Innovations in Energy Efficiency Finance

September 22, 2011

Georges Dyer

Earlier this week I had the pleasure of attending an excellent event co-hosted by Citi and EDF on Innovations in Energy Efficiency Finance.  As you can see from the agenda below, it was a fully-packed day with an all-star cast of panelists diving deep into the barriers and solutions to financing energy efficiency projects.

Upfront it was acknowledged that huge potential exist from energy efficiency.  As this EDF blog post recently noted:“Using data from a 2009 McKinsey study, EDF estimates that there are at least $40 billion of investment opportunities for EE projects in commercial buildings that will provide annual returns in excess of 20%.” 

Panelists said financing was the biggest barrier to energy efficiency.  This is the same message we hear consistently from colleges and universities, which has led us to create the ACUPCC Financing Committee, and financing webpage on the topic.

Key take-aways included that this challenge is not new, we’ve been working on it for 30+ years; and while significant progress has been made in improving energy efficiency, tough barriers remain.  Many of those challenges revolve around risk.  In this low interest rate environment, the returns on energy efficiency are strong and clear, but risk can still inhibit projects from getting done.  Financing groups like Citi are creating new mechanisms for reducing risk, and are working with rating agencies and partnering (e.g. with the Better Buildings Initiative) to make progress.

Panelists noted the need for great communication, so it’s clear what the client wants.  Jonathan Maxwell of Sustainable Development Capital noted that key barriers can include access to the right kind of capital, and issues around technical know-how — the costs of investing too much staff time into energy efficiency projects can eat into returns.  A common scenario was laid out, where end-users start by seeking low-cost financing for energy efficiency, then decide that they can do it themselves on balance sheet at lower cost, but then find that on-balance sheet financing is not available, or some other impediment keeps projects from actually happening.

Cisco DeVries of Renewable Funding provided a stark analogy to illustrate part of the challenge, saying “buying energy efficiency is like asking someone to buy 20 years of cell phone minutes up front.”  This points to a threshold barrier, and the need to knock down upfront costs.  In discussing ideas and challenges for doing so, panelists touched on (relatively) new structures like Managed Energy Service Agreements that aim to get around the challenge of split incentives (where building owners invest in upgrades, and tenants realize the benefits of lower energy bills) and provide energy efficiency as a service, which can be taken off balance sheet.  The issue of accounting rules came up, and the perception that accountants tend to see all energy service deals as on balance sheet – a perception that needs to be adjusted in the market as these models evolve.

The concept of energy efficiency utilities was discussed – and panelist noted the need to get to a point where it doesn’t matter to the typical customer how kwh were avoided through energy efficiency projects, the same way it doesn’t matter to most customers now how kwh are generated.  The Sustainable Energy Utility of Delaware was presented as a successful model, where projects were pooled to achieve the scale necessary to overcome financing challenges.  The SEU sees plenty of additional opportunity to save energy within the “MUSH” market – Municipalities, Universities, Schools, Hospitals – and great potential to overcome some of the typical barriers by pooling projects to leverage economies of scale.

One concept that did not come up was how to ensure that savings from the low-hanging fruit (or “fruit on the ground”) are available to be reinvested in projects to pick the higher-hanging fruit.  The ACUPCC provides a framework for ensuring that this perspective is not lost, by putting a stake in the ground on the scientifically necessary goal of net-zero GHG emissions, and then taking abackcasting approach to identifying the most strategic and effective path for getting there.

It was inspiring and exciting to see a very dynamic mix of people in the room, all focused on making big breakthroughs that will enable us to dramatically reduce our energy consumption, and create jobs and a thriving clean, green economy in the process.  Stay tuned for more discussions, resources and focus on solutions to financing challenges throughout this year from the ACUPCC network.


09:00-09:15       Welcome and Opening Remarks

- Diane Regas, Vice President Programs, EDF

- Pam Flaherty, Director of Corporate Citizenship, and President and CEO of Citi Foundation

09:15-09:45       Framing the Market and the Day

Marshal Salant, Global Head of Alternative Energy Finance, Citi

- Bruce Schlein, Vice President of Corporate Sustainability, Citi

Focus on Credit: Aggregating and Pooling Understandable Counterparties

09:45-10:30        By Geography

- Dr. John Byrne, Co-Chair, Sustainable Energy Utility, Inc. (Delaware)

- Trenton Allen, Director, Municipal Securities, Citi

- Samuel Tumiwa, Deputy Regional Director, North American Representative Office, ADB

10:30-11:15       By Asset Class (residential and corporate)

- Alfred Griffin, Director, Alternative Energy Banking, Citi

- Cisco DeVries, President, Renewable Funding

- Sean Neill, Managing Director, Transcend

Focus on Performance: Energy Services Agreements and Other Approaches

11:45-12:45       A Discussion Led by Susan Leeds, CEO, NYC Energy Efficiency Corporation                          

- Bob Anderson, Managing Director and CEO, Green Campus Partners

- Claire Broido Johnson, Director, Serious Capital

- Steve Gossett, Vice President, Transcend

- Bob Hinkle, President and CEO, Metrus

- Jonathan Maxwell, Founding Partner and CEO, Sustainable Development Capital

12:45-01:45     Lunch (buffet – collect lunch and back at tables by 1:15pm)

- Remarks by Samuel A. Di Piazza, Vice Chair, Citi

Credit and Performance Enhancements

01:45-02:30       Measuring and Managing Performance

- Mary Barber, Campaign Director, EDF (Underwriting EE: Building Confidence in EE Investments)

- Mark Bowman, Director, Energy Efficiency Applications, Scientific Conservation (IT)

- Angela Ferrante, Director of Alternative Energy Solutions, Energi (Insurance)

02:30-03:15       Repayment: Utility On-Bill

- Brad Copithorne, Energy and Financial Policy Specialist, EDF

- Jeff Pitkin, Treasurer, NYSERDA

- Gil Sperling, Senior Advisor, DOE

03:15-03:45       Philanthropic Capital

- Margot Brandenburg, Associate Director, Foundation Initiatives, Rockefeller Foundation

- Jessica Boehland, Kresge Foundation

- John Goldstein, Imprint Capital

Synergies with, and Lessons Learned from, Distributed Generation

03:45-04:15      Case Study: Solar Finance

- Jason Cavaliere, Director, Alternative Energy Finance, Citi

- Michael Mittleman, Director, Energy Efficiency Finance, SolarCity

04:15-04:30      Conclusions: Outstanding Barriers and Opportunities to Collaborate

- Mike Eckhart, Global Head of Environmental Finance and Sustainability, Citi

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