(this article originally appeared in Conduit on November 13, 2014)
Ideas about financing energy efficiency projects are around every corner these days. Some are billed as silver bullets while others are clearly niche products.
Last week’s installment came at the Future Energy Conference, as a panel of five provided some nice variety and perspective. Three financiers and facilitators gave overviews of their respective approaches, and two users provided pragmatic perspective. A missing player was the utility, but you can read Stan Price’s piece, Making Markets Work For Efficiency, to learn more about Seattle City Light’s pay for performance effort.
My key take away from this session was that everything new is old again. Financing projects is still about careful technical and financial planning, credit-worthiness, appropriate leverage, strategic partners, and knowing your customer.
Jimmy Jia walked us through his approach that is based on fiscal discipline and resembles a revolving fund tailored for utilities and related expenses. The idea is fairly simple. Set aside funds to pay your utilities and to invest in improvements. As improvements are made, automatically re-invest the savings since your utility budgets are centralized in one account that is managed by Jia’s firm, Distributed Energy Management. DEM and its capital partner pay the utility bills directly, which further aligns the many utility-related expenses. On the savings side, DEM will also pursue utility incentives, and roll those savings into the master account. So in review, be proactive and create a holistic utility budget that centralizes all aspects and rewards. Read more
It’s been a while since we’ve posted, but we’ve been busy on a great project. It’s a startup and we’re in deep with the founder to prove a new, disruptive concept. So here’s the pitch. We partner with home retrofit contractors to collect site-specific data on residential energy efficiency projects that do not receive utility incentives or assistance. This data represents real energy savings that go undocumented by utilities. And since utilities invest in energy efficiency as a resource (alongside power supply sources), we sell these savings to utilities. We’re currently focused on Washington state utilities, who can most immediately apply these savings to our state renewables and conservation mandate, called I-937. Our data also provides enhanced customer insights, for utilities to better understand the efficiency activity happening in their territory. Utility power planning can also be improved, as more savings can be factored into supply and demand analyses.
We call it Seinergy. It rhymes with energy. And we are casting a big seine to catch lots of data. Get it? Explore www.seinergy.org for more details.
More neat friends of ours are shaking things up. The Sprout Collective is doing that green jobs thing that we’re all trying to put our finger on. This trio is leveraging a big idea—the Living Building Challenge—and exporting our Northwest knowledge to any school district that is ready. They will solve school capacity issues, provide an innovative and tangible curriculum platform, and create lots of jobs. The team has designed the Seed, which is a net-zero modular classroom. Sprout will coordinate the pre-fab units with partner Method Construction. The primary elements—rainwater collection, PV panels, composting toilet—that make the Seed a Living Building will be contained in a central pod, which can then be enlarged with flanking rooms as needed. The Daily Journal of Commerce has some additional info here. And if you still need convincing, the real point of the Seed is to inspire kids towards a more sustainable future. I can’t think of a better time to simultaneously invest in our kids and the green building industry. Help the mission here if you’re so inclined.
Photo courtesy of Sprout!
This is a long, but important article on why we’re not achieving deep energy efficiency reductions in buildings. There are many reasons, but Auden Schendler (Vice President of Sustainability at Aspen Skiing Company) digs into the idea that grabbing low-hanging fruit (quick payback projects) prevents us from ever reaching the bigger-ticket items that save more energy. I’ll provide the notes version of the argument here:
- There are a lot of no-brainer energy efficiency projects out there. Especially when utility incentives are factored in, they are dirt cheap.
- Not surprising, building owners set basic ROI thresholds and do the easy stuff. They agree to dip their toe into the water, and say they’ll come back later and jump in for the big splash. I’ll do the lighting retrofit now and overhaul my HVAC system later. It does happen, but it’s rare.
- Problem is, the big jump requires long payback periods and with those short payback projects already off the table, the program dies on the vine.
- The ROI metric is flawed … a) in the case of energy efficiency, it usually only counts installation and equipment costs and the subsequent energy savings. Maintenance costs, asset value, tenant/employee attraction and retention, health and productivity benefits, energy cost volatility and more should be incorporated into the equation. There’s also the potential of being forced to replace equipment as time goes on, although this is admittedly a challenge to model … and b) ROI thresholds are just too darn low in light of market investment alternatives.
Building on this, Schendler suggests a few ways to improve our situation…again, the highlights:
- Bundle bigger. Combine long and short payback projects from the get-go.
- Accurately assess ROI and revisit ROI thresholds.
- Lobby for better policy. Cheap energy sends the wrong price signals. A carbon tax would level the energy playing field.
- Utilize creative financing mechanisms like MESA and PACE. Moving capital investments to operating expenses can help. And tying improvements to a property rather than a mortgage is smart.
- Switch incentives to help encourage longer-payback items … we don’t really need help with the cheap stuff.