I’m a huge believer in energy-efficiency financing programs. I personally think that one of the biggest barriers to installing energy-efficiency measures is a lack of up-front capital. I regularly have conversations with utilities about financing programs, and a common answer I receive when I ask why a utility doesn’t offer a program is “we’re not a bank.” Taking this concern into account, utilities may now have the opportunity to partner with an entity to offer a commercial financing program without having to offer financing on their own.
A new financing program recently rolled out by the Carbon War Room, a nonprofit organization founded by a team led by Sir Richard Branson, might offer a potential partnership opportunity and help drive commercial energy-efficiency participation. This program features an innovative financing mechanism, based on the Property-Assessed Clean Energy (PACE) model, in which loans are attached to a specific building instead of to an individual. PACE loan payments are often added on to property taxes. The Carbon War Room, which “harnesses the power of entrepreneurs to implement market-driven solutions to climate change,” has dubbed this financial model the PACE Commercial Consortium (PCC).
The PCC approach involves numerous players: The first company performs the building technology work (that is, audits, installations, and guaranteeing energy savings), the second company insures the deals to guarantee the energy savings, the third company reinsures the deals, the fourth company raises capital for the deals, and the fifth company actually finances the deals. It sounds confusing, but essentially each financing project gets insured, guaranteed energy savings, then the energy savings get reinsured, and private financing is provided. You can read more information in this GreenBiz article to see who the companies are and to get deeper insight into how the program works.
Many aspects of the PCC financing model line up with utility program concepts and goals, such as breaking down barriers to energy efficiency and gaining large energy savings per project. This model provides a window of opportunity for utilities to get involved with these entities and form mutually beneficial partnerships. For example, a utility can provide rebates and support for projects, while the other entities perform the majority of the marketing and provide financing. This model can help reduce utility-program costs (for example, through reduced marketing-spend), and these companies are willing to take on risks that utilities often are not, such as guaranteeing savings and providing financing.
Should utilities get involved with more companies that provide these services? Will partnering with them drive more energy-efficiency projects and gain more energy savings for utility demand-side management portfolios? Are there other ways a utility can get involved? We’ll be watching these financing models to see whether they’re successful, but I would love to hear your thoughts on this topic. Should utilities encourage this type of financing model and get involved?
