OwnerJuly 2015 to presentEl Cerrito

Finding best available technologies for meeting energy needs today and tomorrow: energy efficiency, demand response,, solar, wind, electric vehicles, biofuels and smart grid. It’s all the innovations that make the energy we use more secure, clean, and affordable. The energy world's best hopes lie in what's happening in the digital realm, especially in data analytics.

Thursday, July 7, 2016

Energy Audit & Benchmarking

Like Smart Grid Applications, Energy Efficiency Audits need innovative Information Technology Solutions to understand complex physical systems

Navigate this Report
Back to Smart Buildings Index

1. Background
2. Acronyms/Definitions
3. Business Case
4. Benefits
5. Risks/Issues
6. Success Factors
7. Next Steps
8. Companies/Organizations
9. Links

There is a lot of new development in commercial building rating systems
Rating System
California Energy Commission (CEC)
The time-of-transaction building energy use disclosure program (commonly referred to as AB 1103) ended in 2015.  The new statewide benchmarking program mandated by AB 802  will become effective in 2017.
COMNET - Commercial Energy Services Network - Commerical Building Energy Modeling Guidelines & Procedures (MGP
ABEL - Advanced Building Energy Label 
Asset/ Operational

  • Fifteen cities, two states, and one county in the U.S. have passed laws requiring the benchmarking & disclosure of energy use in buildings. More governments look to follow their lead, expecting these policies to drive investment in efficiency.
  • Phase I of the California HERS Program, which was adopted in 1999, established the basic operating framework of the program, including training and certification procedures for raters, quality assurance procedures, and data collecting and reporting requirements for raters who are performing field verification and diagnostic testing services for demonstrating compliance with Title 24 Building Energy Efficiency Standards.
  • Phase II of the HERS Program extended the Phase I HERS Program to cover whole‐house home energy ratings of existing (and newly constructed) homes.
Source: Institute for Market Transformation

2. Acronyms/Definitions
  1. AB1103 - A California law that requires:
    1. Starting in 2009, electric and gas utilities shall maintain records of the ;energy consumption data of all nonresidential buildings to which they provide service. This data shall be maintained, in a format compatible for uploading to the United States Environmental Protection Agency’s Energy Star Portfolio Manager, for at least the most recent 12 months.

    2. Starting in 2009, upon the written authorization or secure electronic authorization of a nonresidential building owner or operator, an electric or gas utility shall upload all of the energy consumption data for the account specified for a building to the United States Environmental Protection Agency’s Energy Star Portfolio Manager in a manner that preserves the confidentiality of the customer.

    3. Starting in 2010, an owner or operator of a nonresidential building owner or operator shall disclose the United States Environmental Protection Agency’s Energy Star Portfolio Manager benchmarking data and ratings, for the most recent 12-month period, to a prospective buyer, lessee of the entire building, or lender that would finance the entire building.

  2. Cal-Arch - A building energy benchmarking database for California.  This web-based tool for benchmarking whole building energy for California commercial buildings was built in a three-year project which commenced in July 2000. An additional 15 months of development was funded beginning August 2003. Currently Cal-Arch uses existing survey data from California’s Commercial End Use Survey  (CEUS), a largely underutilized wealth of information collected by California’s major utilities.

  3. Commercial Building Asset Rating Program - On August 8, 2011, the Department of Energy issued a "Request for Information" seeking input from stakeholders on a "Commercial Building Asset Rating Program" The goal of the program is to create an Energy Star-like system for commercial buildings. The program would establish common inputs for calculating energy efficiency, select a modeling tool to evaluate the inputs for individual buildings and output a rating with which to compare the energy efficiency of different buildings.

    The goal of the new program is primarily to address the issue of valuing energy efficiency by providing a common metric for comparing the energy efficiency of commercial properties, and providing a reliable and common system for evaluating commercial building energy efficiency.
    The devil is in the details, of course. The RFI proposes several different models for valuing energy, evaluating energy efficiency, and conveying the information. If the DOE program is created, the commerical real estate community could soon be using a 100 point scale, like LEED, or a star system like the Energy Guide labels on appliances. The robustness of the inputs and the energy model is critical to accurately evaluating building energy use, the simplicity of the input system will determine whether commercial building owners will use it to rate their facilities, and the representation of the "score" will determine whether users will actually understand and act on the information.

  4. DSM - Demand Side Management - In states where utilities are required to offer DSM Programs, utilities should petition the regulators to allow for the creation of a rebate program to subsidize the cost of the pre-sale energy audit. Having had experience with DSM Program design, this program would have to pass certain cost effectiveness tests, but the key to new DSM Program would be in creating the educational piece that would be a result the audit.

  5. E-Scale - EnergySmart Home Scale - Created in 2009 by the U.S. Department of Energy "based on" the HERS Index, apparently simply by subtracting the HERS Index from 100. In this new scale, higher values correspond again to better performance.
  6. ECM - Energy Conservation Measure - Any type of project conducted or technology implemented to reduce the consumption on energy in a building. These can come in a variety of forms: water, electricity and gas being the main three for industrial and commercial enterprises. The aim of an ECM should be to achieve a saving, reducing the amount of energy used by a particular process, technology or facility. ECMs are often implemented these are usually conducted by Energy Service Companies (ESCOs).

  7. EEM - Energy Efficiency Measure - A product or service designed to reduce energy consumption, use and/or increase the efficacy of said equipment when installed at the Customer’s Site.

  8. EER - Energy Efficiency Rating - The EER for air conditioners, which is the ratio of BTUs cooling per watt of power input based on specified test conditions. The higher the EER number, the more efficient the associated equipment.

  9. Energy Star -To earn the ENERGY STAR, a home must meet strict guidelines for energy efficiency set by the U.S. Environmental Protection Agency. These homes are at least 15% more energy efficient than homes built to the 2004 International Residential Code (IRC), and include additional energy-saving features that typically make them 20–30% more efficient than standard homes.

  10. Energy Star Home Performance Rating- The U.S. EPA's Energy Star program has developed energy performance rating systems for several commercial and institutional building types and manufacturing facilities. These ratings, on a scale of 1 to 100, provide a means for benchmarking the energy efficiency of specific buildings and industrial plants against the energy performance of similar facilities. The ratings are used by building and energy managers to evaluate the energy performance of existing buildings and industrial plants. The rating systems are also used by EPA to determine if a building or plant can qualify to earn Energy Star recognition.

    For many types of commercial buildings, you can enter energy information into EPA's free online tool, Portfolio Manager, and it will calculate a score for your building on a scale of 1-100. Buildings that score a 75 or greater may qualify for the ENERGY STAR. Portfolio Manager is an interactive energy management tool that allows you to track and assess energy and water consumption across your entire portfolio of buildings in a secure online environment. Whether you own, manage, or hold properties for investment, Portfolio Manager can help you set investment priorities, identify under-performing buildings, verify efficiency improvements, and receive EPA recognition for superior energy performance.

  11. EPS - Energy Performance Score - Developed by Energy Trust of Oregon, provides a clear and quantitative way to compare a home's energy use and costs. The lower the score, the better—with zero being the best.

  12. eQuest - Quick Energy Simulation Tool - A sophisticated, yet easy to use, freeware building energy use analysis tool that provides professional-level results with an affordable level of effort. eQUEST was designed to allow you to perform detailed comparative analysis of building designs and technologies by applying sophisticated building energy use simulation techniques but without requiring extensive experience in the "art" of building performance modeling. This is accomplished by combining schematic and design development building creation wizards, an energy efficiency measure (EEM) wizard and a graphical results display module with a complete up-to-date DOE-2 (version 2.2) building energy use simulation program.

  13. EUI - Energy Use Intensity - A unit of measurement that describes a building’s energy use and represents the energy consumed by a building relative to its size. EUI values are often presented in kBtu/ft2 

    A building’s EUI is calculated by taking the total energy consumed in one year (measured in kBtu) and dividing it by the total floorspace of the building. For example, if a 50,000-square-foot school consumed 7,500,000 kBtu of energy last year, its EUI would be 150. A similarly sized school that consumed 9,000,000 kBtu of energy last year would have a higher EUI (180) to reflect its higher energy use. Generally, a low EUI signifies good energy performance.

  14. DOE-2 - A widely used and accepted freeware building energy analysis program that can predict the energy use and cost for all types of buildings. DOE-2 uses a description of the building layout, constructions, operating schedules, conditioning systems (lighting, HVAC, etc.) and utility rates provided by the user, along with weather data, to perform an hourly simulation of the building and to estimate utility bills. The “plain” DOE-2 program is a “DOS box” or “batch” program which requires substantial experience to learn to use effectively while offering researchers and experts significant flexibility; eQUEST is a complete interactive Windows implementation of the DOE-2 program with added wizards and graphic displays to aid in the use of DOE-2.

  15. HERS - Home Energy Rating Systems A process of administering diagnostic analysis to determine and produce data that provides a method of evaluation for a California State approved home energy efficiency ratings. This establishes a benchmark of a home's energy use and identifies necessary and/or best possible upgrades for homeowners.

  16. HERS Index - Ratings provide a relative energy use index called the HERS Index – a HERS Index of 100 represents the energy use of the “American Standard Building” and an Index of 0 (zero) indicates that the Proposed Building uses no net purchased energy (a Zero Energy Building). The lower the value, the better. Each 1-point decrease in the HERS Index corresponds to a 1% reduction in energy consumption compared to the HERS Reference Home. The earlier "HERS Score", which ran in the opposite direction: The higher the value, the better.

  17. IPMVP - International Performance Measurement and Verification Protocol - Defines standard terms and suggests best practise for quantifying the results of energy efficiency investments and increase investment in energy and water efficiency, demand management and renewable energy projects. The IPMVP was developed by a coalition of international organizations (led by the United States Department of Energy) starting in 1994-1995. The Protocol has become the national measurement and verification standard in the United States and many other countries, and has been translated into 10 languages. IPMVP is published in three volumes, most widely downloaded and translated is IPMVP Volume 1 Concepts and Options for Determining Energy and Water Savings. A major driving force was the need for a common protocol to verify savings claimed by Energy Service Companies (ESCO's) implementing Energy Conservation Measures (ECM). The protocol is a framework to determine water and energy savings associated with ECMs.

    IPMVP provides four Options for determining savings (A, B, C and D). The choice among the Options involves many considerations. The selection of an IPMVP Option is the decision of the designer of the M&V program for each project.

    1. Option (A) - Retrofit Isolation: Key Parameter Measurement - Savings are determined by field measurement of the key performance parameter(s) which define the energy use of the ECM affected system(s) and/or the success of the project. Parameters not selected for field measurement are estimated. Estimates can be based on historical data, manufacturer’s specifications, or engineering judgment. Documentation of the source or justification of the estimated parameter is required. Typical applications may include a lighting retrofit, where the power drawn can be monitored and hours of operation can be estimated.

