Secrets of Efficient, Scalable Energy-Efficiency Financing

Transcription

1 Secrets of Efficient, Scalable Energy-Efficiency Financing Moderator: Panelists: John Francisco, Inland Power Pat Keegan, Collaborative Efficiency Mary Templeton, Michigan Saves Elizabeth Moore, Tennessee Valley Authority

2 Efficient and Scalable Energy Efficiency Financing NORTHWEST ENERGY EFFICIENCY EXCHANGE APRIL 27, 2016

3 Who is Collaborative Efficiency EE, demand response, solar, electric vehicles Focus on co op, municipal utilities Projects in SC, KS, NC, CO, WA, MI, OR, TN More than 20 EE related publications since 2013 Talk constantly to co ops or municipal about EE

4 Outline Energy Efficiency Financing Developments Benefits of a Financing Program Features of Successful Programs Resources COLLABORATIVE EFFICIENCY SPOKANE, WA + SEATTLE, WA

5 EE Financing Developments

6 Some Collaborative Efficiency Financing Projects Inland Power and Light Holland, MI/ Michigan Saves Community Power Works City of Seattle National Rural Electric Cooperative Association Environment and Energy Study Institute Enhabit (formerly Clean Energy Works) Roanoke Electric Cooperative Platte River Power Authority Midwest Energy Tennessee Electric Co op Association Electric Cooperatives of South Carolina COLLABORATIVE EFFICIENCY SPOKANE, WA + SEATTLE, WA

7 Collaborative Efficiency Colleagues Christine Grant Amy Wheeless COLLABORATIVE EFFICIENCY SPOKANE, WA + SEATTLE, WA

8 Co op Financing Programs 124 co op programs at 113 co ops in 26 states COLLABORATIVE EFFICIENCY SPOKANE, WA + SEATTLE, WA

9 Co op Financing Nationwide 112 of the programs finance residential measures 9 finance residential or commercial measures 3 finance commercial or industrial measures Eligible Sectors Res Res/Comm Comm/Ind COLLABORATIVE EFFICIENCY SPOKANE, WA + SEATTLE, WA

10 NW Utility EE Financing COLLABORATIVE EFFICIENCY SPOKANE, WA + SEATTLE, WA

11 EE Financing is Growing History: More failures than successes Recently great progress Mass Save New York California Warehouse for EE Loans (WHEEL) Clean Energy Works (Enhabit) Michigan Saves Tennessee Valley Authority COLLABORATIVE EFFICIENCY SPOKANE, WA + SEATTLE, WA

12 Financing Sources for Co ops, Rural Entities Rural Utility Service Energy Efficiency and Conservation Loan Program Low interest Amount available = $ billions available now Rural Energy Savings Program (RESP) Zero interest Limited amount, could be available in June COLLABORATIVE EFFICIENCY SPOKANE, WA + SEATTLE, WA

13 EE Financing Benefits

14 On Bill Financing (OBF) Benefits Member satisfaction Enhance role as trusted energy adviser Assist compliance with savings targets Enable beneficial electrification Benefit customer Benefit environment Benefit utility Reach underserved members COLLABORATIVE EFFICIENCY SPOKANE, WA + SEATTLE, WA

15 OBF Financing Can Reach Underserved Rebate programs only serve customers with cash or credit Low income programs small, underfunded For decades, many customers have not been served by programs they help pay for Many high bill complaints come from this group Some OBF programs reach underserved COLLABORATIVE EFFICIENCY SPOKANE, WA + SEATTLE, WA

16 Could OBF Be Financially Sustainable? Stretch limited rebate $ Reduce (or eliminate?) dependence On BPA On utility budget Reduce (or eliminate!) cost to non participants Possibility of financial sustainability COLLABORATIVE EFFICIENCY SPOKANE, WA + SEATTLE, WA

17 Features of Successful Programs

18 Some Features for Success Scale Standardized, automated, efficient procedures Target those who need financing Programmatic driver (marketing, incentives) Legally compliant Strong partners, contractors, trade allies Sustainable source of capital COLLABORATIVE EFFICIENCY SPOKANE, WA + SEATTLE, WA

19 Loan vs Tariff Repayment Mechanism Financial obligation to individual? Disconnect for nonpayment? Loan On bill or off bill Usually yes. Some states allow loans to be attached to meter Sometimes Regulated by Federal and state consumer lending laws Advantage Familiar to financial institutions Tariff On bill only Usually no Usually yes PUC or self regulated Less rigorous credit requirements COLLABORATIVE EFFICIENCY SPOKANE, WA + SEATTLE, WA

