Financing for Home Upgrades: Lessons Learned, New Products

Transcription

1 Financing for Home Upgrades: Lessons Learned, New Products Rocky Mountain U.lity Exchange, 9/24/14 Steve Dunn U.S. Department of Energy Presenters Stephen Dunn, U.S. Department of Energy Jeremy Epstein, Harcourt Brown & Carey 1 Energy Efficiency and Renewable Energy eere.energy.gov

2 Be*er Buildings Neighborhood Program (BBNP) As part of the Recovery Act, BBNP invested more than $500 million in more than 40 residengal and commercial energy efficiency programs nagonwide. The goals were: Develop sustainable energy efficiency upgrade programs Leverage $1 to $3 billion in addigonal resources Upgrade 100,000 residenfal and commercial buildings to be more energy efficient Engage 10,000 to 30,000 contractors in work on energy efficiency upgrades Achieve 15% to 30% energy savings from energy efficiency upgrades Save consumers approximately $65 million annually on their energy bills Reduce the cost of energy efficiency program delivery by 20% or more 2

3 BBNP: EE Financing Programs Test different financing mechanisms Leverage public and private capital Credit enhancements, in the form of loan loss reserves Direct capitalizagon of revolving loan programs Interest rate buy- downs Financial insgtugons, ugliges and borrowers Other public funds (housing rehab, weatherizagon, economic development) RecapitalizaGon through secondary markets and other mechanisms Lessons Learned EffecGveness of financing mechanisms and approaches AZributes of successful (or unsuccessful) residengal energy efficiency financing programs Loan performance and impact on projects 3

4 Financing mechanisms Credit enhancements Allowed programs to offer unsecured loans More flexible underwrigng criteria, faster loan approval, extended loan term length Revolving loan funds Ongoing revenue stream Directly capitalize loan fund Quick start- up; lower interest rates In- house RLF vs. third- party management: greater flexibility on underwrigng criteria, terms and rates Interest rate buy- downs Offered in conjuncgon with private lending Can be as azracgve as uglity incengves if inigal cost of capital is low enough (e.g., buydown from 6.99% to 3.99%) 4

5 ResidenFal Financing Programs Program partners invested in financing programs and also leveraged private capital to test new financing approaches, including: AlternaGve underwrigng criteria, On- bill financing or on- bill repayment, and Unsecured lending products The majority offered Unsecured loans (with or without credit enhancements) Longer loan terms (typically Up to 20 years Average interest rates was 3.8%, although most program offerings were in the 4% to 7% range 5

6 ResidenFal Financing: Results More than $166 million was loaned out for upgrades $140 million of this went to single- family and mulgfamily ResidenGal investments $28.4 million for revolving loan funds, $31 million as credit enhancement, $10.4 million for interest rate buy downs. BBNP partners completed more than 70,000 single family home upgrades (as of 9/30/13) with over 12,000 single family homes financed through loans (16.6% of projects). 6

7 Average Project Cost & EsFmated Energy Savings (Home Upgrades) As of September 30, 2013 the average project cost for home upgrades with loans was $11,805, more than twice the average cost of non- loan projects ($5,381) EsGmated source energy savings With loans: ~54 million BTUs Without a loan esgmated as ~40 million BTUs 7

8 Loan Amount DistribuFon Loan amounts ranged from $480 to $60,250. Median: $9,021; Mean: $10,191. Almost 40 loans were for more than $30,000, (3 included solar photovoltaic system upgrades between $30,000 and $40,000). Loan amount distribugon for single- family homes. 8

9 BBNP Program Highlight: Boulder County and City & County of Denver (ElevaFons CU) 9 Financing partnership established with ElevaGons Credit Union LLR for residengal and commercial loans; > $30M in capital available 5:1 leverage Unsecured loans up to 10 years; interest rates stargng at 2.75% Delivered via energy advisors and markegng by programs & lender Results 287 residengal loans, $2.75M total Average residengal loan $9,570 9 commercial loans, $470,000 total

10 10 EnergySmart and Denver Energy Challenge

11 BBNP Financing: Results & Lessons Learned BBNP data indicate that the use of financing for home upgrades resulted in: Higher average project costs and more comprehensive home upgrades Higher average esgmated energy savings per home Consumer investment by a wide range of income levels, including homeowners with median household incomes of $75,000 or less Financing can be an effecgve mechanism for overcoming the first- cost barrier Financing alone, however, does not typically work well Need other home upgrade programs and services Contractor training,quality assurance, markegng, incengves 11

