Financing Stormwater Projects: Providing an Innovative Vision Newsha Ajami, PhD Stanford University EPA Region 9 Finance Forum April 5 th, 2017
Research Question: How can the water sector finance non-traditional water projects?
Methodology 1. Gather case studies of non-traditional (innovative, multipurpose, and small- to medium-scale) infrastructure projects 2. Identify common elements among case studies 3. Create a financing framework 4. Identify funding mechanisms we believe could be most useful to the water sector 3
Looking to the Electricity Sector
Evolution of the Electricity Sector 12000 Renewables Portfolio Standards (RPS) capacity installed in California 10000 Capacity (MW) 8000 6000 4000 2000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Cumulative Added in Prior Years Capacity Added in Current Year Source: California Public Utilities Commission 2015b 5
Evolution of the Electricity Sector: Overcoming Barriers Limited access to traditional public funding resources Difficult to secure private investments Regulatory challenges Perception towards change 6
Financing Framework
Financing Framework Elements Catalyzing Change through external forces Example Mechanisms Regulations, market forces, decoupled pricing structures Financing Framework Establishing Funding Sources that can be public or private Using Distribution Pathways to facilitate the flow of resources between stakeholders Bonds, end-user fees, venture capital Grants and loans, tax credits, rebates Creating Innovative Governance Structures that enable project implementation Aggregation, alternative investment structures, Energy Service Companies (ESCOs) 8
Financing Framework Elements Catalyzing Change through external forces Example Mechanisms Regulations, market forces, decoupled pricing structures Financing Framework Establishing Funding Sources that can be public or private Using Distribution Pathways to facilitate the flow of resources between stakeholders Bonds, end-user fees, venture capital Grants and loans, tax credits, rebates Creating Innovative Governance Structures that enable project implementation Aggregation, alternative investment structures, Energy Service Companies (ESCOs) 9
1. Catalyzing Change Regulations Market Forces Price Structuring and Revenue Decoupling Policies and economic forces drive change 10
1. Catalyzing Change Passive Economic Incentives MW 5,000 4,000 3,000 2,000 1,000 0 Total Installed PV Prices, Global Average System Price 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2013$/W U.S. Annual Grid-Connected PV Capacity Additions Average Median Installed Price of Residential and Commerical PV Source: Barbose, G. Weaver, S. & and Darhouth, N. (2014) Note: Price is average of median of all sizes (<10, 10-100, >100 MW) and from a sample of data. 11
1. Catalyzing Change Active Economic Incentives Reasons that Customers Purchase Clean Energy Devices and Appliances Saving Money Reducing my environmental impact Fewer maintenance requires Using the latest and most innovative technology Other Not Sure 0 10 20 30 40 50 60 70 80 90 Source: U.S. Homeowners on Clean Energy: A National Survey. 2015 Poll Results and Clean Energy Growth Trends. Solar City and Clean Edge Note: Survey respondents were asked the following question: When making decisions around purchasing clean-energy products and services, which of the following are your 12 primary motivators? (Choose up to two)
Financing Framework Elements Catalyzing Change through external forces Example Mechanisms Regulations, market forces, decoupled pricing structures Financing Framework Establishing Funding Sources that can be public or private Using Distribution Pathways to facilitate the flow of resources between stakeholders Bonds, end-user fees, venture capital Grants and loans, tax credits, rebates Creating Innovative Governance Structures that enable project implementation Aggregation, alternative investment structures, Energy Service Companies (ESCOs) 13
2. Establishing Funding Sources Public Sources Taxes Bonds Revolving Funds End-User Fees Private Sources Look beyond traditional funding sources 14
2. Establishing Funding Sources End-User Fees 12,000 California Cumulative Efficiency and Conservation Impacts (GWh) 10,000 8,000 6,000 4,000 2,000 0 Electricity conservation and efficiency impacts in California from programs increased 3.4 times faster from 1998-2012 than from 1978-1998 Public Goods Charge fee begins Procurement Fee begins Source: California Energy Commission 2013 15
2. Establishing Funding Sources Private Capital Billions 14 12 10 8 6 4 2 0 U.S. Private Investment in Clean Energy Corporate Venture Corporation Crowdfunding Investment/Merchant Banker Private Equity Venture Capital Source: Cleantech Group 2014 Note: Clean energy = biomass generation + energy efficiency + energy storage + solar + wind + geothermal + nuclear + hydro & marine + smart grid. Non-private categories of investment not shown here are debt funds, public sector funding, and other. 16
Financing Framework Elements Catalyzing Change through external forces Example Mechanisms Regulations, market forces, decoupled pricing structures Financing Framework Establishing Funding Sources that can be public or private Using Distribution Pathways to facilitate the flow of resources between stakeholders Bonds, end-user fees, venture capital Grants and loans, tax credits, rebates Creating Innovative Governance Structures that enable project implementation Aggregation, alternative investment structures, Energy Service Companies (ESCOs) 17
3. Using Distribution Pathways Government Grants and Loans Rebates Tax Credits On-Bill Initiatives Mechanism Financial Backer Repayment Mechanism On-Bill Utility shareholders, Utility bills Financing (OBF) utility ratepayers, public funds On-Bill Repayment (OBR) Private Investors Utility bills Cost-sharing with end-users encourages participation Property Assessed Clean Energy (PACE) Private investors through bonds Property tax bills and assessments 18
Financing Framework Elements Catalyzing Change through external forces Example Mechanisms Regulations, market forces, decoupled pricing structures Financing Framework Establishing Funding Sources that can be public or private Using Distribution Pathways to facilitate the flow of resources between stakeholders Bonds, end-user fees, venture capital Grants and loans, tax credits, rebates Creating Innovative Governance Structures that enable project implementation Aggregation, alternative investment structures, Energy Service Companies (ESCOs) 19
4. Creating Innovative Governance Structures Project and Financial Aggregation Green Banks Alternative Investment Structures End-to-end service companies Lease and Purchase Power Agreements (PPA) Programs Net Metering Utilize a diverse financing strategy to minimize risk and increase economic potential 20
Financing Framework Elements Catalyzing Change through external forces Example Mechanisms Regulations, market forces, decoupled pricing structures Financing Framework Establishing Funding Sources that can be public or private Using Distribution Pathways to facilitate the flow of resources between stakeholders Bonds, end-user fees, venture capital Grants and loans, tax credits, rebates Creating Innovative Governance Structures that enable project implementation Aggregation, alternative investment structures, Energy Service Companies (ESCOs) 21
Financing Stormwater- Living Map Mechanisms Highlighted: Stormwater Fees Reverse Auction Performance-Based Rebates Stormwater Credit Trading Program Grant Programs Environmental Impact Bond Project Aggregation
D.C. Storm Water Retention Credit Trading Direct Regulation Credit Trading platform
SFPUC Green Bond (under climate bonds standards) to attract sustainability motivated investors.
Reverse Auction in Cincinnati Ohio Direct Regulation Reverse Auction-to attain the highest environmental benefits for the lowest price
Food for Thought Enact policies and economic forces to drive change - Portfolio standards, demand-side management and pricing Establish more innovative funding solution - Green banks, impact investment, on-bill financing and net-metering Utilize a diverse financing strategy to minimize risk and increase economic potential Cost Sharing and customer-based financing can be an enabler at every scale - Developer, end-user, communities and municipalities
Thank you newsha@stanford.edu Full Report: https://goo.gl/wim3ja Research Brief: https://goo.gl/zy0g4h