20 Voluntary Tariff Programs Explored Collaborative Efficiency Spokane, WA + Seattle, WA

21 Possible Advantages of Tariffs No new debt obligation for participants Easier for renters/those with tarnished credit to participate Low risk for utility. Primary risk is inactivity of meter Consumer lending laws not applicable (at this time) Updating billing systems to include a tariff is simpler Package program is available (Pay As You Save) COLLABORATIVE EFFICIENCY SPOKANE, WA + SEATTLE, WA

22 Resources

23 Resources NRECA Financing Member Investments in Efficiency and Solar Send to get on TechUpdate mailing list: EESI Send to for a complete list of links to financing resources COLLABORATIVE EFFICIENCY SPOKANE, WA + SEATTLE, WA

24 On Bill Financing Project Assistance EESI offers free assistance to co ops: Provide experience and lessons learned from South Carolina co ops OBF pilot Assess whether OBF is a good fit Identify resources, help overcome barriers to get projects off the ground Help design the OBF program Help co ops apply for EECLP Advise on program implementation For more information: John-Michael Cross jmcross@eesi.org COLLABORATIVE EFFICIENCY SPOKANE, WA + SEATTLE, WA

25 COLLABORATIVE EFFICIENCY SPOKANE, WA + SEATTLE, WA

26 Questions? Pat Keegan

27 Secrets of Efficient, Scalable Energy Efficiency Financing Michigan Saves Making Energy Improvements Easy and Affordable michigansaves.org Mary Templeton, Executive Director April 27, 2016

28 What is Michigan Saves?

29 What the MPSC Asked For Monthly payment: - Principal - Interest - Administrative Fee

30 What We Gave Them Nonprofit organization staffed by management contract Process driven by research and stakeholders Loss reserve for lenders Oversight of authorized contractors Program guidelines and quality control Demand for energy efficiency through outreach and incentives Contractors Government and Utilities Lenders Customers 30

31 Michigan Saves Role Develop program requirements and guidelines Establish and monitor relationships with contractors, lenders, utilities Provide loan loss reserve for lenders Drive demand by partnering with stakeholders such as utilities Provide quality assurance and technical support Track customer satisfaction Create new offerings to address market barriers

32 Michigan Saves By the Numbers Residential Commercial

33 Michigan Saves By the Numbers Residential Commercial

34 Michigan Saves By the Numbers

35 Michigan Saves By the Numbers Residential Commercial

36 Home Energy Loan Program (HELP) Number of Loans Value of Loans 5,663 $51,903,733 As of February 29, Energy efficiency, solar, and geothermal Affordable, hassle-free loans Easier than home equity Loans from $1,000 to $30,000 Affordable rates, starting at 4.25% Terms up to ten years Easy, quick approval over the phone or online Number of authorized contractors: 360 It just doesn t make sense to keep letting our money and our energy go out the window. Ruth Lumpkins

37 Business Energy Financing Number of Leases Value of Leases 426 $13,262,334 As of February 29, Financing for energy-efficiency and renewable-energy improvements Equipment leases from $2,000 to $250,000 Available to all types of businesses Fast, easy process Below-market rates, starting at 6% with flexible terms up to 60 months Solar thermal and PV eligible Number of authorized contractors: 316 In the end, we were convinced by the numbers. We did this project to save money, and we ve been really happy with the project. Sam Bahoura Liberty Food Center

38 Multifamily Energy Financing Program Number of Leases Value of Leases 15 $898,880 As of February 29, Financing for energy efficiency and renewable energy improvements Maximum per-project lease value: $1,500,000 Rates as low as 6%; tiered based on project size and term Terms up to seven years Alternative underwriting specific to multifamily property owners Number of authorized contractors: 316

39 Public Sector Energy Financing Installment purchase agreement as authorized under Michigan law Energy-efficiency and renewable-energy upgrades Building/property must be government owned No new construction or remodeling Maximum per-project installment purchase agreement value: $10 million Rates: Typically between 3% and 4% Term: Up to five years

40 Success Factors Easy Approvals within minutes Unsecured loans Ready and available capital Affordable Below-market rates and extended terms Low monthly payments Little or no money down Smart Stakeholder engagement early and often Utility, lender, and contractor partners are key The assessment gave us the information we needed to make intelligent decisions about our home. Michael Scholten

41 Turnkey Process Find an authorized contractor and identify potential upgrades 2. Apply for financing through centralized call center and execute financing agreement 3. Contractor installs upgrades and gets paid by lender after work is completed