    2. Option (B) Retrofit Isolation: All Parameter Measurement - Savings are determined by field measurement of all key performance parameters which define the energy use of the ECM-affected system. Typical applications my include a lighting retrofit where both power drawn and hours of operation are recorded.

    3. Option (C) Whole Facility - Savings are determined by measuring energy use at the whole facility or sub-facility level. This approach is likely to require a regression analysis or similar to account for independent variables such as outdoor air temperature, for example. Typical examples may include measurement of a facility where several ECMs have been implemented, or where the ECM is expected to affect all equipment in a facility. Option C uses utility bills to determine energy savings. Bills may be corrected for weather.

    4. Option (D) Calibrated Simulation - Savings are determined through simulation of the energy use of the whole facility, or of a sub-facility. Simulation routines are demonstrated to adequately model actual energy performance measured in the facility. This Option usually requires considerable skill in calibrated simulation. This option is rarely used, and is used primarily when thereis no pre-retrofit utility data available.

    There are many situations where Option A or Option B (Metering and Calculating) is the best approach to measuring energy savings, however, some ESCOs insist upon only using Option A or Option B, when clearly Option C would be most appropriate. If the ESCO was a lighting contractor, then Option A should work in all cases. Spot measurements of fixtures before and after, agreed upon hours of operation, and simple calculations can be inserted into a spreadsheet that can calculate savings. The same spreadsheet can be used over and over. However, for ESCOs that offer a variety of different retrofits, it is necessary to be able to employ all options so that the best option can be selected for each individual job. Controls Retrofits, or retrofits to HVAC systems are typically excellent candidates for Option C .

  18. M&V - Measurement and Verification - The term given to the process for quantifying savings delivered by an Energy Conservation Measure (ECM), as well as the sub-sector of the energy industry involved with this practice. M&V demonstrates how much energy the ECM has avoided using, rather than the total cost saved. The latter can be affected by many factors, such as energy prices. The M&V process enables the energy savings delivered by the ECM to be isolated and fairly evaluated. A key part of the process is the development of an ‘M&V Plan’, which defines how the savings analysis will be conducted before the ECM is implemented. This provides a degree of objectivity that is absent if the savings are simply evaluated after implementation.

  19. Net Zero Energy Home - A home that has a net annual Time Dependent Valued (TDV)
    Energy consumption of zero, accounting for both energy consumption and the use of on‐site
    renewable energy production.

  20. Performance Rating Types
    1. Operational Rating
      • Example: U.S. EPA’s Energy Star Portfolio Manager
      • Rating based on actual energy usage, adjusted for weather
      • No inherent requirement for field verification
      • Ratings typically adjusted based on levels of service
      • Good for use in existing building energy efficiency incentive programs
      • Good for managing building portfolios over time

    2. Asset Rating
      • Examples: RESNET and CEC Home Energy Rating Systems
      • Rates the building, not the occupant
      • Focus is on the physical building assets, plus permanent energy systems
      • Differences in operational behavior are ignored
      • Rating is derived from a model-based estimate of energy usage, compared to a stock median or building code baseline
      • Field verification is a requirement
      • Good for valuing building performance within a financial transaction
      • Good for energy efficiency code compliance and beyond code new construction incentive program

  21. SAVE Act - The Sensible Accounting to Value Energy Act - Legislation to improve the accuracy of mortgage underwriting used by federal mortgage agencies by including a home's expected energy cost savings when determining the value and affordability of energy efficient homes. Utility bills are usually larger than either real estate taxes or homeowners insurance, but they are currently ignored in mortgage underwriting.

    Included by the Senate in Amendment 3042 to the Energy Policy Modernization Act of 2016. 

    Specifically, the SAVE Act directs the Department of Housing and Urban Development (HUD) to issue guidelines for the Federal Housing Administration (FHA) to account for the expected energy cost savings in determining the debt-to-income ratio and loan-to-value ratio. As a result, high-performing homes will be appraised at a higher value and be more affordable to the homeowner—with no cost to taxpayers. 
  22. TDV - Time Dependent Valued - Energy means the time varying energy used by the building to determine the home energy rating pursuant to these regulations. TDV Energy accounts for the energy used at the building site and consumed in producing and delivering energy to a site, including, but not limited to, power generation, and transmission and distribution losses.

  23. White Tags - Certificates used by private investors for capitalizing a building’s energy performance in the mortgage loan, and used by the US government for verification of building energy performance for such programs as federal tax incentives, the United States Environmental Protection Agency’s Energy Star program and the U.S. Department of Energy’s Building America Program
3. Business Case
  • Mandatory building energy ratings– seeks to transform markets by requiring that meaningful information about building energy performance be disclosed to potential buyers, renters and the public. Though mandatory building energy rating disclosure policies involve a wide array of specific policy and design choices, they coalesce around a few key concepts:
    • Time of Sale Triggers - When selling a home or building, owners must disclose a valid energy rating to potential buyers. The rating indicates current performance and potential improvements, providing meaningful information to consumers and empowering them to consider energy performance in their decisionmaking. Armed with information, some consumers will give preference to more energy efficient homes, enabling markets to value energy performance, and providing a greater return on investment to projects aimed at improving building energy performance.
    • Time of Rental Triggers - The same process applies at the time of rental (this requirement may be phased in at a subsequent stage).
    • Scheduled Disclosure (Operations) - Commercial building owners must obtain a simplified, standardized rating, indicating their annual “operating” performance. This enables owners and building managers to measure their performance annually, to institute continuous improvement practices, to benchmark against other buildings (within or outside of their own fleet), and to establish performance targets in their annual plans and objectives. Policies can also require that ratings be displayed in prominent locations within the building or published in a publicly-available database.
  • First adopted over a decade ago in Australia and Denmark, mandatory building energy rating policies are now in place in more than 30 countries worldwide. They are also increasingly being considered, adopted or implemented in the U.S., in states like California, Nevada, Washington, Oregon and New Mexico, and in cities like Austin, New York and Washington, D.C. Indeed, the past year has seen a flurry of activity around this policy opportunity in the U.S., including landmark legislation currently being debated in both houses of Congress.

4. Benefits
  • Education - The home buyer is more educated about what they are actually buying. The utility bill represents a substantial cost every month and this can very greatly from house to house depending on how "tight" the house is.

  • Buyer Cost Savings - If a new home buyer doesn't have an energy audit or any report about the current condition of the building they could be looking at $5-10K in renovations on top of the asking price. Realtors can recommend during inspection to have this done and the current owner either fixes the leaks or reduces the price.

  • Green Jobs - Auditing creates a new business sector - could be a good thing for those seeking employment. We will collect lots of data but after the audits are completed submitted what happens. Is there a plan to take action on the results and actually do something?

5. Risks/Issues
  • Audit Bottlenecks - Commercial building energy efficiency evaluation is currently a slow, expensive, and non standard process. Building professionals spend countless hours walking around buildings, benchmarking and researching efficiency solutions, and generating detailed reports.

    With more than 5 million buildings and 80 billion square feet, there aren’t enough auditors, consultants, and engineers to put a real dent in the problem. This is creating a huge bottleneck and preventing the problem from being tackled in a systematic and scalable way.
  • Bureaucracy - All it does is add another $1,000 or more to the cost of selling a house on top of all the other fees. It's just another piece of bureaucracy imposed by government.
  • Cost - The cost (HERS ratings are $500 - $1500, audits are a $200-$500), the burden, and the unregulated nature of the auditing market.
  • Lack of Standards - There is no standard to perform an energy audit. LEED, Green Globes, Energy Star, ..ect. have excellent criteria, but they are not standards such as entitlements or building codes.
  • Gaps in Energy Star coverage - Only 44% of California Commercial buildings can qualify for an  Energy Star rating.
  • Split Incentive - Owners don’t make efficiency investments because it’s the renters who pay the energy bills. And renters don’t make investments in property they don’t own. The result is housing that wastes energy and costs more than it should.

    One solution takes advantage of the lease or rental agreement: “green leases” enable owners to spend money on efficiency improvements and recoup their costs by raising rent by the same amount as the realized energy savings, minus a smaller agreed on amount which gets passed on to the renter. In other words, if an efficiency investment to the renter’s unit generates $100 of monthly energy savings, the rent might go up $80 per month. Although the rent increases, the tenant’s total housing bill goes down by $20. It’s a win for both parties. The tenant would start saving money right away, and over time the landlord would recoup his initial investment (and even make money), through the higher rents.
  • Floor Area - Floor area is a major source of error in EUI calculations and is frequently misreported 9Sharp, 1996). There are also many different ways of defining floor area and inconsistencies in how it is calculated. For example, parking garages are sometimes included in floor area calculations and sometimes not. In CBECS, floor area is rounded off for all buildings, producing errors in EUI estimates of 5-10 percent. Overall this is not seen to be a problem; however, the distribution tails are more affected, and for smaller buildings, the error can be
    up to 14-25 percent (Sharp, 1998)

  • Unregulated Loads - Currently, no standard process exists to evaluate “unregulated loads” in buildings such as plug loads, commercial refrigeration and vertical transportation. In fact, energy models created for the purposes of code compliance often fail to account for such unregulated loads altogether, resulting in significant discrepancies between the predicted and actual energy use of a building.

  • Automatic Reference Building Generation - To rate the efficiency of an actual subject building, energy modelers frequently construct energy models of “reference buildings” -- hypothetical buildings identical in many respects to the subject buildings. The modeler then compares the energy consumption of the subject building to code-compliant baseline and often expresses the result for the subject building as “x% better or worse than code.” Currently most energy modeling software cannot automatically generate reference buildings. COMNET will help existing modeling software to add the ability to automatically generate multiple reference buildings corresponding to multiple efficiency standards.

6. Success Factors
  • New auditing software packages are coming online to reduce the cost, improve the modeling, and provide better information to the client.
  • The market is evolving and becoming more uniform due to the growth and focus on home energy efficiency.
  • Real-time integration and visibility of building management systems, metering subsystems, and asset management applications.
  • Automated, real-time analysis and reporting of key performance indicators associated with subsystem operations, energy use, and equipment maintenance management.
  • Recommendations for results-oriented energy usage and maintenance program refinements that will enable energy reduction targets to be met or exceeded.
  • On-going monitoring of subsystems to continually expand energy conservation efforts and maintenance management improvements for further cost reductions.
  • Independent verification of ESCO and other Energy Conservation Measures (ECM) programs.
  • Information must be credible, reliable, and replicable.
  • Information must be transparent and easy to understand.
  • Collecting information and generating a rating must be affordable.\
  • Opportunities identified must be relevant and practical.
  • Program must include effective quality assurance.
  • Rating must recognize building energy performance across the full range of building efficiency.
7. Next Steps
  • Seattle, which aims to reduce energy use 20% by 2020, opted for mandatory energy efficiency reporting. 860 buildings with more than 50,000 square feet must report by Oct 1, 2011 and another 8,000 buildings with more than 10,000 square feet by Apr 1, 2012.

