Posts Tagged ‘Energy Efficiency’

Incentives for the “5th fuel” can still be complex

Jim Rogers from Duke Energy famously promotes efficiency as the “5th Fuel” in the world-wide portfolio of energy production.  He echoes the consensus that renewable energy requires massive incentives to make it financially viable, while energy efficiency does not, and hence these opportunities should be more actively addressed.

The dirty little secret is that energy efficiency regularly requires incentives as well.

Though it may seem counterintuitive, many companies look for a five to ten year payback on their renewable energy investments, while they continue to apply “it better be under a three year payback or it won’t get done” for more traditional energy efficiency projects.  Consequently, while EE projects have better returns, incentives are often still critical to getting these projects inside this payback hurdle.

Over the last twelve months, 70% of the EE projects Groom Energy implemented have been supported by some kind of financial incentive.  Whether it’s a traditional motor or lighting upgrade with a utility rebate or a CHP system gaining Massachusetts’ Alternative Energy Credits, our engineers spend a lot of time trying to identify and secure the best incentives available for each customer project.

Each utility, state, city, county or municipality may have it’s own specific program.  In California alone there are over 200 different efficiency incentives.  Providing a bit of help on the identification front, the folks at DSIRE are doing their best to keep up, with an on-line database tracking thousands of renewable and energy efficiency incentive programs across the entire US.

Determining how to sure our customers will get the incentives can be just as painful.  Some authorities take a prescriptive approach, allocating a specific $ incentive figure for each measure deployed.  Others take a custom approach, applying a $ figure for the total energy saved or produced.   Some burden projects with small $ incentives with detailed energy modeling and pre and post project measurement and verification.

While the complexity provides a distinct competitive advantage for those who have the IQ and fortitude to understand and maximize the incentive benefits, customers perceive much of this as additional risk.  And with risk comes hesitation.

Because of this, some groups are pushing for a national approach to energy efficiency and renewables, a National Efficiency Standard. The Energy Future Coalition, in partnership with American Council for an Energy Efficient Economy (ACEEE), Natural Resources Defense Council, the Environmental Law and Policy Center, Environment Northeast, and the Sierra Club, have proposed an EERS that sets a 15% electricity and 10% natural gas savings target by 2020.  Other approaches would equally value the benefit of a megawatt saved or produced.   This would be similar to a REC which establishes value based on the projected performance of a renewable asset, but on a national scope.  Others, differentiate between production and efficiency, rewarding each with it’s own specific incentive.

What most of these folks do agree on is that reducing the complexity and risk of the puzzle of incentives would deliver more impact than most other energy or carbon reduction initiative in the que.  The question remains, who will lead the effort to drive it?  The Department of Energy? The White House?

    Attn: Steven Chu – Support Utility On-Bill Financing with DOE Loan Guarantees

    Whenever a utility offers our customer on-bill financing we know we’ll be installing this energy efficiency project within a few months.  Our hit rate for these projects is literally 100%.

    The model is so straight forward it’s no surprise customers quickly say yes.  No capital budgeting process, no new banking relationship, just an extension to an existing long-standing utility relationship.   Whether its a municipal facility or a large corporation both recognize this option as a smart decision.  Their monthly bill stays the same or goes down, with energy savings offsetting the interest and principal on the loan.  Once paid off in a few years their monthly cost savings goes up even higher.

    So why isn’t on-bill financing offered more widely?

    Across the country PUC’s are increasingly mandating energy efficiency goals during their rate negotiations with utilities.  As part of the PUC’s rate negotiation they know on-bill financing adds another layer of cost, essentially taxing utilities twice – first requiring them to offer energy efficiency rebates and second having them extend loans to their customers.

    Although utilities already take credit risk everyday with their customers, they don’t like being a bank.  At the end of 2010 we learned that one publicly traded utility was discontinuing their wildly successful on-bill financing program for this exact reason.

    Meanwhile the DOE’s Loan Guarantee program’s stated mission is to “accelerate the domestic commercial deployment of innovative and advanced clean energy technologies.”  The controversial program seems to have spent $ billions funding cleantech development (ie. manufacturing) more than deployment.

    How about accelerating less sexy, but proven energy efficiency deployment?

    Offer utilities a loan guarantee which supports on-bill financing.

    With a Federal guarantee for loan repayment, utilities in every region would run fast to deliver on-bill financing.  The model would help them hit their PUC negotiated energy efficiency goals and, most importantly, reduce customer consumption.   Utilities would continue to source and qualify energy projects – but could then leverage their existing monthly billing relationships to off-load this high quality debt to banks and finance companies.  These could even be packaged and resold.  Can you say CARBs (Cleantech Account Receivables Bonds)?

    Where PACE got derailed because Freddie Mac and Fannie Mae wouldn’t support taking a subordinate position on their mortgages, the on-bill financing model requires very few participants to be initiated – the customer and the utility.