42 Challenges and Opportunities Residential program: 63 percent of applicants are approved 4,000 potential customers not served Commercial program: Utilityfunded interest rate buydowns drive demand what happens if the programs go away? Multifamily market is challenging

43 Potential Solution: On-Bill Program Expanded access Greater affordability Solutions for tenants Customer ease

44 Statewide On-Bill Program Economies of scale Lower administrative costs Easy implementation Centralized financing expertise Consistency in program offering

45 For More Information Mary Templeton (517)

46 EnergyRight Financing Northwest Efficiency Exchange April 27, 2016 Frank Rapley, Senior Manager Elizabeth Moore, Senior Program Manager

47 TVA and Energy Efficiency Loans TVA has a long-standing reputation in the marketplace as a leader in energy efficiency Provided energy efficiency loans to residential customers for >35 years (since 1979) HVAC equipment Weatherization Solar (1980s) Actively-managed contractor network Recruit and train to TVA program standards Periodic recertification Long-standing members Advertising to mass audiences Reputation and brand awareness is very high 47

48 On-Bill Financing On-bill loan program is administered by local power companies (LPCs) in the TVA service area for >35 years Loans support EnergyRight Solutions programs escore Heat Pump Program TVA originally funded and managed loan programs with LPCs Managed in-house with finance staff and field staff CFO decided TVA needed out of loan business Moved to 3rd party financing model in 1997 TVA sold portfolio to 3rd party bank Guarantor role LPCs send payments to 3rd party bank TVA sells new loans at month end If a loan goes bad, TVA repurchases the loan 48

49 3 rd Party Financing Model 3 rd Party Bank Local Utility Purchase Agreement Program Contract Manages loan program Regulatory consultant for TVA and LPCs Purchases all loans from TVA Provides reporting to TVA Initially funds loan Sets program policy Party to all agreements and contracts Sets program rates Guarantor of loans Owns the loan with consumer Provides screening and origination Servicer of loan Bad debt collection 49

50 On-Bill Loans: Stats At-a-Glance As of September 30, 2015 $637 Million Loans funded over 18 years $35 Million Average total loan amount per year 4,700 Average number of loans per year 157,500 Number of heat pumps installed over 18 years 127 Local Power Companies with active loan balances $184 Million Outstanding balance as of 2015 $18 Million Net write offs over 18 years 50

51 Current EnergyRight Loan Offering FEATURE escore ON-BILL LOAN HEAT PUMP PROGRAM LOAN Minimum Loan $2,500 NA Maximum Loan $15,000 $12,500 Equipment Limits No limits $10,000 single unit $12,500 multiple/advanced Term (Max) 10 years (heat pump) 5 years (weatherization only) 10 years (heat pump) Annual Interest Rate 6.00% 6.00% or 8.00% Eligibility (minimum) Security Requirements UCC-1 required for loans with equipment UCC-1 required for loans with equipment Approval Period 90 days 90 days Credit Limits Approved for max limit Approved for max limit Consumer Incentives Yes No 51

52 Keys to Success Longevity of programs TVA energy efficiency programs used by LPCs for high bill complaints Even when incentives decreased, loans available Simplicity of the process Simple screening (no income requirement or job verification) Few process changes over time Consistent screening criteria Contractor familiarity No complicated rate buy-downs LPC commitment to provide on-bill service Lowers administrative costs LPCs perform servicing as part of existing billing procedures Customer service tool for high bill complaints Bad debt losses have not been significant TVA wants to break even (interest covers the bad debt) 52

53 Other Success Factors Interest rates have typically been lower than market average for similar loan product Comparable products are signature-type loans TVA has offered 0% interest rates for short promotional periods Historical EnergyRight Loan Rates vs. Market Rates 20% 18% 16% TVA Interest Rates 24 Mo. Personal Loan Interest Rate 14% 12% 10% 8% 6% 4% 2% 0%

54 Impact of Housing Market Crisis EnergyRight loan fund increased 67% over 5-year period Housing market crisis and recession caused credit markets to freeze - drove many consumers to the EnergyRight loans Yearly Porfolio Balance Change From 20% 17% 15% 15% 15% 10% 9% Percent Increase 5% 0% 0% 5% 4% 1% 2% 5% 3% 4% 3% 10% 9% 8% 10% 15%

55 Challenges for On-Bill Admin staff time LPCs face declining revenues and shrinking staff Huge increase in loans inundated crunched staff Not a core business practice for LPCs We re not a bank! Billing systems (23 different LPC systems) Discomfort with increasing compliance requirements and new consumer protection laws Consumer Protection laws Dodd Frank biggest impact to program in 15 years Consumer Financial Protection Bureau could be a game changer for on-bill loan programs TVA s risk higher with increased scrutiny LPCs have been asking TVA for an Off-Bill option for several years 55