  • Aug 1, 2011 was the deadline for 16,000 large buildings in New York City— representing half of its interior space — to report how much energy they used in the past year or face $500 quarterly fines. The city will post the data on a public website next year.

  • Energy Efficiency Reporting will be required in San Francisco starting in October 2011, Click here to see the ordinance.

  • In Washington DC, the new ENERGY STAR® benchmarking requirements of the Green Building Act for commercial buildings over 200,000 sf took effect July 1, 2011. However, because building owners will need the additional guidance and tools provided by District Dept of the Environment'S (DDOE's) forthcoming regulation, they will not be required to submit data until the rulemaking process is complete. For example, neither the final list of data points that must be entered into the ENERGY STAR® Portfolio Manager tool or the on-line reporting template for submitting data to DDOE will be available until the rule is final.

    DDOE continues to move the draft regulation through the approval process and anticipates publishing the draft regulations in early July for a 30-day public comment period. DDOE does not have a specific effective date for the final rule, but anticipates an effective date in October. This would include the 30-day comment period, time to make any necessary modifications, and the DC Council review period of up to 45 days.

7. Companies and Organizations
  1. Energy Foundation - San Francisco - A partnership of major donors interested in solving the world's energy problems. It's mission is to advance energy efficiency and renewable energy — new technologies that are essential components of a clean energy future.

  2. Energy Upgrade California - A one-stop-shop for home improvement projects that lower your energy use, conserve water and natural resources, and make your home healthier and more comfortable.

  3. EVO - Efficiency Valuation Organization - The only non-profit organization in the world solely dedicated to creating measurement and verification (M&V) tools to allow efficiency to flourish. Their vision is a global market that properly values the efficiency resource, enabling and assisting the optimal investment in these opportunities. EVO created a set of guidelines for ESCOs to adhere to in evaluating the savings achieved by ECMs. These guidelines are called the International Performance Measurement and Verification Protocol (IPMVP)

  4. CalCERTS - Folsom, CA - Approved by the California Energy Commission in 2003 to become a Home Energy Rating System (HERS) Provider. CalCERTS, Inc. is a private organization that provides service, support, training and certification to HERS raters.

    HERS raters are independent contractors who are either independently operated or who sub-contract to larger energy rating firms. Raters charge their customers for site ratings and pay a fee to CalCERTS, Inc. for processing the ratings and issuing certification.

    CalCERTS, Inc. has developed and owns its own software which is approved by the California Energy Commission and is utilized by the HERS rater to enter rating data. CalCERTS, Inc. maintains the computer based registry of data as a repository of information that can be accessed by the HERS rater, building departments, contractors and government agencies.

  5. CBPCA - California Building Performance Contractors Association -A non-profit organization dedicated to reducing the energy demands in California and developing industry leaders in the burgeoning field of building energy efficiency. CBPCA is one of three HERS Providers licensed by the California Energy Commission to train, test, manage and audit building energy efficiency professionals including:Field Verification and Diagnostic Testing Raters for alterations only.

  6. CHEERS - California Home Energy Efficiency Rating System - In consultation with the California Energy Commission, CHEERS has decided to stop accepting new projects that are subject to the 2008 California Building Energy Efficiency Standards, effective at midnight, October 15, 2010. CHEERS is taking this action because it is not in compliance with the August 2009 Home Energy Rating System (HERS) Regulations for data registry requirements. It is working with new software developers on a fast track to improve both the CHEERS registry and database so that they are fully in compliance with the HERS regulations. The California Energy Commission will review and approve the registry and database before CHEERS will restart accepting new projects.

  7. FirstFuel - Lexington, Mass Founded in 2010 and privately held, - Provides "behind-the-meter intelligence for the utility without them having to go behind the meter. The firm does this without on-site audits or connectivity to building systems.

    It helps utilities engage their commercial customers and deliver energy efficiency across commercial building portfolios. The FirstFuel Rapid Building Assessment platform uses advanced analytics to remotely benchmark building energy performance, creating rich energy profiles that eliminate the need for costly and inconsistent on-site energy assessments.

    FirstFuel closed a $2.4 million round from Battery Ventures and Nth Power for its business of analyzing the energy patterns of commercial buildings in September 2011. In February 2012, the firm closed a $10 million round A led by new investor Rockport Capital. Investors like their process because it's this non-intrusive, touchless process that allows the firm to scale.

    First Fuel's customers are utilities providing energy efficiency programs, not the building owners themselves. U.S. utilities spent about $6.6 billion on marketing energy efficiency to customers and encouraging them to invest in it through rebates and rate schemes in 2010, according to the Consortium for Energy Efficiency. That total is projected to grow to $12 billion in 2015. But that money still tends to be spent using a shotgun approach, with mass mailings, cold calls and energy-use surveys that require a lot of filtering to find the best targets.

  8. Honest Buildings - New York, Seattle - Honest Buildings has created a profile for any building in the world with an address. This platform is the first place that connects occupants, service providers and owners to each other and the buildings where they live, work and spend their time. Type in an address, and the free service instantly finds information about any commercial or residential building in the U.S., including pictures, reviews, Honesty Ratings(TM), open and completed projects, and the people associated with that building, including service providers, managers and owners.

    San Francisco Screen Shot from Honest Buildings

    Anyone can use Honest Buildings to compare buildings based on size, location, type, Honesty Ratings, associated organizations, and the types of projects that have been completed, helping them to make better-informed decisions about real estate.

  9. RESNET - Residential Energy Services Network - Founded in April 1995 by the National Association of State Energy Officials and Energy Rated Homes of America to develop a national market for home energy rating systems and energy efficient mortgages.

    RESNET's standards are officially recognized by the federal government for verification of building energy performance for such programs as federal tax incentives, the Environmental Protection Agency's ENERGY STAR program and the U.S. Department of Energy's Building America Program. RESNET standards are also recognized by the U.S. mortgage industry for capitalizing a building's energy performance in the mortgage loan, and certification of "White Tags" for private financial investor.

  10. Retroficiency - Boston startup out of MIT - Retroficiency’s Software-as-a-Service (Saas) platform is designed to replace a lot of the manual and time-intensive work that energy services companies (ESCOs) and property owners must go through today to plan and execute efficiency retrofits.

    Retroficiency’s software aims to cut those costs by delving through tens of thousands of pieces of data to compare potential retrofit target buildings to others of the same square footage, age of construction, use and occupancy patterns and reams of similar data.

    The end result is a “very accurate characterization” of each building’s energy use, typically within 3 percent accuracy. That can help narrow down which buildings are fruitful targets for energy savings, vs those that won’t offer as much payback.

    Their Building Efficiency Intelligence™ (BEI) software platform offers two  solutions - Virtual Energy Assessment™ and Automated Energy Audit™ - that deliver rapid identification of commercial buildings with high potential for energy savings and cost-effective evaluation of efficiency measures. These solutions enable energy services providers, utilities and building owners to be more effective, beginning with the sales and opportunity identification process through making final operational and system retrofit energy efficiency recommendations.

    Retroficiency’s platform gives AEP Ohio, Puget Sound Energy and The United Illuminating Company the ability to perform tailored energy assessments of commercial customers remotely. Con Edison, the utility that serves New York City, has experienced up to a 4x increase in customer engagement with Retroficiency’s approach versus traditional program marketing efforts, helping to quickly lead to customer project commitments and Retroficiency is an important partner in their Brooklyn Queens Demand Side Management program,

  11. SkyFoundry - Glen Allen, Virginia - Provides software that captures data on wasted energy data from buildings with or without instrumentation, and feed it to facilities managers in an easy-to-understand format, he said. Partners have applied the software to about 1,000 buildings, at levels ranging from shallow benchmarking and analysis to “very deep” continuous commissioning fully tied into building equipment and sensors.

    SkyFoundry digs into multiple sources of data -- BMS data, sensor and control data, real estate records and occupancy figures, weather reports and the like -- and feeds that data into an analytics engine to figure out a building’s optimal energy usage and where it’s deviating from the norm. Return on investment can range from months to years, depending on how quickly building owners decide to tackle their challenges, but SkyFoundry’s partners would be the ones responsible for picking and choosing which retrofit projects to take on.

7. Links
  1. Home Energy Saver - Lawerence Berkeley Labs

  2. Energy Auditor Talk - An energy auditing forum for weatherization professionals who want to stay up to date and take advantage of new green building practices.

  3. NASCO - National Association of Energy Service Companies is a national trade association which has been promoting the benefits of the widespread use of energy efficiency for over 25 years.

  4. Valuing Building Energy Efficiency Through Disclosure And Upgrade Policies Dunsky Energy Consulting– November 2009

  5. California Energy Commission (CEC) Documents and meeting videos for AB 1103 Commercial Building Energy Use Disclosure Program

  6. Development of a California Commercial Building Energy Benchmarking Database Satkartar Kinney and Mary Ann Piette, Lawrence Berkeley National Laboratory

Energy Efficiency Financing

Energy Efficiency investments pay back steady returns over many years, but often it is difficult for businesses and households to pay the upfront costs.

Navigate this Report
Back to Energy Efficiency Index
1. Background

2. Acronyms/Definitions
3. Business Case
4. Benefits
5. Risks/Issues
6. Case Studies
7. Companies/Organizations
8. Next Steps 
9. Links

  • Many in the energy/environment field are more comfortable talking about efficiency ratings than credit ratings. But implementing energy efficiency projects at the scale we need will require large sums of money moving through our financial system.

  • Government programs are all well and good, but they are necessarily limited by the amount of money we can convince politicians to spend, and even the most generous programs can only scratch the surface. For example, the Department of Energy's Better Buildings program is aimed at retrofitting homes for energy efficiency and has been granted about $500 million for local and regional efficiency programs. But with over 100 million households in the nation, if we want to retrofit even a tiny fraction of those, say one percent, it will take 10 to 20 times more money than the DOE can put into it.

  • If we want to make a dent in household energy efficiency, we will need to move large amounts of private capital. That money will not move unless the financials look good, because unlike the DOE, private investors are not in the habit of giving their money away without good prospects of getting it back with interest.

  • One of the obstacles to getting home retrofits done is that, in relative terms, the up front costs of a project are pretty high. Doing a thorough energy audit and whole home retrofit can cost anywhere between five and ten thousand dollars. This is an expense in the neighborhood of buying a car, except that for many people, owning a car is essential for daily life, and a home retrofit isn't.

    Most people won't have that amount of cash on hand to spend on a project like this, and just like buying a car, they will need to finance some of all of the project costs. In the best case scenario, a homeowner would have access to some type of home equity loan or line of credit. Right now, these carry interest rates between four and five percent. Combined with the fact that the interest on these loans is usually tax deductible, this is a pretty affordable option.

    Unfortunately, many homeowners don't have ready access to home equity financing, and in the current environment of falling home values, many will be unwilling or unable to go through the process of getting it.

  • At the other end of the interest rate spectrum is credit card debt. Most home owners have access to credit cards and might be able to put a project of this size on their cards, but average interest rates for credit cards and other so-called "unsecured consumer debt" is around 15 percent. Rates like this will make virtually any retrofit project uneconomical.

