2013/SCSC/WKSP1/014 Improving Conditions for Green Building Investment in North America: Financing Models and Opportunities

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1 2013/SCSC/WKSP1/014 Improving Conditions for Green Building Investment in North America: Financing Models and Opportunities Submitted by: Deloitte Workshop on Sharing Experiences in the Design and Implementation of Green Building Codes Lima, Peru 5-7 March 2013

2 Improving Conditions for Green Building Investment in North America: Financing Models and Opportunities J-C Amado, Deloitte Sharing Experiences in the Design and Implementation of Green Building Codes A Joint APEC-ASEAN Workshop Lima March 6, 2013 Highlights Green building financing by the numbers Financing among other barriers to investment Green building financing landscape in North America Key questions for achieving green building financing scale and market traction 1 1

3 Green Building Financing by the Numbers , ,432 2 Financing and Other Barriers to Investment Financing issues (in green) underline a number of the barriers to investment frequently reported in the literature and in stakeholder surveys. Split incentives between landlords and tenants Absence of secondary markets (illiquidity) Uncertainty about Return on Investment and high perceived risk Long pay back periods Limitation of external financing products Barriers to green building investment Absence of policies incentivizing investment High upfront capital cost Complexity to choose the right technology, installer and label Budgets do not prioritize greening 3 2

4 This image cannot currently be displayed. 4/3/2013 North American Green Building Financing Landscape Increasing Diversity of Financing Models Used Traditional financing Loans, subsidies/grants, & tax incentives Major role in financing residential and commercial sectors in North America Problem with scale and discontinuation Vancouver s Home Energy Loan Program ecoenergy Retrofit Commercial Building Incentive Program Toronto development charge refund Assisted Housing Stability and Green Retrofit Investments Program ESCO on-bill financing Revolving funds Active role in the US since the mid-80s Strong penetration in the MUSH sector Mix of government and private funding Most successful in the MUSH sector Connecticut Small Business Energy Advantage United Illuminating National Grid Harvard Green Campus Fund Texas LoanSTAR Toronto Atmospheric Fund Green lease and mortgage Enables long-term repayment terms Mexico s most successful green building financing scheme for residential owners Mexico s Hipoteca Verde Colorado Energy Star mortgage NAMA for Sustainable Housing in Mexico Deloitte Global Services Limited 3

5 This image cannot currently be displayed. This image cannot currently be displayed. 4/3/2013 Increasing Diversity of Financing Models Used (cont.) Innovative financing PACE Energy Savings Performance Contracting Sustainable Energy Utility Enabled by government, with capital market funding Reduced risk thanks to property lien and repayment through property tax bills Opposition in the from US mortgage lenders ESCO-based model Repayment through shared savings contracts Public-private partnerships relying on cost savings sharing Strong penetration in the MUSH sector Berkeley FIRST Los Angeles County Commercial PACE Johnson Controls Delaware Sustainable Energy Utility Public policy gap compared to Europe Pay As You Save Carbon market funding & feedin-tariff Administration and funding shared between government, utilities and financial institutions Obligation attached to property, and complemented by Golden Rule that savings always exceed or equal repayments Funding made available to meet carbon reduction targets Requires creation of commodity market UK Green Deal UK Carbon Emission Reduction Target UK Feed-in-Tariff UK Renewable Heat Incentive Deloitte Global Services Limited Core Elements of North American Financing Models 7 Deloitte PowerPoint timesaver March Deloitte Global Services Limited 4

6 Distribution of Green Building Financing Across Asset Classes Overall, single-unit residential and MUSH asset classes have received considerable attention from traditional financing vehicles. Multi-unit residential and commercial assets are being targeted by innovative financing instruments. Description Residential Commercial Industrial MUSH* Loan Vancouver s Home Energy Loan Program Assisted Housing Stability and Green Retrofit Investments Program Subsidy and ecoenergy Retrofit- Home Program Grant Commercial Building Incentive Program Tax Incentive Toronto Development Charge Refund Incentive ESCO On-bill Financing Connecticut Small Business Energy Advantage Mexico s Hipoteca Verde Green Lease & Mortgages Colorado s ENERGY STAR Mortgage Mexico s NAMA ESPC Johnson Controls ESPC PACE SEU Berkley FIRST LA Country Commercial PACE Delaware s SEU: Revolving Funds Toronto Atmospheric Fund Harvard s Green Loan Fund Texas LoanSTAR Toronto Atmospheric Fund 8 Roles of Government and Private Sector Funding Overall, government has provided a larger share of financing in Canada, compared to US and Mexico, where utilities and mortgage lenders have been active. Private capital is playing a key role in innovative financing instruments. Loan Subsidy and Grant Tax Credit & Rebate ESCO On-bill Financing Green Lease & Mortgages ESPC PACE SEU Revolving Funds Pay As You Save Carbon Market Funding and Feed-In Tariffs Government funding Utilities Private funding Selected Open market investors Consumers 9 5

7 Trigger Role of Government in Seed Funding and Governance Even in financing models relying on private capital, government plays a large role by providing seed funding and governance support 80% 70% 60% 50% 40% 30% Seed funding Governance 20% 10% 0% Public Private Mixed 10 Key Questions on Business Models for Green Building Financing 6

8 Overview of Questions for Project Phase 2 1. Are financing models based on public-private partnerships required? 2. How can financing models be redeployed towards asset classes that have been underserved? 3. What security and risk transfer strategies have been successful in increasing financing scale and market traction? 6. Do we have the right policies and measurement/verifi cation methods in place to guarantee increased resource efficiency and cost savings? 7. Are there financing models in the US and Canada that can be tailored and implemented in Mexico? 12 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte s approximately 195,000 professionals are committed to becoming the standard of excellence. This communication is for internal distribution and use only among personnel of Deloitte Touche Tohmatsu Limited, its member firms, and their related entities (collectively, the Deloitte Network ) None of the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication. 7