56 Off-Bill Loan Product Search The Search Learned from past experiences Applicant screening requirements can t be complicated No additional contractor screening requirements Contractors need to be able to market easily TVA Treasury experts engaged lending partners With +$25B in managed debt, TVA has strong network of banks 1st response not great after credit market crunch Banks were getting out of the small loan business A few were interested Talked to specialized energy efficiency lending companies Had some of the obstacles from past off-bill attempt No bad options, but unsure of success with TVA LPCs/contractors 56

57 Off-Bill Product Decision Factors Criteria Reviewed 7 Off-Bill options from 4 companies All loans must be reported as jobs in escore No loan guarantee from TVA No burden on LPCs Speed to market (wanted launch with escore program) Terms/requirements need to be similar to existing On-Bill option Must integrate with new escore program Must be available to all participants in the TVA service area Accommodate returning customers to make energy improvements by adding or refinancing existing loan Align with streamlined escore program Challenge: Selling the Off-Bill product to LPCs Past experience was not successful 57

58 Off-Bill Product Comparison escore Loan Offerings FEATURE OFF-BILL LOAN ON-BILL LOAN Minimum Loan $2,500* $2,500 Maximum Loan $15,000 $15,000 Term 5-10 years 5-10 years (depending on equipment) Annual Interest Rate 9.25% 6.00% or 8.00% (depending on equipment) Eligibility (minimum) Security Requirements UCC-1 required for loans with equipment (filed by Vanderbilt) UCC-1 required all loans with equipment (filed by LPC) Approval Period 90 days 90 days Credit Limits All loans approved for maximum All loans approved for maximum limit limit Closing Costs/Fees None None 3 rd Party Partner Vanderbilt Regions Bank Loan Origination Vanderbilt Local Power Company Legal Lender Vanderbilt Local Power Company Loan Servicing Vanderbilt Local Power Company Delinquent Collections Vanderbilt Local Power Company Bad Debt Recourse Vanderbilt TVA Closing Process Paperless (e-loan process) Local Power Company * $3,001 in state of GA 58

59 LPC Decisions to Change LPCs given option to move to Off-Bill financing model LPC must choose one financing model (all contracts have non-compete clauses to avoid adverse selection practices cherry picking ) On-Bill Off-Bill LPC Own/Other No Financing LPCs transitioning to Off-Bill must service existing loan portfolios for 10 years LPC Concern Interest rate was too high Minimum credit score was too high some customers will not be able to participate Concern for elderly customers that don t have access to computer Explanation It s a fixed rate for ALL customers (not risk based). Easier for contractors to market. Off-bill partner has to mitigate their risk of loss since they absorb all servicing and bad debt costs. They do not require income or employment info so it s an easier loan to get. Off-bill partner will accommodate loan applications over the phone. 59

60 Off-Bill Migration LPC Financing Selections On-Bill Off-Bill LPC Own/Other No Financing Financing Model Pre-Off-Bill Post-Off-Bill Change On-Bill (50) Off-Bill Own/Other Financing 8 7 (1) No Financing (21) Total

61 Off-Bill Partner: Vanderbilt Vanderbilt Mortgage & Finance Wholly-owned subsidiary of Berkshire Hathaway Member of Clayton Homes family of companies Over 35 years lending experience Located within TVA service area Developed loan product customized for escore Smart financing product with paperless application and closing process System available 24/7/365 Aligns with escore program processes (requires registration with escore to complete a loan) Values the escore customer Wants to ensure their experience is positive Works closely with escore program administrator Provides extra support for customers and contractors (even outside of financing) 61

62 Marketing Challenges Truth in lending changes dictated removal of trigger terms from ads Marketing multiple loan options Initial confusion with contractors Marketing collateral needed to be more generic escore administrator & Vanderbilt call center support Options available via escore portal 62

63 Successful Transition! Half of LPCs opted to continue On-Bill financing LPCs adapted to recent program updates required by Dodd Frank compliance review Off-Bill financing volume picked up quickly 1st year of product offering Interest rate has not changed Vanderbilt is committed to serving the escore customer 63

64 In closing Takeaways Long-running, consistent financing is key to strong and successful energy programs On-bill programs can survive emerging consumer protection laws TVA leverages its balance sheet to make an onbill loan program available to our customers Off-Bill financing can be successful if there is a robust program available and a strong contractor network 64