Energy Efficiency and Finance: Opportunities and Issues

Transcription

1 Energy Efficiency and Finance: Opportunities and Issues Steven Nadel, Executive Director American Council for an Energy-Efficient Economy July 31, 2012

2 Quads of Total Primary Energy U.S. Energy Use in Relation to GDP Energy Consumption if Energy Intensity were the same as in 1970 (adjusted for imports) 150 Note: Energy intensity is measured as Quads per $ GDP Reduction in Energy Consumption as a result of Energy Efficiency 100 Actual Energy Consumption Energy Consumption 0

3

4 McKinsey Global s Analysis of Carbon Reduction Potential

5 Ohio Residential Electric Efficiency Potential in 2025 by End-Use Electricity Use Feedback, 1,460 GWh, 7% Plug Loads, 1,060 GWh, 5% New Homes Savings, 1,036 GWh, 5% Economic Potential: 34% savings Furnace Fans, 1,945 GWh, 9% HVAC equipment and load recuction savings 8,259 GWh, 37% Appliances, 139 GWh, 1% Refrigeration, 536 GWh, 2% Lighting, 4,774 GWh, 22% Water Heating, 2,864 GWh, 13%

6 Ohio Commercial Electric Efficiency Potential in 2025 by End-Use New Buildings, 660 GWh, 8% HVAC, 3,900 GWh, 23% Water Heating, 210 GWh, 1% Appliances and Other, 20 GWh, <1% Office Equipment, 3,360 GWh, 20% Refrigeration,6 90 GWh, 4% Lighting, 8,300 GWh, 48% Economic Potential: 27% savings

7 Ohio Industrial Electric Efficiency Potential in 2025 by End-Use Savings Potential in 2025 (GWh) Savings Potential in 2025 (% ) % of Efficiency Resource Potential Weighted Levelized Cost of Saved Energy ($/kwh) Measures Sensors & Controls % 2% $0.014 EIS % 1% $0.061 Duct/Pipe insulation 2, % 20% $0.052 Electric Supply 1, % 19% $0.010 Lighting % 7% $0.020 Advanced Efficient Motors 1, % 16% $0.035 Motor Management % 3% $0.018 Lubricants % 2% $0.000 Motor Sys Optimization % 2% $0.009 Compressed Air Manageme % 10% $0.000 Compressed Air - Advance % 0% $0.000 Pumps 1, % 14% $0.008 Fans % 2% $0.024 Refrigeration % 1% $0.003 Total 10,191 16% 100% $0.023

8 Combined Heat and Power Achievable Potential in Ohio Total Savings in 2025 (%)* GWh Potential 87 1,072 2,366 3, % MW Potential %

9 Energy Efficiency Policy Recommendations for Ohio 22% savings Source: ACEEE, 2009

10 Peak Demand (MW) Estimated Reductions in Summer Peak Demand through Energy Efficiency and Demand Response in Ohio 45,000 40,000 35,000 30,000 Efficiency Demand Response 18% 11% 25,000 20,000 Adjusted Peak Load ` 15,000 10,000 5,

11 Net Job Impacts for Ohio ( ) 35,000 30,000 25,000 20,000 15,000 10,000 5, (5,000)

12 Energy Productivity Shifts Spending To Greater Labor and GDP Impacts Energy Efficiency ^ ^ Source: 2007 IMPLAN data set for the U.S. economy (2009).

13 Role of Efficiency in Addressing Climate Change in the U.S. Note: This graph is stylized and is not exact.

14 Players in the Energy Efficiency Market Federal government sets national standards, provides guidance and technical/financial assistance State governments (some more than others) implement programs and policies, assist municipalities Local governments (only some involved for long-term) Utilities majority offer energy efficiency programs; oversight by regulators Contractors/suppliers identify, manufacture, install and maintain EE measures Venture capital and equity investors develop new products End-users make investment decisions; operational decisions

15 Federal Energy Efficiency Tax Incentives Commercial building tax deduction -- $1.80/sf for 50% savings (scheduled to expire 12/31/13) C&I CHP, fuel cell and microturbine tax credits 10-30% (extends through 2016) Credits for efficient appliances, new homes and home retrofits expired 12/31/11 but could be renewed for 2013

16 Range of Levelized Costs (cents per kwh) 25 Efficiency is the Least-Cost Resource: Levelized Utility Cost of New Electricity Resources Energy Efficiency* Wind Biomass Natural Gas Combined Cycle Pulverized Coal* Nuclear Coal IGCC Solar PV *Notes: Energy efficiency average program portfolio data from Friedrich et al (ACEEE); All other data from Lazard High-end range of advanced pulverized coal includes 90% carbon capture and compression.

