Johnson, president of Resource Mobilization Advisors and champion of this project, said his team plans to tap a 3,700-MW market opportunity to scale deployed solar by $800 million per year globally.
In leading states such as California, Johnson said, 75 percent of all solar installations employ lease financing, a mechanism that allows customers to avoid paying high upfront costs.
In contrast, Johnson said, many developing countries’ banks don’t provide this service, so solar installers are left to sell on a cash-upfront basis. This drastically limits the market and the size of installations.
Resource Mobilization Advisors’ demonstration program is based in the Dominican Republic, where net metering, a 40 percent solar tax credit, a utility feed-in tariff, and high utility rates of 20-30¢ per kWh have created favorable conditions for solar. However, despite these advantages, the nation has only installed seven MW of solar to date.
Johnson said, “Compare that to New Jersey – of similar size but not as compelling economics. They have installed 1,500 MW of [solar] power. We believe that if we can put solar leasing in place in the Dominican Republic, we can match New Jersey in two years – and that’s just one country.”
When asked by panelist Hillary McMahon, director of research at Carbon War Room, how his group plans to deal with the diverse set of regulatory environments in different countries, Johnson agreed this is the main challenge. He emphasized success will hinge upon the teams of experts brought in by Resource Mobilization Advisors to solve the regulatory, legal and financing challenges of each country from the ground up.
Johnson said the development of standard transaction documents, the presence of funds with open architecture, and the availability of credit from the target countries will also be critical to the program’s success.
Clean Energy Credit Check
In 2015, residential solar installations exceeded those in the commercial and industrial sectors, where the total fell six percent from 2013. According to Chase Weir, CEO of Distributed Sun and champion of Clean Energy Credit Check, only one in every 141 commercial buildings has onsite solar. Only seven of those buildings are owned by credit-rated entities.
“Something’s out of order; there’s an imbalance, and that imbalance is only predicted to grow between now and 2017 unless we intervene,” Weir said during his FiRe pitch. He went on to say that while the commercial sector consumes more than twice as much electricity as the residential sector annually, it has not yet overcome the challenge of credit-worthiness.
Clean Energy Credit Check seeks to remove this obstacle by driving the adoption of its cloud-based due diligence software, beEdison. The platform streamlines commercial deal financing by using the industry-accepted diligence and rating standard truSolar® to lower project costs, improve deal conversion ratios, and accelerate solar asset securitization. The software-as-a-service model is available for free to most developers, while financiers who derive the most benefit from the system pay a licensing fee.
Rather than looking to the horizon for game-changing technologies like battery storage and community solar, Weir said the adoption of market solutions available today can have an immediate and sizeable effect.
“The impacts are significant, reducing the time it takes to screen deals from days to minutes, increasing conversion ratios of development assets to operating assets from less than 5 percent to over 15 percent, and reducing transaction costs by hundreds of millions of dollars per year,” Weir said. “The net combined impact of this is over $2 billion by 2018, restoring commercial [solar] to its respective share of our nation’s consumption mix.”
Weir said beEdison has engaged with more than 200 firms in the commercial solar sector. He also said more than $400 million had been committed to the intervention in the first quarter of 2015 alone. Responding to a question on the scalability of the platform and how it could apply to other technologies, he added, “We’ve had inquiries from Europe, China and India – and I think we can have a $10 billion impact by 2020 globally.”
The green bond market has experienced exponential growth in recent years, with new issuances more than tripling from about $11 billion in 2013 to $36.6 billion in 2014. Despite this rapid expansion, no consistent quantitative metric exists for comparing the climate impacts of competing offerings.
CarbonCount is a scoring tool that offers investors a transparent and consistent way to evaluate bonds in United States-based energy efficiency and renewable energy projects. Based on a computer model developed by the Environmental Protection Agency and National Renewable Energy Laboratory, the system calculates expected CO2 emissions reductions for every $1,000 of green bond investment.
CarbonCount’s champion, Kateri Callahan, president of Alliance to Save Energy, said, “While it’s a complex tool, it generates a very straightforward and easy-to-understand metric. The system is up and running today and we’ve already scored five bonds. CarbonCount is a confidence builder and it protects against greenwashing.”
As an illustration, Callahan compared two utility-scale wind bonds, Milford and Continental. She said that while both are similar in scale and both are sited in the American heartland, Continental drives 165 percent more carbon reduction because it sells its electricity to the coal-intensive Midwest whereas Milford primarily sells to renewable-rich California.
Simon Zadek, co-director of inquiry into the design of a sustainable financial system at United Nations Environment Programme, raised the point that green bond standards have proliferated with the growth of the sector, resulting in a myriad of different options. How will CarbonCount become the dominant player for the piece of the puzzle that it is focused on?
Callahan responded that CarbonCount stands out because it is a very simple metric. Instead of competing with other initiatives, it can serve as a complement that bolsters the availability of credible and understandable information for both investors and issuers.