  • Turning to a bank is not much better. From a bank's perspective, these loans look a lot more like unsecured consumer debt than anything else. Unlike a car loan, which you can get for about six percent if you have good credit, retrofit loans don't have anything the bank can repossess if you don't pay. Home equity loans have low interest rates because banks can put a lien on your house if you don't pay, so they can get paid back when you sell your house. Here, it's virtually impossible for a bank to come in and repossess your insulation or new windows, which makes the loan inherently more risky and the interest rate much higher.

2. Acronyms/Definitions
  1. CAEATFA - California Alternative Energy and Advanced Transportation Authority - In the process of implementing a Loan Reserve Program for the state’s Property Assessed Clean Energy (PACE) financing program.

    In September of 2013, Governor Jerry Brown signed SB 96 into law, authorizing the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) to establish a PACE Loss Reserve program. This program seeks to address FHFA’s concerns through the use of a reserve fund that would reimburse residential PACE programs for costs associated with keeping mortgage interests whole in the event of a foreclosure or forced sale.

    CAEATFA is proposing to adopt emergency regulations to establish the PACE Loss Reserve Program. CAEATFA published an initial draft of these regulations on January 16, 2014 and held a public workshop to gather input from stakeholders on January 24, 2014. After considering the comments received, CAEATFA published a revised draft of the regulations on February 3 for additional comments. The final draft of the proposed regulations, available below, balances stakeholders’ comments with the Program’s statutory, legal and administrative requirements.

    The proposed regulations were approved by CAEATFA’s Board at a publicly noticed meeting on February 18, 2014. After a five-day notice period, CAEATFA will submit these regulations to the Office of Administrative Law (OAL)

  2. Community Solar Programs - Allow customers to purchase a share of a solar system and receive the benefits of the energy that is produced by their share. Existing programs range in size from 5 kW to 1 MW.

  3. ECM - Energy Conservation Measure - After installing energy conservation measures (ECMs), ESCOs often determine the energy savings resulting from the project and present the savings results to their customers. A common way to calculate energy savings is to measure the flows of energy associated with the ECM, and then to apply spreadsheet calculations to determine savings. For example, a chiller retrofit would require measurements of chilled water supply and return temperatures and kW. The benefit of this approach is that the ECM is isolated, and that only energy flows associated with the ECM itself are considered.

  4. EPC - Engineering, Procurement and Construction - Large system integrators that build utility-scale projects and work closely with project developers.   Industry-leading PV module manufacturers with strong downstream focus – such as First Solar and SunPower – have been increasing their in-house EPC resources to help drive demand for their internal module supply.

    Some services that were previously confined to utility-scale and large non-residential systems are now being offered to residential systems, by companies such as SolarCity and SunRun. Options here include financing (PPA or leasing) and/or operation and maintenance (O&M). Reduction or elimination of the high upfront cost and “hassle-free” maintenance and repair offered by the third-party ownership models are infiltrating the residential market.

  5. ESA - Efficiency-Services Agreement - A pay-for-performance financing solution developed by Metrus Energy that allows customers to implement energy efficiency projects without any upfront capital expenditure. Through the ESA, Metrus pays for all development and construction costs. After a project is operational, the customer uses a portion of the cost savings associated with reduced energy consumption to make periodic service payments to Metrus.

    Like a typical utility bill, the ESA service payments are based on a measured quantity of energy units, i.e. kilowatt-hours of electricity and therms of natural gas. However, ESA service payments are based on energy units that are saved, enabling customers to treat energy efficiency as a resource that improves their bottom line and mitigates the environmental impact of their business. The price per unit of energy savings is an output-based charge that is set at or below existing utility prices, resulting in reduced operating expenses.

  6. ESCO - Energy Service COmpany - A commercial business providing a broad range of energy solutions including designs and implementation of energy savings projects, energy conservation, energy infrastructure outsourcing, power generation and energy supply, and risk management. The ESCO performs an in-depth analysis of the property, designs an energy efficient solution, installs the required elements, and maintains the system to ensure energy savings during the payback period. The savings in energy costs is often used to pay back the capital investment of the project over a five- to twenty-year period, or reinvested into the building to allow for capital upgrades that may otherwise be unfeasible. If the project does not provide returns on the investment, the ESCO is often responsible to pay the difference.

  7. ESCP - Energy Saving Performance Contract - Allows Federal agencies to accomplish energy savings projects without up-front capital costs and without special Congressional appropriations. An ESPC is a partnership between a Federal agency and an ESCO. The ESCO conducts a comprehensive energy audit for the Federal facility and identifies improvements to save energy. In consultation with the Federal agency, the ESCO designs and constructs a project that meets the agency's needs and arranges the necessary funding. The ESCO guarantees that the improvements will generate energy cost savings sufficient to pay for the project over the term of the contract. After the contract ends, all additional cost savings accrue to the agency. Contract terms up to 25 years are allowed.

  8. Federal Cash Grant - The expired federal Cash Grant significantly increased the uptake in residential leasing. In fact, the third-party ownership model now accounts for approximately half of the residential market in some key states such as California, Arizona and Colorado. Originally established in 2009, the Cash Grant was configured to be applicable only to tax-paying business entities. Therefore, residential PV owners were effectively ineligible for the Cash Grant.

    However, solar leasing companies or investors – as business taxpayers – could legitimately apply for a Cash Grant for residential systems by assuming direct ownership of the PV system. By accessing the benefits of the Cash Grant (and state incentives), solar leasing companies have been able to attract homeowners by indirectly passing on these benefits in the form of reduced monthly PV leasing payments.

  9. FHFA - Federal Housing Finance Agency - The Agency which oversees the lending activities of U.S. mortgage giants Fannie Mae and Freddie Mac. In July 2010 FHFA essentially put a halt to property assessed clean energy (PACE) financing for home retrofits and renewable energy projects in the U.S. by issuing guidance to lenders across the country stating that PACE programs are risky and inadvisable. FHFA said in the case of default, the liens would trump the bank mortgage, meaning banks would be at risk of losing more money. Alfred Pollard, general counsel for the FHFA, told the San Francisco Chronicle: "You can't just slap a first lien on a piece of property and say that there's no risk to the lender, particularly in this fragile market." The guidance reasserts a position taken by Fannie and Freddie in May 2010.

  10. Green Lease - One solution to the split incentive problem. Enables owners to spend money on efficiency improvements and recoup their costs by raising rent by the same amount as the realized energy savings, minus a smaller agreed on amount which gets passed on to the renter. In other words, if an efficiency investment to the renter’s unit generates $100 of monthly energy savings, the rent might go up $80 per month. Although the rent increases, the tenant’s total housing bill goes down by $20. It’s a win for both parties. The tenant would start saving money right away, and over time the landlord would recoup his initial investment (and even make money), through the higher rents. Plus, the tenant would be using less energy.

    A typical example might be a refrigerator replacement. A tenant has little economic incentive to buy a new efficient (and more expensive) refrigerator because he’s unlikely to be around long enough to recoup the extra upfront expense through reduced energy bills. And a landlord might think she’s better off buying the cheapest model she can find because she’s not paying the bills for the fridge’s operations. A green lease might fix this problem by allowing the landlord to increase rent enough to pay for a more expensive and efficient model, but because of the lower energy bills, the tenant would actually save money even after the rent increase.

    The challenge with green leases is creating a practical financing arrangement that doesn’t saddle landlords with too many headaches. And to make economic sense, efficiency investments would need to generate sufficient savings in a short enough time that the owner could pay back the bank, or herself, for the upfront cost of making the investment in the first place. So in order to know if an investment makes sense, both landlords and tenants will need a trustworthy assessment of the potential savings. Plus, they’ll need to resolve some other questions. What happens if the improvement fails to save the energy and money that it promises? What if it generates more savings?

    If green lease arrangements sound complicated, that’s because they are. Green leases are already used in the US and Canadian commercial real estate rental sectors, but they are not sweeping apartment rentals. The legal complexities can make green leases challenging and uncertain. And both landlords and tenants dislike uncertainty. Like other kinds of financing ideas, green leases are innovative and potentially promising, but they have yet to break through the barrier of the split incentive for multifamily rental buildings.

  11. HR 2599 - The PACE Assessment Protection Act of 2011 - Introduced July 20, 2011 in the House of Representatives by Congresswoman Nan Hayworth (R-NY) and Congressmen Dan Lungren (R-CA) and Mike Thompson (D-CA). To prevent Fannie Mae, Freddie Mac, and other Federal residential and commercial mortgage lending regulators from adopting policies that contravene established State and local property assessed clean energy laws

  12. IPP - Independent Power Producer - also: NUG - Non-Utility Generator - An entity, which is not a public utility, but which owns facilities to generate electric power for sale to utilities and end users. IPP's may be privately-held facilities, corporations, cooperatives such as rural solar or wind energy producers, and non-energy industrial concerns capable of feeding excess energy into the system.

    Prior to the US Public Utility Regulatory Policies Act (PURPA) of 1978, IPPs were rare, and the few that existed were seldom able to distribute power, as the cost of building the conveyance infrastructure was prohibitive. Public utilities generated power and owned the generating facilities, the transmission lines, and the local delivery systems. Congress Passed PURPA in 1978, establishing a class of non‐utility generators, called Qualifying Facilities (QF), which were permitted to produce power for resale.

    PURPA was intended to reduce domestic dependence on foreign energy, to encourage energy conservation, and to reduce the ability of electric utilities to abuse the purchase of power from QFs. A QF is defined as a generating facility that produces electricity and another form of useful thermal energy through the sequential use of energy, and meets certain ownership, operating, and efficiency criteria established by the Federal Energy Regulatory Commission (FERC).

    Section 210 of PURPA now requires utilities to purchase energy from IPPs which qualify (qualifying facilities) at the utility's avoided cost. This allows IPPs to receive a market price for the energy they produce and insures that energy generated by small producers won't be wasted.

  13. Inverted Lease - The developer or its affiliate will lease the project to a tax equity investor who then enters into a PPA or sublease with offtakers. Under special tax credit rules for leases, a lessor may elect to pass through the entire 30 percent energy tax credit (but not depreciation benefits) to the lessee. The developer lessor retains tax ownership and associated depreciation deductions. The tax equity investor usually makes a small pretax profit on the spread between the rent and the PPA payments and its rent obligation to the developer lessor.

