Energy Efficiency Fund: A Model for Financing Energy Efficiency Improvements

Transcription

1 Energy Efficiency Fund: A Model for Financing Energy Efficiency Improvements March 9, 2010 Presentation to Energy Efficiency Advisory Council Thomas Darling, Clean Energy Fellow 1

2 Introduction Three year plan requires significant outside capital to meet policy goals Capital source must be scalable and low cost Different market segments require different solutions Massachusetts is building a financing structure that can be leveraged across different segments to meet different customer needs State involvement is targeted at segments where: Market pricing is a significant obstacle to adoption There is a lack of capital availability The state can have a meaningful impact through its involvement 2 2

3 TOPICS FOR DISCUSSION I. Case for a New Energy Efficiency Financing Fund A. Financing Challenges for Residential Customers B. Strategic Importance of a New Fund II. Description of the New Energy Efficiency Fund A. Fund Introduction B. Detailed Description C. Summary of Fund Benefits III. Next Steps and Timing A. Forward Plan Target Launch January

4 I. CASE FOR A NEW ENERGY EFFICIENCY FINANCING FUND A. Existing Financing Challenges for Residential Customers High upfront costs & lack of liquidity Large energy efficiency improvement projects typically range from $7,500-$15,000 Most often too big for a credit card, but small for traditional loan products Availability and cost of credit Because real estate values have fallen, few home owners would qualify for a new home equity loan (HELOC now requires <75% LTV) or mortgage refinance Personal unsecured credit lines charge 8-18%+ and require good credit (FICO > 640) 4 4 Financial Terms: HELOC Home Equity Line of Credit LTV Loan-to-Value

5 I. CASE FOR A NEW ENERGY EFFICIENCY FINANCING FUND B. Strategic Importance of a New Fund Three year plan calls for $360 million in outside capital Existing sources are adequate for small changes in program volume, but three year plan represents a dramatic increase HEAT Loan program is an excellent source of low cost capital, but is expected to become capital constrained, and or increase interest costs before the end of the three year plan A new low cost, scalable capital source is needed by 2012 to meet targets 5 5

6 TOPICS FOR DISCUSSION I. Case for a New Energy Efficiency Financing Fund A. Financing Challenges for Residential Customers B. Strategic Importance of A New Fund II. Description of the New Energy Efficiency Fund A. Fund Introduction B. Detailed Description C. Summary of Fund Benefits III. Next Steps and Timing A. Forward Plan Target Launch January

7 II. DESCRIPTION OF THE NEW ENERGY EFFICIENCY FUND A. Fund Introduction There are examples of existing plans that solve either low cost capital or scalability, but not both: - Fannie Mae: Scalable / High Cost - PA HELP: Low Cost / Capital Constrained Massachusetts is developing a financing proposal that solves both scalability and low cost 7 7

8 II. DESCRIPTION OF THE NEW ENERGY EFFICIENCY FUND A. Fund Introduction The structure described here includes: Create statewide Energy Efficiency Fund - Access funding from investors - Utilize PA program funds for key functions Outsource back office operations to a Servicer Utilize existing program delivery mechanisms 8 8

9 II. DESCRIPTION OF THE NEW ENERGY EFFICIENCY FUND B. Detailed Description Public Funds EE Program $ Loan loss reserves Interest Rate Buy-down INVESTORS EE Fund DOER creates new loan fund vehicle Loan vehicle funding: - Public funds sought for startup and loan loss reserve - EE Incentives would be captured by Loan Fund and used to improve interest costs for participants Investor Group loans / invests money in EE Fund to fund EE loans 9 9

10 II. DESCRIPTION OF THE NEW ENERGY EFFICIENCY FUND B. Detailed Description Public Funds EE Program $ ASSESSOR Loan loss reserves Interest Rate Buy-down EXISTING PROGRAM DELIVERY INVESTORS EE Fund SERVICER EE Fund hires Servicer to administer loan fund Servicer provides financing to participants by working directly with the existing program delivery network Participants sign loan agreement which is held by the EE Fund CONTRACTOR 10 10

11 II. DESCRIPTION OF THE NEW ENERGY EFFICIENCY FUND B. Detailed Description Loan Document Repayment Funding INVESTORS Participants repay (fixed) monthly amount to repay loan Public Funds EE Program $ ASSESSOR Loan loss reserves Interest Rate Buy-down EXISTING PROGRAM DELIVERY EE Fund SERVICER Servicer makes required payments to Investors On-Bill Repayment may be used as a collection mechanism ON-BILL REPAYMENT (OBR) CONTRACTOR 11 11

