As EE public financing dies (for now) in Washington, a look at other models

The Washington Legislature has killed, for now, a plan to allow municipalities to sell bonds to fund programs that finance commercial and residential energy efficiency retrofits and allow repayment on property tax bills. Rest assured the idea will rise again in the Evergreen State.

In the meantime, a new report from the non-profit venture capital group  California Clean Energy Fund (CalCEF) offers an interesting look at some other things happening in the financial-engineering world that can help businesses invest in energy efficiency without depleting capital from their core business.

The report’s authors neatly sum up the conflict: Energy efficiency  “immediately saves money for end-users, improves the bottom line for companies, reduces local exposure to electricity grid outages and offsets the need for new power plants.  Yet, efficiency upgrades and their respective financing options are often out of reach for most end-users, as the initial capital cost exceeds near-term savings.”

Property Assessed Clean Energy financing of the sort the Washington Legislature considered this session is one solution examined in the report by CalCEF Innovations, the CalCEF program focused on finance and policy improvements. CalCEF emerged from the energy-crisis bankruptcy of California’s Pacific Gas & Electric, which was compelled to invest $30 million in the fund to develop clean-energy solutions to energy market volatility.

The report also looks at on-bill financing, third-party investment derived from the so-called energy performance contracting model favored by many Energy Services companies, and utility-funded scheme to install gear to freeze water at night that then can be used to chill air-conditioner refrigerant during the day when the AC would otherwise rely on electricity to run chillers.

Among the highlights:

• The California Public Utilities Commission has put a strong emphasis on on-bill financing for energy efficiency and has authorized the state’s investor-owned utilities to provide $41.5 million in energy efficiency financing between now and 2012. While on-bill repayment isn’t new and it won’t revolutionize energy efficiency projects (most OBF jobs are still lighting upgrades), it is nice to see the regulators on-board with this kind of solution.
• A Dallas-based firm called Transcend Equity is making a business of using its own capital to upgrade buildings owned by individual real estate investors and real estate investment trusts (REITs). The so-called Managed Energy Services Agreement has Transcend invest its money in the energy efficiency upgrades. It then takes over the energy bills for the building or buildings while the owners pay Transcend an agreed-upon amount base on average energy expenses for a predetermined contract period. During the contract, Transcend pockets the difference, covering the capital costs and making some profit. At the end of the deal, the property owner keeps the capital equipment, realizes the lower energy bills (and the concurrent higher net operating income) and a more valuable building.

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