  14. LRF - Loan Loss Reserve Funds - Provide partial risk coverage to motivate commercial Financial Institutions to offer EE/RE finance products, pioneer new products, broaden access to finance, extend loan tenors, lower interest rates

    LRF cover first losses on a portfolio of EE/RE loans and achieve significant leverage of public funds. LRF can support a range of EE/RE finance structures including being funded with public monies e.g., ARRA with no guarantor required. Risk Sharing Components:
    • A/B Leverage Ratio - Ratio of (A) total original principal amount of Loans in portfolio, to (B) LRF funds
    • First Loss Percentage - Portion of the total Loan portfolio original principal the LRF will cover, e.g., 2-10%
    • Share of first losses that LRF will pay, e.g., 80-90%+; balance to account of Financial Institution

  15. OBF - On-Bill-Financing - An electric utility offers upgrades to its small business customers and loans to pay for the upgrades. The energy savings are used to pay back the loan, so the monthly utility bill is no higher than it was before. When the loan is paid off, the customer's utility bill is permanently lower.
    • Payments spread across pay-back period
    • Pay-back period equal to project pay-back
    • Customer payment equal to slightly less than $ amount of energy saved /li>
    • Utility interest costs often paid by “PPP” Funds
    • Net neutral result on monthly energy bill
    • After payback period all monthly savings goes to the business bottom line.

  16. PACE - Property Assessed Clean Energy - In areas with PACE legislation in place municipality governments offer a specific bond to investors and then turn around and loan the money to consumers and businesses to put towards an energy retrofit. The loans are repaid over the assigned term (typically 15 or 20 years) via an annual assessment on their property tax bill. PACE bonds can be issued by municipal financing districts or finance companies and the proceeds can be used to retrofit both commercial and residential properties. One of the most notable characteristics of PACE programs is that the loan is attached to the property rather than an individual.

    1. In areas with PACE (Property Assessed Clean Energy) legislation in place municipality governments offer a specific bond to investors and then turn around and loan the money to consumers and businesses to put towards an energy retrofit. The loans are repaid over the assigned term (typically 15 or 20 years) via an annual assessment on their property tax bill. PACE bonds can be issued by municipal financing districts or finance companies and the proceeds can be used to retrofit both commercial and residential properties. One of the most notable characteristics of PACE programs is that the loan is attached to the property rather than an individual.

    2. PACE emerged in 2008 with a pilot program in California and quickly caught the attention of communities around the country. In just two years, enabling legislation was passed in 23 and is being considered in nearly 20 more. Early California programs in Sonoma County and Palm Desert were soon followed by ones in Boulder County, CO and in Babylon, NY. Before programs were stopped by the Federal Housing Finance Agency (FHFA), Fannie Mae, and Freddie Mac, over 2,000 homes and commercial buildings had used PACE to finance efficiency and renewable energy projects.

      The thing that makes PACE so attractive is that the loan is ultimately secured by the value of your home, just like the money your borrowed to buy it in the first place. As you can imagine, mortgage bankers, who lent you that money in the first place are very interested in anything that might make those loans any more risky.

      Because the government is very good at making sure it gets paid, if you default on your mortgage and the bank sells the home in a foreclosure sale, any property taxes you owe get paid first before the bank does.

    3. Enter the Federal Housing Finance Authority, which among other things, oversees Fannie Mae, which in turn buys a huge amount of home loans from banks, securitizes them, and sells them on the secondary finance market. This makes Fannie Mae one of the largest mortgage holders in the country, and FHFA is in charge of keeping Fannie Mae out of trouble.  FHFA looked at PACE and saw trouble coming:

      First, and most obviously, if a home with a PACE loan goes into foreclosure, any money that goes to pay off the PACE loan comes out of the money that is owed to the bank. With the housing market the way it is, many homes going into foreclosure are worth less than what’s owed on them, and mortgage holders are already losing money on foreclosure sales as it is. A PACE loan would further reduce the amount of money available to pay the mortgage holder, making lenders even worse off.

      A second problem they saw was that, again with the economy and the housing market in such bad shape, adding PACE repayments to homeowners monthly mortgages might increase the probability that people would default on their mortgages. And while this ignores the fact that the whole point of the PACE program is to save homeowners money, making it easier for homeowners to take on even more debt might just be a bad idea on general principle.

      For all these reasons, FHFA issued a statement in July 2010 declaring the PACE financing programs violated standard mortgage agreements and instructed Fannie Mae and other mortgage lenders under its jurisdiction to use more restrictive lending guidelines in any municipality that enacted PACE legislation, even if no PACE loans have been made. This essentially killed the PACE program altogether.

    4. For over a century, municipalities have used property taxes and assessments to finance projects that achieve a broad range of public purposes established in laws enacted by our elected state and local representatives. Like all municipal assessments, PACE assessments in arrears have a senior lien to mortgage payments in the event of a default. Recognizing this, PACE advocates began a dialogue in 2008 with Fannie Mae, Freddie Mac, and their regulator, the Federal Housing Finance Agency (FHFA) to find ways to address their concerns. Broad safeguards were developed as program guidelines by a working group that included the U.S.Department of energy to ensure that PACE programs would be beneficial to building owners, municipalities, and mortgage lenders.

    5. Despite the fact that FHFA raised some legitimate concerns about PACE programs, many people, think these could have been addressed through something other than the nuclear option that FHFA deployed. Had FHFA come to the table in problem-solving mode, some reasonable solutions could have been found, like restricting PACE financing to homeowners with enough equity in their homes to cover their mortgages plus whatever PACE would have added, plus a margin of error. Unfortunately the regulators at FHFA approached PACE as a fundamental threat to the residential mortgage market and killed it.

    6. Notwithstanding these measures, on July 6, 2010, the FHFA issued a statement that directed Fannie Mae and Freddie Mac not to underwrite mortgages for properties with a PACE assessment. It further directed mortgage lenders to redline communities with PACE programs by tightening lending standards (which, ironically, has the effect of reducing property values in such communities, devaluing lenders’ collateral). FHFA based its action on two astonishing claims.
      • PACE benefits, articulated and codified by state and local governments in 23 states, do not meet a valid public purpose.
      • PACE program defaults, estimated to be no more than $200 per average home, raise concerns with regard to the safety and soundness of the mortgage industry.

    7. PACE still exists in a few places where the legislation explicitly made repayment a second priority behind the mortgage in a foreclosure sale. In these cases, since the mortgage gets paid before the PACE assessment, FHFA and the banks don’t mind so much and are willing to let it go. But of course, this undermines one of the great benefits of PACE programs in the first place, the fact that the loans are secured by the equity in the house. Home retrofit lenders don’t want to be put second in line for repayment any more than FHFA does, and in this market, being second in line provides very little security, eliminating much of the benefits that PACE programs were meant to provide, sending us back to square one.

    8. In December 2010, California and numerous local governments and organizations filed suit in federal court against FHFA (State of California, the City of Palm Desert, County of Sonoma, and County of Placer, California, the Sierra Club, National Resources Defense Council, Town of Babylon, New York, County of Leon, Florida) Suit in 9th Circuit – Northern California – April 2012

    9. On July 20, 2011, HR 2599 - The PACE Assessment Protection Act of 2011 - was introduced in the House of Representatives by Congresswoman Nan Hayworth (R-NY) and Congressmen Dan Lungren (R-CA) and Mike Thompson (D-CA). To prevent Fannie Mae, Freddie Mac, and other Federal residential and commercial mortgage lending regulators from adopting policies that contravene established State and local property assessed clean energy laws

  17. Partnership Flip Transaction - The developer forms an LLC to construct the project and enter into a PPA or lease to an offtaker. Just before COD, the developer typically sells an interest in the LLC project company to a tax equity investor or investors. Since the LLC then will have two owners and it is generally treated as a flow-through entity for tax purposes, the LLC becomes a tax partnership and the developer and the tax equity investor then become partners in a tax partnership.

    Under special allocation tax rules set forth in IRS guidelines and/or regulations, most (in many cases as high as 99 percent) of the tax credit and tax losses of the partnership are allocated to the tax equity investor for the period during which the project generates tax losses, usually five years to seven years, after which the allocations “flip” with the majority of future taxable income allocated to the developer (the “flip date”).

  18. PPA - Power Purchase Agreement - Contracts between two parties, one who generates electricity for the purpose of sale and one who is looking to purchase electricity. Financing for the project is delineated in the contract, which also specifies relevant dates of the project coming into effect, when the project will begin commercial operation, and a termination date for which the contract may be renewed or abandoned. All sales of electricity are metered to provide both seller and buyer with the most accurate information about the amount of electricity generated and bought.

    The PPA is often regarded as the central document in the development of independent electricity generating assets (power plants), and is a key to obtaining project financing. By clearly defining the output of the generating assets (such as a solar electric system) and the credit of its associated revenue streams, a PPA can be used by the PPA provider to raise non-recourse financingfrom a bank or other financing counterparty.

    Electricity rates are agreed upon as the basis for a PPA. Prices may be flat, escalate over time, or be negotiated in any other way as long as both parties agree to the negotiation. A PPA will often specify how much energy the supplier is expected to produce each year and any excess energy produced will have a negative impact on the sales rate of electricity that the buyer will be purchasing. This system is intended to provide an incentive for the seller to properly estimate the amount of energy that will be produced in a given period of time.

    PPA's are differentiated by the source of energy harnessed.
    1. SPPA - Solar Power Purchase Agreement - In the United States, the SPPA depends heavily on the existence of the solar investment tax credit, which was extended for eight years under the Emergency Economic Stabilization Act of 2008. The SPPA relies on financing partners with a "tax appetite," profits that are subject to taxation, who can benefit from the federal tax credit. Typically, the investor and the solar services provider create a special purpose entity that owns the solar equipment. The solar services provider finances, designs, installs, monitors, and maintains the project. As a result, solar installations are easier for customers to afford because they do not have to pay upfront costs for equipment and installation. Instead, customers pay only for the electricity the system generates. With the passage of the American Recovery and Reinvestment Act of 2009 the solar investment tax credit can be combined with tax exempt financing, significantly reducing the capital required to develop a solar project.

    2. WPPA - Wind Power Purchase Agreement - Not found quite as prolifically as their solar counterparts, but they do exist. Wasatch Wind in Wyoming entered into a twenty year WPPA with PacifiCorp in July 2010 for its Pioneer Wind Park.

    3. Federal PPAs - Current law restricts most of the Federal government of the United States from entering into a contract longer than ten years. PPA contracts, particularly for larger systems, need at least a 20 year term. In 2009, the Senate Committee on Energy and Natural Resources passed S. 1462, which among other things, would have allowed federal agencies to enter into power purchase agreements for renewable energy for up to 30 years. However, the DOD has a separate authority to enter into energy contracts for as long as 30 years. Using this authority, the Navy recently signed a renewable energy project for Marine Corps Air Station Miramar and the Nellis AF Base Solar Power Plant generates 30 million KWh of electricity per year—equivalent to a quarter of the total power used at the 12,000-person base.