12 II. DESCRIPTION OF THE NEW ENERGY EFFICIENCY FUND B. Detailed Description Summary of Lending Terms to the Participant Borrower: Residential customer Loan Amount: ~ [$5,000 - $15,000] Loan Term: Targeted Interest Rate: Loan Underwriting Criteria: Prepayment Allowed: ~ [8] years ~ [0-3%] initially Based on utility bill payment history Yes Termination for Non-Payment: No 12 12

13 II. DESCRIPTION OF THE NEW ENERGY EFFICIENCY FUND B. Detailed Description EE Loan Credit Data Residential Default Total Issued Total Loans Operating Program Rate Origination Criterion Security ($'s) (#'s) Since Keystone HELP 0.72% FICO >640 Unsecured $ 30,475,110 4, Manitoba Hydro <1% Utility Bill History >12 months and Credit Score Unsecured >$100,000,000 >25, Mass HEAT Loan 0.47% Varies by participating lender (FICO, Traditional, etc.) Both $ 25,425,000 3, Sacramento Municipal Utility District 0.5-4% NA Secured $ 433,000,000 78, Fannie Mae NA FICO >640 Unsecured ~$1,000,000,000 ~100, Average Unsecured Consumer Loan* >3.5% * Federal Reserve Comparable EE Loan Programs Select Residential EE Loan Programs Program Rate Term (yrs) Max Loan Min Loan Method Funding Source Manitoba Hydro POWER SMART 4.90% 5 $ 7,500 $ 500 OBR Rate Payer (export revenues) Massachusetts HEAT Loan 0% 7 $ 15,000 $ 2,000 Consumer Loan 3rd Party Lender Keystone HELP 6.99% 10 $ 15,000 $ 1,000 Consumer Loan PA Treasury Sacramento Municipal Utility District 7.50% 10 NA NA Consumer Loan Treasury Connecticut Energy Loan Program 7.99% 10 $ 10,000 $ 400 Consumer Loan Connecticut (DECD) Fannie Mae Energy Loan 13.99% 3,5, or 10 $ 20,000 $ 2,500 Consumer Loan Fannie Mae Balance Sheet 13 13

14 II. DESCRIPTION OF THE NEW ENERGY EFFICIENCY FUND C. Summary of Fund Benefits Proposed Massachusetts financing mechanism accesses private capital markets providing scalable, low cost capital to fund EE improvements Financing mechanism is the building block to address different customer segments and can be replicated / leveraged across customer types, but with unique program features to drive EE adoption State involvement is targeted at key areas where private markets are incorrectly pricing financial risk and where State participation can have a large impact 14 14

15 TOPICS FOR DISCUSSION I. Case for a New Energy Efficiency Financing Fund A. Financing Challenges for Residential Customers B. Strategic Importance of A New Fund II. Description of the New Energy Efficiency Fund A. Fund Introduction B. Detailed Description C. Summary of Fund Benefits III. Next Steps and Timing A. Forward Plan Target Launch January

16 III. NEXT STEPS AND TIMING A. FORWARD PLAN TARGET LAUNCH JANUARY

17 QUESTIONS & ANSWERS 17 17

18 APPENDIX 18 18

19 Residential EE Programs 19 19

20 Financing Program Elements Incorporated in MA Program 20 20

21 Financing Program Elements 21 21

22 Financing Program Elements 22 22

23 II. DESCRIPTION OF THE NEW ENERGY EFFICIENCY FUND B. Detailed Description 23 23

24 Fannie Mae Diagram Fannie Mae Cost of Capital 4.8% Origination & Servicing 4.0% Bad Loan Expense 2.5% FNM Profit 2.5% Rate to Borrower 13.8% Retail Installment Contract Model CONTRACTOR / VENDOR ORIGINATION & SERVICING (Viewtech, EFS & AFC First) Loan Document Repayment Program Funding 24 24

25 PA HELP Program Diagram Penn. State Treasury Cost of Capital 5.0% Origination & Servicing 4.0% Rate Buy Down -2.0% Rate to Borrower 7.0% PA Energy Development Authority. & Other Pool credit enhancement ~7-8% ORIGINATION & SERVICING (AFC First) Repayment Program Funding CONTRACTOR 25 25

26 PA HELP Program Sheet 26 26

27 EE Fund Structure and Governance Governance: Financial Structure: L.O.C. Fiduciary BOD Government Representatives Investors and Financial Experts Industry Representatives Pool #1 Pool #2 Permanent Facility L.O.C. Permanent Facility Advisory BOD Community Groups Customer Advocates Etc. Utility Rebate $ s Utility Rebate $ s Loan Loss Reserve Fund (LLRF) 27 27