17 Trends in Utility-Sector EE Program Spending/Budgets From , values represent actual program spending (including rate-payer funded programs); from 2009 on, they represent program budgets. Natural gas spending is not available for the years Sources: Nadel et al. (2000); York and Kushler (2002, 2005); Eldridge (Molina) et al. (2008, 2009, 2010); Sciortino et al. (2011).

18 Energy Efficiency Program Spending Projected to Increase to ~$10.8B Electric EE funding projected to more than double to $9.5B in the Medium Case (Low = $6.1, High = $13.6B) Gas EE funding projected to stay relatively flat at $1.3B in the Medium Case (Low = $0.9, High = $3.2B) 18

19 CleanTech Investment Trends

20 Energy Efficiency Finance Combines: Technical expertise what works, how to do it, what technical risks are and how to manage them Finance expertise sources of capital, ways to structure deal, manage risks and earn decent return

21 Types of Energy Efficiency Finance Product Development (venture capital) Project Finance

22 New Technologies

23 Some Project Finance Options Direct loans to end-users (e.g. revolving loan funds) Leverage private capital (loan-loss reserves, guarantees, interest-rate buy-downs) Invest in energy service companies On-bill finance PACE financing Get creative

24 Average Annual Return Efficiency Investments: Low Risk, High Return Efficiency Investment Risks and Returns 40% 30% 20% 10% 0% Energy Efficiency Common Stocks Long-term Corp Bonds U.S. T-Bills 0% 10% 20% 30% 40% Risk Index (year-to-year volatility) Small Company Stocks Source: ACEEE estimates adapted from the U.S. EPA and the Vanguard Group

25 Direct Loans to End-Users Given high returns, some customers prefer to self-finance Often need large projects to justify project development costs Some end-users prefer off-balance-sheet financing Some customers who need project finance may not meet credit criteria Many states established revolving loan funds with initial capital from ARRA

26 Leverage Private Capital Quite a few EE finance programs that leverage capital from Credit Unions and local banks Big banks not interested until sizable cash needs Limited data on default rates on EE loans so some banks charge a risk premium ACEEE study finds 0-3% from about a dozen programs (see ) Establishing loan loss reserves or guarantees can reduce risks and interest rates Some programs write down interest rates, but this can get expensive Qualified energy conservation bonds another route for lower interest rates

27 Energy Service Companies ESCo s) ESCo s identify projects, do project engineering, arrange/provide financing and sometimes guarantee savings In exchange receive share of savings or preset payments ESCo s commonly receive their financing from institutional investors

28 On-Bill Finance Utility provides/arranges for capital and puts monthly payment on utility bill Utility knows bill payment history plus perceived threat of disconnection Can be structured to provide immediate positive cash-flow Can be structured to stay with the meter But few utilities want to provide capital; instead will seek to raise from market ACEEE on-bill financing report:

29 Example California Small Business Program

30 PACE Financing (Property Assessed Clean Energy) Special voluntary taxing district that covers a particular property Used to provide upfront capital to owner and payments made on tax bill Municipality packages many projects into a single bond offering Payments continue, even when ownership changes More than a dozen states have authorized Taxes are senior to mortgage => lower rates Federal regulators are objecting to residential PACE; commercial PACE proceeding but may need assent of mortgage holder

31 Conclusions Energy efficiency is a plentiful, modest-cost resource with returns greater than most investments. Being successful with EE finance requires availability of both finance and technical expertise. Many viable routes for both product and project finance Need for continued attention on ways to address outstanding issues

32 Contact Info Steven Nadel