    4. Residential PPA's - Historically PPA's were only done on large commercial systems over 100 kW in size. Now this type of financing is being applied to small systems. Someone else owns the solar system on residential property, and the homeowner pays for the power it produces. Since the homeowner receives a monthly charge for electricity, the economics are very simple to evaluate, and if it’s cheaper than the electric bill then it’s a no brainer. Residential PPA's are fairly new, here are some questions to ask
      • Are there any costs to buy out the lease or PPA early?
      • What is the implicit interest rate that the homeowner is paying in the PPA?
      • What happens if the homeowner needs a new roof and the system needs to be moved?
      • Whose responsibility is it to restore the roof and replace shingles or tiles if the homeowner decides to have the system removed at the end of the term?
      • What happens if the homeowner sells their home?
      • What if someone who wants to buy the house but doesn’t qualify to assume the lease/PPA?
      • What if someone who wants to buy the house but doesn’t want the solar system?
      • Does the company provide production guarantees?
      • Is the homeowner responsible for any of the maintenance or monitoring?
      • Could the system be repossessed or removed if the PPA/leasing company gets into financial trouble?

  19. PPP - Public Purpose Program - In California, a portion of the amounts collected through utility rates funds important public benefit programs. Such programs range from assistance to low income customers, in the form of rate discounts (California Alternate Rates for Energy) and energy efficiency and conservation programs targeting such households, to broader support for energy efficiency and renewable energy program.

  20. QECB - Qualified Energy Conservation Bonds - Federally-subsidized debt instruments for state and local governments - The Energy Improvement and Extension Act of 2008 authorized the issuance of QECBs that may be used by state, local and tribal governments to finance certain types of energy projects. QECBs are qualified tax credit bonds, and in this respect are similar to new Clean Renewable Energy Bonds or CREBs. The October 2008 enabling legislation set a limit of $800 million on the volume of energy conservation tax credit bonds that may be issued by state and local governments. The American Recovery and Reinvestment Act of 2009 expanded the allowable bond volume to $3.2 billion. Subsequently, H.R. 2847 enacted in March 2010 introduced an option allowing issuers of QECBs and New CREBs to recoup part of the interest they pay on a qualified bond through a direct subsidy from the Department of Treasury.

    With tax credit bonds, generally the borrower who issues the bond pays back only the principal of the bond, and the bondholder receives federal tax credits in lieu of the traditional bond interest. The tax credit may be taken quarterly to offset the tax liability of the bondholder. The tax credit rate is set daily by the U.S. Treasury Department; however, energy conservation bondholders will receive only 70% of the full rate set by the Treasury Department under 26 USC § 54A. QECB rates are available here. Credits exceeding a bondholder's tax liability may be carried forward to the succeeding tax year, but cannot be refunded. Energy conservation bonds differ from traditional tax-exempt bonds in that the tax credits issued through the program are treated as taxable income for the bondholder.

    Only ~10% issued to date. They have extremely attractive terms. ~2% interest over 10-15 years typical. Bond proceeds must be used for qualified public purposes, but commercial building upgrades may qualify as having a "public purpose‟ in Boulder County, CO.

  21. SAVE Act - The Sensible Accounting to Value Energy Act - Legislation to improve the accuracy of mortgage underwriting used by federal mortgage agencies by including a home's expected energy cost savings when determining the value and affordability of energy efficient homes. Utility bills are usually larger than either real estate taxes or homeowners insurance, but they are currently ignored in mortgage underwriting.

    Included by the Senate in Amendment 3042 to the Energy Policy Modernization Act of 2016.

    Specifically, the SAVE Act directs the Department of Housing and Urban Development (HUD) to issue guidelines for the Federal Housing Administration (FHA) to account for the expected energy cost savings in determining the debt-to-income ratio and loan-to-value ratio. As a result, high-performing homes will be appraised at a higher value and be more affordable to the homeowner—with no cost to taxpayers.

  22. Shared Savings Contract - The dollar value of the measured energy savings is divided between the building owner and ESCO. If no energy cost savings are realized, the owner continues to pay the energy bill, but does not incur any expense to the ESCO for that period. In the “paid from savings” contracts, the building owner pays the ESCO a predetermined amount each period (for example, an amount equal to 80% of the expected energy bill had the improvements not been made). Under “guaranteed savings” contracts, the ESCO guarantees that energy cost savings will exceed an agreed upon minimum dollar value. To ensure a positive cash flow to the owner during the ESPC term, the guaranteed minimum savings typically equals the financing payment for the same period. ESCO pricing often includes a fee that covers on-going monitoring, measurement and verification costs and a premium for assuming underperformance risk.

  23. Sale Leaseback - the developer enters into a PPA or a lease with the offtaker, such as a utility, commercial building owner or residential customer, before the commercial operation date (COD). The developer then sells the entire project to the tax equity investor at COD. The tax equity investor then leases the property back to the developer so that the developer is then the lessee under the lease from the tax equity investor and is also the service provider under the PPA or the sublessor to the offtakers (a “head lease/sublease”).

    The tax equity investor claims tax ownership and the entire 30 percent energy tax credit and all tax losses from the project. It receives rent from the developer lessee, some portion of which may be prepaid by the developer from its sale proceeds. Normally, the tax equity investor will have a security interest in the developer sublessor’s PPA or sublease in order to secure the performance by the lessee developer of its rent obligations under the head lease.

  24. Solar Lease - Allows a customer to make a monthly payment over a fixed term, like 5, 10, or 15 years. At the end of the term the homeowner will have the option of paying for the remaining value of the system or having it removed. Interest is charged on the balance of the value of the solar system for the duration of the lease. In both a lease or power purchase agreement, the company receives both the tax credit and any state rebates.

  25. Tax Equity Investor - In order to make solar projects economically viable, Congress enacted energy tax credit and grant programs as well as favorable depreciation rules. For solar projects developed through 2016, the credit (or the grant for those projects eligible) is 30 percent of the eligible purchase price of the project. Five-year MACRS accelerated tax depreciation deductions are also allowed on that cost.

    If the developer were to be the only investor in the project, the project might still not generate an after-tax profit for the developer since most developers do not have the tax capacity to utilize those tax benefits. Thus, in order to make full use of those tax benefits, developers in many cases have sold a portion of their interest in a project to banks and corporations that have the tax capacity to use those tax benefits
3. Business Case
  • The upfront capital requirements for Energy Efficiency and Renewable Energy projects is often to high for consumer to pay with cash on hand or businesses to including in operating budgets, but getting financing for these projects can be difficult.

  • This leaves the retrofit and renewable energy markets in something of a bind. Fortunately, the situation is not impossible, and there are a few proposals and finance vehicles designed to offer a way out of this bind.

4. Benefits
  • More Jobs - University of Massachusetts at Amherst economic researchers developed employment estimates for various energy sources, including energy efficiency strategies. Their data show that investments in energy efficiency creates 2.5 to four times more jobs than that for oil and gas development and renewables create 2.5 to three times more jobs than that for oil and gas development.

  • Increased Home Value - An exhaustive study of housing sales prices in California conducted by Lawrence National Laboratory finds that adding solar to an existing home raises its resale value by $5.50/watt (DC), with the range of results across various models being $3.90 to

    New homes with PV demonstrating average premiums of $2.3 to 2.6/watt, while the average premium for existing homes with PV being more than $6/watt. The report offers a number of possible explanations for why this disparity might exist, including differences in the underlying net installation costs for PV systems between new and existing homes. Additionally, new home builders may gain value from PV as a market differentiator, and have therefore often tended to sell PV as a standard (as opposed to an optional) product on their homes and perhaps been willing to accept a lower premium in return for faster sales velocity and decreased carrying costs. The report is here, and the executive summary for non-math majors is here.

  • Competition - By emphasizing services specific to “electricity delivery,” solar service providers often take a technology- and/or brand-agnostic approach and subsequently identify the lowest module vendors to sell through.

  • Performance Contracting Benefits
    • Reduced risk - the ESCO takes on the risk of not achieving the prescribed savings
    • Turn-key services - the ESCO provides all required services
    • Your business or institution needs less internal expertise
    • Project financing can be ‘off balance sheet' and not affect debt load
    • State-of-the-art products and services are used
    • Additional efficiency improvements can be paid for out of the energy savings

5. Risks/Issues
  • Cost Effectiveness of ESPC's - A 2005 GAO Study disclosed ESPCs in which unfavorable contract terms, missing documentation, and other problems caused GAO to question how consistently savings cover costs. Furthermore, differing interpretations of the law establishing ESPCs about what components of costs must be paid for from the savings generated by the project or may be paid for using other funding sources have contributed to uncertainties about whether savings are appropriately covering costs.

  • First Cost Barrier - Most property owners have a short focus We need to get beyond 1-3 year paybacks
  • Owner Turnover
  • Split Incentives - Owners don’t make efficiency investments because it’s the renters who pay the energy bills. And renters don’t make investments in property they don’t own. The result is housing that wastes energy and costs more than it should.
  • Level of Public Subsidy
  • Prior Pledge of Asset 
  • Jurisdictional Ambiguity
  • Existing mortgage constraint
  • Credit Risk - Project owner may not pay debt service
  • Performance Risk - Actual Energy Savings may not be enough to cover debt service
  • Customer Behavior Risk - Change in Occupancy/Operating habits may affect energy cost
  • Lack of Technical Expertise - Even if a building owner is personally interested in energy efficiency, she is likely unsure whom to trust. Shopping for energy-using devices isn’t a weekly chore, like picking up groceries. It’s rare, the vendors tend to be specialized, and many of the devices must be installed by specialized tradespeople. Not all such tradespeople are reputable and reliable. Most small building owners are not general contractors, engineers or architects. How are they supposed to make informed decisions about such things.
  • Public Fund Leverage - The majority of current programs remain focused on the provision of either direct loans or grants, often with limited requirements to leverage additional funding.

  • Long Term Commitment - To-date, the majority of ESCO work has been performed in the Municipal, University, Schools and Hospital (MUSH) market, principally because the ESCO business model is based on large, long-term ESPC contracts and significant government funding is available. It requires clients like MUSH owners who typically have very large energy efficiency retrofit projects (for example, involving multiple buildings on a university campus) and are committed to operate their properties for relatively long time spans.

  • Commercial Investment /Multi-Tenant Market - While ESCOs have made some progress in the owner-occupied segment of the CRE industry, this has not been the case in the multiple tenant segment (or the traditional CRE investment sector), where building turnover is much more frequent and often opportunistic, i.e., on average every 4–7 years.

    Use of the PACE financing structure would allow ESCOs to expand into the much larger multi-tenant building sector. With the lien attached to the property and not the property owner, ESCOs can undertake in both of these CRE sectors deeper retrofits with greater energy savings and longer payback periods, even if the owner only plans to hold the property for a few years. T

6. Case Studies
  1. Community Solar Programs - Existing programs:
    1. Ashland, Oregon - SolarPioneers

    2. Ellensburg, Washington

    3. Sacramento Municipal Utility District (SMUD), California - Solar Shares Program - SMUD retires associated Renewable Energy Certificates (RECs) on behalf of the customers, and cannot resell them, so that participating homes are truly solar powered.

    4. St. George, Utah - SunSmart - A community solar farm built by the City of St. George Energy Services Department and Dixie Escalante Electric. The program itself is simple, with no set-up, no maintenance and no risk to the purchaser. Purchasers of SunSmart will own the unit for a minimum of 19 years, equivalent to the life of an average solar panel. After 19 years, the panels will be evaluated to determine if they need to be replaced or repaired and how much it would cost to do so. This type of program is so innovative that legislation on a federal tax credit has not been created yet.