    In the past few weeks I’ve pushed this idea with a few folks, including the Environmental Defense Fund, a few utilities and on two Cleantech panels, one hosted by the New England Clean Energy Council, and another hosted by Boston’s Kellogg School of Management alumni group.

    As I rarely spend cycles trying to influence Federal policy it occured to me that our blog may be a better way to reach folks who can carry this idea a bit further.

      2010 Trends in Enterprise Cleantech Finance and Incentives

      During our 2010 business planning we’ve been speculating on trends that may affect our corporate customers (positively or negatively) in the coming 12 months.   In 2009 Groom Energy delivered projects in 25 states and Puerto Rico.  What’s stunning is how much time we spent confirming the incentives available in these states, through utilities, regional ISO’s and Clean Energy trusts.   2010 promises to introduce even great complexity to this already challenging game – in this regard here are four areas we think are worth watching:

      1.  PACE rollout across the US – this emerging energy tech financing program, which started in Berkeley, CA as a residential solar PV financing program, has now grown into a much more powerful concept.  PACE (or Property Assessed Clean Energy) financing has broadened, becoming the poster child for enabling both residential and commercial property owners to invest more easily in renewable and energy efficiency upgrades.   Legislation for PACE like programs has now been “enabled” in 17 states, but the devil will be in the details as to how each rolls out their own version, delivering low cost tax exempt debt to property owners.  Regardless, in a market where commercial lending has ground to a standstill, PACE programs have the chance to catalyze lots of projects, providing significant energy and carbon savings – it remains to be seen how fast these programs can be rolled out in a scalable way.

      2.  The continued fragmentation of state level PV incentives - While for the past few years CA, NJ, MA and CT have led the nation with developed PV incentive programs, each state has had their formulas for distributing these incentives, and each has experienced intermittent funding for their programs, both for policy and economic reasons.  2010 will bring another level of complication, as incentive programs in several new states will become available.  In these newer programs, confirming incentive formulas will part of the story – continued funding for these programs is a new risk to assess.  As the economics for PV breaks without heavy state incentives, incentive commitment letters for these “approved” projects will be critical.

      3.  Carbon Cap’nTrade – Post Copenhagen it’s pretty clear we won’t see 2010 US Federal policy that has immediate economic consequences for Corporate America.  What we’ll be watching is whether Federal policy institutes a “grandfather” clause which encourages action while the policy debate continues in the Senate and the House.  (This grandfather concept was implemented successfully within the energy efficiency code in the EPAct2005).  So in 2010, it could be that state policy overrides lack of Federal policy and defines carbon pricing with vehicles such as RGGI for pricing, although CA will likely not see their program live until 2012.  Guidance for emitters at below the 25MW power plant level might also be forthcoming…

      4.  Utility and Trust sponsored Energy Efficiency rebate programs:  While New England and CA have had consistent energy efficiency programs for a number of years, new states and utilities are rolling out more programs in 2010.  Considering we’re still in the Great Recession, free money supporting fast returning energy efficiency investments is clearly worth studying on a state by state level.

      So there you have it – maybe next year we can look back on this post and give ourselves a report card on our predictions :)

        Groom Energy hosts LED Webinar

        Groom Energy hosted a webinar on May 21st entitled “Trends and Best Practices using LED light sources in Commercial, Industrial and Outdoor applications.” This event was driven from the many conversations, questions and engagements we have had with our commercial and industrial customers, like, “are LED’s the answer for my industrial application?” “How soon until LEDs will be competitive with fluorescent light sources?” ” Which applications have been successful and which have not, and why?”….. we attempted to answer a few of these questions using this broad forum and maybe to provide clarity to some of the claims from providers.

        Joining me in the presentation were Mark McClear from CREE and Jeff McCullough from PNNL. The session was very well attended, far better than we had anticipated. Mark gave a good historical view of where LED light sources have come from, where they are now and where he (and CREE) anticipates them to be in the short term.   I presented a synopsis of Groom’s observations of the commercial and industrial marketplace from our customer’s perspective. The requirements and challenges they face and the many questions they pose to us.  I reveiwed 4 specific case studies which hit specific different types of applications, Indoor, Roadway, Parking, and Tunnel, and the results/benefits of these installs. Jeff gave an excellent overview and detailed the effort to provide standards around the myriad of claims in the market regarding LED light sources and fixtures.

        What is apparent is that there is tremendous interest in LEDs as a hugely efficient light source for the future. Along with that come a ton of questions and the need to provide expert guidance. The comments from the session seem to be positive so far, and we continue to try and provide guidance and leadership to our customers in this area. Stay tuned for more!

        The webinar is currently archived on the Greentechmedia site so you’ll just need to register here in order to view it anytime for the next 6 months.

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