12 BBNP Financing: Lessons learned, confnued Program administrators Know your market (e.g., how much demand will be generated, etc.) Develop other program components, such as workforce training, program delivery and quality assurance, before introducing financing On- bill financing and repayment opgon appears promising Challenges for ugliges include modifying billing systems, separagon of billing and loan payments, and integragon with lenders Loan sales to the secondary market illustrate need for Standardized lending products Loan performance data and consistent underwrigng criteria so loans can be aggregated and sold into secondary markets 12

13 Tips for Success: Financing Offer compeggve interest rates and azracgve terms Typically below 4.99 % to mogvate more applicants to apply (e.g., AusGn Energy Best Offer Ever) Terms up to 10 years or more, emphasis on monthly payment Consider limited- Gme offers and special incengves, such as 0 % loan rates or 6- month- no payment specials ProgrammaGc improvements Streamline the financing process (Fast loan approvals, convenience (consumers and contractors) Work closely with contractors so they can communicate financing program opgons and benefits to homeowners Engage lending partners early, and fully integrate the loan product offering into the home upgrade program, including uglity incengves (where available) 13

14 DOE Tools and Resources Be*er Buildings Neighborhood Program Partner profiles, case studies, data, evaluagon hzp://energy.gov/eere/bezer- buildings- neighborhood- program Be*er Buildings ResidenFal Program SoluFon Center Features handbooks on financing program design, implementagon and resources Available October 2014 BBNP process and impact evaluafon Analysis of BBNP programs, including financing Preliminary evaluagon online; final available Spring

15 For More InformaFon U.S. DOE, Building Technologies Office Steve Dunn Website: BeZer Buildings Neighborhood Program hzp://energy.gov/eere/bezer- buildings- neighborhood- program/ 15

16 THE HARSH TRUTH 16

17 WHAT DOES IT TAKE TO MAKE A PROGRAM WORK? Ø Capital Ø Is there access to capital? Ø Confidence In the product? In the contractor? Ø Convenience Ø Is the product easy to sell? 17

18 HOW DO WE KNOW THIS? Ø ARRA programs = lessons learned Ø Local successes born during the sgmulus Boulder County & Denver EnergySmart Colorado Xcel Energy Ø And we are stargng to get it right! 18

19 Where does that leave us today? Ø Big financial insgtugons CiG Deutsche Bank Wells Fargo Bank of America Ø This infusion inspires confidence and convenience Ø PACE Ø WHEEL Ø LendKey Ø AFC First Ø PowerSaver 19

20 CASE STUDY: NOT YOUR FATHER S POWERSAVER Old Power Saver New Power Saver Slow Start Lack of investors Limited geography Many investors = mogvated lenders Available everywhere Loan volume 20

21 POWERSAVER LOAN AVAILABILITY BY LOAN TYPE 21

22 TITLE 1 UNSECURED HIGHLIGHTS Use of loan funds: 75% of loan must be used for EE Remaining 25% of loan can be used for other non- energy improvements. Great For: ReacGve loans (broken equipment), fast turnaround, single installs Amounts: Up to $7,500 Interest rates range: 4.99 to 9.99 percent Terms: up to 15 years for EE and up to 20 years for PV Closing Time: 1-3 days! Available in: 45 States in including Colorado

23 TITLE 1 SECURED HIGHLIGHTS Amounts: Up to $25,000 Terms: up to 15 years for EE and up to 20 years for PV Closing Time: 1-3 weeks! Available in: 48 States in including Colorado Great For: Pro- acgve loans ( pre- planned whole home retrofit), Solar, mulgple measures installed

24 POWERSAVER 203(K) FIRST MORTGAGE HIGHLIGHTS Amounts: Up to $625,000 dependent on borrower locagon Interest rates range: Market Terms: Up to 30 years Available in: 45 States including Colorado Great For: Purchase of a home in need of improvements, Cost of rehabbing or improving the home (refinance) Benefits of PowerSaver 203(k) Closing costs covered or greatly reduced when borrower does $3,500 or more in qualified energy efficiency or renewable energy improvements Cost of improvements rolled into total mortgage size

25 TO CONCLUDE Ø Capital, Confidence and Convenience are on the rise! Ø Every program in the United States now has mulgple EE financing opgons 25

26 THANKS! QuesGons? Comments? Jeremy D Epstein Senior Associate, Harcourt Brown & Carey Jeremy.epstein@harcourtbrown.com Steve Dunn U.S. DOE, Building Technologies Office steve.dunn@ee.doe.gov