    5. Bainbridge Island, Washington - Community Energy Solutions - The founders realized that many residents on Bainbridge Island lack the optimal site for investing in PV. Thus, they devised a plan to aggregate citizen investments and install a single Community Solar system on a public building. This community ownership concept, however, did not benefit from the Washington State Production Incentive at that time (2008), as this incentive program required single ownership of a PV system at a single meter (Washington SB 6170, passed in May 2009 and effective July 1, 2009, enables CommunitySolar projects to qualify for the incentive.

    6. Florida Keys Electric Coop, Florida - Simple Solar Program - Co-op members who support alternative energy but don't want the hassle of designing, permitting, building, maintaining and insuring their own residential solar arrays can now lease panels in FKEC's existing array. In return for leasing one or more panels for $999 each, members receive monthly bill credits for the full retail value of the electricity generated by their leased panel(s) for 25 years.

      One of the major advantages of the program is that FKEC will maintain the solar array so the consumer only pays the one-time cost of the panel. Each 175-watt panel will generate around $36 in bill credits in the initial year. Assuming a 3% annual increase in the retail price of electricity, the $999 investment per panel should return about $1,280 in total credits.

    7. Holy Cross Energy, Colorado - Clean Energy Collective - Residential and commercial customers can purchase shares (watts) of the solar array upfront at a cost of $3.15 per watt ($3,150 per kilowatt). Community owners will then receive a credit on their bill each month at a rate of $0.11 per kilowatt-hour (kWh). The kWh production owners are credited with is based on the actual production by the number of how many watts each member owns. Because operation and maintenance costs of the 80 kW solar array in El Jebel, Colorado are included in the upfront cost, owners will receive the monthly benefits for a term of 50 years. The CEC’s proprietary RemoteMeter™ system automatically calculates monthly credits for members and integrates with utilities’ existing billing system.

    8. Seattle City Light - Community Solar - Beginning in June 2011, on a first-come, first-serve basis, up to 500 City Light customers will be able to purchase a portion of the solar energy generated by new solar picnic shelters at Jefferson Park. Customers can buy into the community solar project for $600 per portion (limit 2 portions per participant). Participants will receive an annual bill credit for the electricity generated by their portion of the community solar project. They may also be eligible for production incentives over the course of the nine year project term.

      In partnership with Seattle Parks and Recreation, City Light has designed innovative picnic shelters with roofs made of solar panels to be installed at Jefferson Park this summer. The new solar picnic shelters will provide park goers a place to enjoy the park while generating approximately 24,000 kilowatt-hours of clean electricity annually for community solar program participants.

  2. CSI - California Solar Initiative - The CSI Program has a budget of $2.167 billion over 10 years, and the goal is to reach 1,940 MW of installed solar capacity by the end of 2016. The goal includes 1,750 MW of capacity from the general market program, as well as 190 MW of capacity from the low income programs. The general market program is the main incentive program component of the CSI, and is administered through three Program Administrators: PG&E, SCE, and California Center for Sustainable Energy (CCSE) in SDG&E territory.

    The first step in applying for CSI incentives is to complete a energy efficiency audit. (See my blog article Energy Audit. Energy-saving actions are the best way to save energy, reduce your energy bills and provide real, lasting benefits to the environment. Plus, the size solar system needed is reduced, saving thousands in up-front installation costs.

    The CSI Program is designed to be responsive to economies of scale in the California solar market – as the solar market grows, it is expected solar system costs will drop and incentives offered through the program decline. The CPUC divided the overall megawatt goal for the incentive program into 10 programmatic incentive level steps, and assigned a target amount of capacity in each step to receive an incentive based on dollars per-watt or cents per-kilowatt-hour. The MW targets in each incentive step level are assigned to particular customer classes (residential, commercial, and government / non-profit) and allocated across the three IOU service territories, in proportion with each group’s contribution to overall state electricity sales.

    Once all the MW targets in a particular incentive step level are reserved via CSI application, which can occur at different times for each customer class in each utility service territory, the incentive level offered by the CSI Program automatically reduces to the next lower incentive step level. This creates a demand-driven incentive program that adjusts solar incentive levels based on local solar market conditions. For example, in June 2011, SCE was in Residential Step 6 equaling $0.15/KWh or $1.10/W and PG&E was in Residential Step 8 paying $0.05/KWh or $1.10/W

    CSI Steps and MW Installed

    CSI incentive types
    1. EPBB - Expected Performance-Based Buydown (Paid in dollars/Watt)
      • Ideal for residential and small business projects
      • Systems less than 30 kW
      • Incentive paid per Watt based on your system's expected performance (factors include CEC-AC rating, location, orientation and shading)
      • One-time, lump-sum upfront payment
    2. PBI - Performance-Based Incentive (Paid in cents/kWh)
      • Ideal for larger commercial, government & non-profit projects
      • Mandatory for all systems 30 kW and greater Systems less than 30kW can opt-in to PBI
      • Incentive paid based on the actual energy produced by the solar system, measured in kilowatt-hours
      • 60 monthly payments over five years

    3. MASH - Multifamily Affordable Solar Housing - A program of the California Solar Initiative (CSI) that provides financial assistance for the installation of solar PV generating systems on low-income multifamily housing. 3.8 MW of solar capacity is now interconnected on 67 multi-family affordable housing building serving 4,213 tenant units. 271 MASH Track 1 projects are currently reserved, with capacity of more than 16.7 MW. MASH is now successfully utilizing Solar PPA's..Sonoma County, California -

  3. Sonoma County Energy Independence Program, California - Nation’s largest PACE program
    1. $40+ million disbursed
    2. 1,300+properties
    3. Tax delinquencies are 50%+ lower on PACE homes
  4. CEFIA - Connecticut Clean Energy Finance and Investment Authority - In June 2011, Senate Bill 1243, passed into law revamping the state’s existing clean energy fund to become a green bank which will leverage government dollars to provide low-cost financing to clean energy projects and increased financing to energy efficiency initiatives. It will also allows municipalities to create PACE programs to finance efficiency retrofits and clean energy systems. PACE programs have stalled in the US due to the objections of federal regulators, who said PACE bond repayments must be subordinate to the mortgages issued by mortgage giants Fannie Mae and Freddie Mac in the event of foreclosure. The Connecticut bill states that PACE liens do not have priority over existing mortgages.

    Some PACE advocates don't think these PACE "second mortgages" will work. David Gabrielson, executive director of PACENow and councilman for the town of Bedford, New York. "These types of “sub-PACE” programmes either require substantial cash reserves to make a bond issue credit worthy or may not work at all. It's a terrible outcome for commercial PACE because I think it means that a property owner and existing lender can't even negotiate whether or not a senior lien should be granted,” he said. “And these sub-PACE laws also open the door to mortgage lender protests for all other future municipal assessments in a worst case.”

    Additionally, the legislation creates a portfolio of incentives for clean energy and efficiency projects, including a renewable energy credit incentive programme supporting construction of hundreds of megawatts of small scale renewable energy systems. The bill also establishes the new Department of Energy and Environmental Protection, combining two existing state departments to allow for more effective coordination of state energy and environmental policies.

7. Companies/Organizations
  1. 1BOG - One Bock Off the Grid, San Francisco - Makes it easier and more affordable for homeowners to go solar by organizing group discounts, vetting solar installers, and providing objective information and advice along the way. 1BOG has partnered with PPA providers in some areas, so their customers can get 15% off the cost of solar panels for their home in addition to PPA financing.

  2. Ameresco, (NYSE: AMRC) Framingham, Mass (Wikipedia)- The largest independent energy services company in North America. It has participated energy projects in the government, healthcare, public, and education sectors. Ameresco claims experience in demand-side management, energy savings performance contracts, cogeneration facilities, renewable energy sources, energy procurement, risk management, billing services and power plant development, financing, construction and operations.

  3. Carrier, a unit of United Technologies Corp. (NYSE:UTX), - Acquired Noresco in Nov 2008, one of the last independent U.S. ESCOs, previously a subsidiary of Equitable Resources Inc.

  4. CES - Chevron Energy Solutions, San Ramon, CA - With the 2000 acquisition of the PG&E Energy Services Unit, Chevron Energy Services has become the first energy company to enter the ESCO market.

  5. Honeywell Building Solutions SES A large ESCO that has completed more than 4,000 energy-saving projects, with central plant systems expertise, power generation, sustainability, integrated design, day-lighting, materials selection, indoor environmental quality, and facilities management expertise. In 2006, Honeywell acquired the energy services group of Sempra Generation.

  6. Metrus Energy, San Francisco - Founded 2009 - Provides capital, project development and asset management services for energy efficiency projects at large commercial, industrial and institutional facilities. Metrus offers comprehensive project financing solutions, including its Efficiency Services Agreement (ESA), whereby customer repayment is based on a cost per avoided unit of realized energy savings.

    For some commercial building owners, the problem isn't finding the money to pay for upgrades—it's losing the opportunity to use that cash for their core business. Metrus Energy Inc. an ESA that gets around that issue. For the life of the deal, Metrus owns the new energy-efficiency equipment, not the building owner.

    Under the Metrus model building owners maintain responsibility for payment of their reduced utility bills (which directly benefits tenants in a multi-tenant property) and pay Metrus’s fee (which is a pass-through operating expense paid by the tenant) out of the delivered energy savings. The Metrus fee is structured as a per unit-saved payment (i.e., a price per avoided kilowatt hour of electricity and/or avoided therm of natural gas), where the price for energy unit savings is set at a level below the prevailing utility price per unit of energy consumption. This arrangement establishes energy efficiency as a resource and is akin to a solar power purchase agreement, where the customer has no project performance or technology risk and pays only for realized, measured and verified energy savings. Metrus retains ownership of all project-related assets for the duration of the ESA term.

    At the end of the contract period, clients can purchase the equipment for fair market value. Metrus works with ESCO partners and typically prefers clients to have approximately $1 million or more in combined electricity and natural gas costs annually. Their energy efficiency projects typically have a payback period in the 3-7 year range. Metrus’ business model also can include energy savings insurance. To date, Metrus has focused principally on owner-occupied buildings.

  7. SCIenergy, Inc. - San Francisco -  A global leader in providing cloud-based energy management solutions for building owners and operators.

    In March 2012, SCIEnergy announced it has successfully completed the acquisition of Transcend Equity, a leader in delivering energy saving retrofits for commercial buildings.  As part of the deal, SCIenergy will maintain a joint venture agreement with Mitsui & Co. (U.S.A.), Inc., a leading trade and investment company and committed capital partner of Transcend Equity.

    Under the Transcend model, building owners pay Transcend a service fee based on historical energy costs. Transcend, in turn, pays the utility bill and earns its fee from savings generated by the efficiency improvements. The Transcend fee becomes an operating expense (pass-through to tenants) that replaces the utility bill and the building owner incurs no debt. At the end of the ESA term (typically 5-10 years), title associated with the improvements passes to the owner. If the building is sold, the contract can be assigned to the new owner (or terminated if preferred). Transcend will typically enter contracts where they envision at least a 25% savings on the current utility bill. The company’s ideal customer has a minimum aggregate space of 250,000 square feet, associated with one or more buildings. This is a relatively large building or complex.

  8. Sun West Mortgage Company - Cerrito CA - On May 15, 2012, Sun West announced it has teamed with the Electric & Gas Industries Association (EGIA) to offer homeowners’ access to the new Federal Housing Administration (FHA) sponsored PowerSaver Loan Program. Sun West is now accepting applications over the phone at (866) 7403677 or on the web at

    May 21 2012  Rates
    15 year5.750%7.345%
    20 year6.125%7.623%
    Assumptions: Rates based on $25,000 loan amount, LTV=<90%, no closing costs to borrower (closing costs paid via Sun West through federal grant), 7 day lock period, rates subject to change without notice.
8. Next Steps
PACE is a bipartisan issue Map Source: PaceNow

  • FHFA Rule Making

    Regulatory agencies like the FHFA are obliged to conduct rulemaking process before announcing a new regulation. It is a process designed to allow public comment and open access to the proposed rulemaking records. In the case of PACE, in July 2010, the FHFA released a Statement on Certain Energy Retrofit Loan Programs, which put a hold on residential PACE programs. Consequently, in August 2011, the United States District Court for the Northern District of California provided that the agency must undertake a formal rulemaking process.

    There are four steps to a rulemaking process and the first public comment step was closed March 26, 2012.  The agency received hundreds of comments and tens of thousands of form letters submitted though the FHFA rulemaking portal.

    The next step is for the FHFA to issue a proposed rule and then supporters will have another opportunity to comment and voice support for PACE. After a 30-day commenting process, the FHFA will issue a final rule and publish its official response to issues raised during the commenting process.

    The FHFA claims that the court did not have jurisdiction to rule in this case. The agency appealed the ruling. If the appeal is successful, then the rulemaking process will be voided. If the appeal is unsuccessful, the rulemaking process will continue. The agency is required to weigh all comments and perfom a thorough analysis of benefits involved in PACE programs.

    Additionally, as provided in the National Environmental Policy Act, the court ruled that the FHFA must conduct an Environmental Impact Assessment to assess the impact of freezing residential PACE programs.

  • HR 2599 - The PACE Assessment Protection Act of 2011 - Congressional Press Release - Introduced July 20, 2011in the House of Representatives by Congresswoman Nan Hayworth (R-NY) and Congressmen Dan Lungren (R-CA) and Mike Thompson (D-CA). To prevent Fannie Mae, Freddie Mac, and other Federal residential and commercial mortgage lending regulators from adopting policies that contravene established State and local property assessed clean energy laws.

    The Bill has bipartisan support with 53 co-sponsors,  nearly an even mix of Republicans and Democrats.  However, only 2 new co-sponsored have been added so far in 2012 and the last action w as August 22, 2011 when it was referred to House Insurance, Housing and Community Opportunity subcommittee.

    Subcommittee Members:
    Judy Biggert, IL, Chairman Luis V. Gutierrez, IL, Ranking Member
    Robert Hurt, VA, Vice Chairman    Maxine Waters, CA
    Gary G. Miller, CA Nydia M. Velázquez, NY
    Shelley Moore Capito, WV Emanuel Cleaver, MO
    Scott Garrett, NJ Wm. Lacy Clay, MO
    Patrick T. McHenry, NC Melvin L. Watt, NC
    Lynn A. Westmoreland, GA Brad Sherman, CA
    Sean P. Duffy, WI Michael E. Capuano, MA
    Robert J. Dold, IL
    Steve Stivers, OH

    The Bill will.
    1. Undo the damage: Rescinds 2010 guidance from FHFA, OCC, Fannie, Freddie and affirms validity of assessments. Prohibits discrimination against homeowners and communities with PACE.
    2. Resolve the legal question: Defines a PACE assessment as an “assessment,” not a “loan.”
      PACE lien does not accelerate in event of default. Only the amount of unpaid assessments have a senior lien (typically 1 year of payments out of a total of 15 years). As with all other benefit assessments, the remaining PACE balance of future payments would be assumed by the new home purchaser. This modification reduced PACE senior lien exposure from the full balance of the retrofit (approximately $15,000 on average) to only the delinquent back payment (approximately $1,500).
    3. Limit (eliminate) risk to Fannie/Freddie: Establishes national program standards: underwriting criteria, consumer protections, qualifying improvements, qualifying contractor
      • Homeowner must have at least 15% positive equity. (68% US homes meet criteria)
      • Projects capped at 10% of home value.
      • Homeowner must have solid property tax payment history.
      • Energy assessment must demonstrate projects pay for themselves
    Source: PACENow
  • Develop Secondary Market for “Unsecured” Financing. Create system for home energy loans that looks like auto loans and credit card receivables with standardized underwriting, reporting, and project requirements. “WHEEL” program based on Pennsylvania's Keystone HELP scheduled to launch mid-2011 is a promising approach.
  • Continue to Expand Commercial PACE - While residential programs are on hold, commercial PACE Programs are moving forward
    • Sonoma, Boulder, San Francisco, Los Angeles, Washington DC
    • Regulatory uncertainty remains
    • Nature of Commercial PACE Programs Vary Widely
      • Level of governmental support, types of projects, types of buildings
      • Different financing models: government funds, pooled bonds, or “owner arranged”
    • PACE Commercial Key Points
      • Massive untapped market for commercial retrofits
      • PACE may help avoid some split incentive issues
      • Financing is more complicated in commercial than residential
      • “Lender consent” is generally required
  • FHA Power Saver Pilot Project - In April 2011, HUD announced 18 national, regional and local lenders will participate in a new two-year pilot program that will offer qualified borrowers living in certain parts of the country low-cost loans to make energy-saving improvements to their homes. Options are limited for financing improvements, especially for the many homeowners who are unable to take out a home equity loan or access an affordable consumer loan. PowerSaver will give more homeowners the ability to live in greener homes.

    PowerSaver will enable homeowners to borrow up to $25,000 for terms as long as 20 years to
    make energy improvements of their choice, based on a list of proven measures developed by FHA and the U.S. Department of Energy (DOE). Examples of eligible improvements include insulation, duct sealing, energy efficient doors and windows, energy efficient HVAC systems and water heaters, solar panels and geothermal systems. FHA encourages consumers to utilize an ENERGY AUDIT audit to determine the most cost effective improvements for their home.

    Loan interest rates are expected to be between 5 and 7 percent – comparable to or lower than
    other options available to most homeowners. PowerSaver loans generally will be secured by a
    mortgage or deed on the home that is subordinate to any existing first mortgage. PowerSaver loans will be backed by the FHA – with significant “skin in the game” from private lenders. Federal mortgage insurance will cover up to 90 percent of the loan amount in the event of default. Lenders will retain the remaining risk on each loan, incentivizing responsible underwriting and lending standards. FHA will provide streamlined insurance claims payment procedures on PowerSaver loans. In addition, lenders may be eligible for incentive grant payments from FHA to enhance benefits to borrowers, such as lower interest rates.

    Borrowers must have credit scores of at least 660 and their total debt to income ratios cannot exceed 45 percent. The combined loan-to-value ratio for all loans on a home, including the PowerSaver loan, cannot exceed 100 percent. Participating lenders will be required to target markets that have already taken affirmative steps to expand home energy improvements.

  • HUD Green Refinance Plus - In Jun 2011, the U.S. Housing and Urban Development Department (HUD) announced a new refinancing program that could boost energy efficiency in older affordable housing. Owners of older multifamily affordable properties often find it difficult to get financing to maintain or improve the physical condition of their properties, including making energy-efficient upgrades. Owners of newer properties typically refinance their mortgages every 10-15 years to make improvements.

    The Green Refinance Plus program, to be administered by HUD's Federal Housing Administration (FHA) and Fannie Mae, will make that financing available to owners of older properties. They anticipate approximately $100 million in initial refinance volume with an average loan amount of $3.5 to $5 million. (20 - 30 properties initially)

    FHA and Fannie Mae will share the risk on loans to refinance existing rent-restricted projects, and owners will be able to borrow additional funds to make energy- and water-saving improvements to their properties. Fannie Mae and its participating lenders will begin accepting applications soon.

    The initiative is intended to refinance the expiring mortgages of Low Income Housing Tax Credit properties, and other affordable projects, and to lower annual operating costs by reducing energy consumption.

    FHA has been under intense criticism from energy efficiency and renewable energy advocates over the last year after killing PACE, a popular program for financing home energy improvements.

9. Resources
  1. IMT -  The Institute for Market Transformation- founded in 1996, is a Washington, DC-based nonprofit organization promoting energy efficiency, green building, and environmental protection in the United States and abroad. The prevailing focus of IMT’s work is energy efficiency in buildings. Activities include technical and market research, policy and program development, and promotion of best practices and knowledge exchange.

    In particular, IMT aims to strengthen market recognition of the link between buildings’ energy efficiency and their financial value.
    To download PaceNow's talking points in PDF for the FHFA rulemaking click here.
    For more information download a recent Webinar explaining FHFA’s rulemaking process or download Webinar PowerPoint Presentation

  3. Environmental

  4. In June 2005, the GAO released a report, “Energy Savings: Performance Contracts Offer Benefits, But Vigilance Is Needed To Protect Government Interests.” The GAO ESPC study brings into question whether or not there is sufficient data to prove that the gains delivered by ESCOs are sustainable over time. The study further questions the practice of having ESCOs monitoring and validating the performance of their own projects.

  5. National Association of Energy Services Companies (NAESCO) publishes The Energy Efficiency Project Manual: The Customer's Guide to Upgrading Equipment While Reducing Facility Operations and Maintenance Costs through Energy Efficiency Contracting. It is a "how to" guide that covers techniques for financing and technical terms used in the contractual process. The Manual includes sample requests for quotation (RFQ's) and requests for proposals (RFP's), as well as standard contractual provisions. The 102 page manual is available from NAESCO ( for $40.

  6. US Dept Energy - Green Power Network

  7. Lawrence Berkeley Laboratory - Policy Brief Property Assessed Clean Energy (PACE) Financing: Update on Commercial Programs March 23, 2011

  8. The Constitutionality of Property Assessed  Clean Energy (PACE) Programs  Under Federal and California Law - A White Paper  Paul, Hastings, Janofsky & Walker LLP

  9. Emerging Best Practice for Underwriting Commercially- Attractive Energy Efficiency Loans white paper detailing best practices for underwriting energy efficiency loans
    Building Energy Performance Assessment News (BEPA)

  10. YieldCo's New financing strategies Chadbourne & Parke LLP Canada, USA August 9 2013