Nevada Green Bank Study Deliverable 1 – Nevada Clean Energy Market & Policy Review Jeffrey Schub, Executive Director, CGC
April 2016 Project Deliverables
(1) Market & (2) Green Bank Review (3) Market Sizing Policy Review Review
(4) Financing Synthesis Gaps & Needs Assessment
(5) Green Bank & Recommendations Financing (6) Next Steps Solutions
2 Transportation is largest use of energy; electricity mostly from natural gas & coal
Energy Use in NV by Sector
Transportation 18% Transportation is single largest user Industrial 31% Buildings and Industry is 69% Residential Commercial 25%
26% Electricity Generation in NV by Source
0%
11% Natural Gas Electricity generation dominated by 7% Coal fossil fuels, primarily natural gas. Hydro Other Renewable 18% Oil (.04%) Coal second largest and falling 64%
3 Source: EIA 2013 data and 2014 data. Most renewable energy is large hydro, followed by Geothermal
Renewable Electricity generation in • Largest single renewable NV, excluding large hydro, 2014 energy source in Nevada Solar, 24.0% is Hoover Dam, which Distributed Generation, has recently suffered 1.9% declines Wind, 7.1% Biomass, 1.3% • Geothermal followed by Small Hydro, solar are large 0.9%
contributors Waste Heat, 0.4%
Geothermal, 64.5%
4 Source: EIA 2014 data. Nevada highly dependent on energy imports
Energy Resources Produced in • About 90% of all Nevada, 2013 (trillion BTU) energy (natural gas, 80 coal, gasoline) used in 70 Nevada comes from 60
outside the state. 50 • Nearly 100% of all 40 “home grown” energy 30 in Nevada is from 20 renewable sources 10 0 Coal Natural Crude Oil Nuclear Biofuels Renewable Gas - Electric Energy Marketed Power
5 Source: EIA 2013 data. Electricity prices below US average, but residential prices higher than others in Mountain West
• Residential retail electricity Average Residential prices in NV are slightly below Electricity Price 2014
the US average State Cents/kWh • Residential customers pay higher NV 12.93 rates than other states in the NM 12.28 Mountain West CO 12.18 • Commercial customers pay below AZ 11.90 Mountain West average UT 10.65 OR 10.47 ID 9.72
6 Source: EIA 2014 Electricity rates in NV show modest uptick; future rates tied in part to variable prices of natural gas
NV Average Retail Electricity Price 2000-2014 12
10
8 3.31% compound annual growth rate over the 14 year period 6 Cents/kWh 4
Note: this includes all utilities, and does not include 2015 data. Latest 2 complete cross-utility dataset from EIA runs through 2014 only.
0
Source: EIA 2014, average across all utilities across all customers. 7 Nevada consumers exposed to natural gas price variability in commodity markets
• Natural gas prices are at historic lows, meaning lower prices for utility customers • NV Energy does not engage in long term gas purchasing or hedging; customers exposed to any potential rise in gas prices dollar-for-dollar.
8 Source: NV Energy IRP Docket 2015, IMF Commodity Price Outlook & Risks, April 2016. https://www.imf.org/external/np/res/commod/pdf/cpor/2016/cpor0416.pdf SB 123 means NV more dependent on natural gas; large scale solar prices largely fixed & falling
Impact & New Power Plants Driven by SB 123 Owned capacity (not reflected in current rates): Total Cost • Nevada’s grid will Plant Name Fuel Capacity (million $) be cleaner LV Cogen Nat. Gas 274 MW $148.9 • Most new Sun Peak Nat. Gas 210 MW $18 Nellis Solar PV replacement Solar 15 MW $54.5 II generation from Total 511 $221.4 SB-123 coming Power Purchase Agreements: 100MW each from natural gas Plant Name Fuel PPA price Notes • RPS currently has little effect on fuel Boulder Solar Solar $46/MWh fixed price mix Playa Solar 2 Solar 49/MWh levelized
Source: PUCN presentation to legislative committee on energy November 21, 2015. 9 Renewable Energy Tax Abatement program provides incentives to help grow utility-scale solar market
Renewable Energy Tax Abatement Projects 2015
Electricity Tax Rebate Plant Name Company Type Offtaker (millions) NV Energy Nellis Solar NV Energy Solar Owned $6.8 Copper Mountain Sempra Energy Southern Cal Solar 4 Company Solar Edison $22.1 Playa Solar 2 First Solar Solar NV Energy $24.0 Nevada Valley Solar Valley Electric Solutions 2 Bombard Solar Authority $4.9 Don Campbell Ormat Geothermal NV Energy $10.2 Total $68
• Incentives for large-scale projects help pay for power stations; help secure affordable costs for new utility- scale generation and PPAs • Help utility comply with SB-123 • Help grow utility-scale solar and geothermal market
10 Source: 2015 State of Nevada Energy Report, Governor’s Office of Energy (GOE) Limited number of programs across Nevada offer clean energy support to other select markets
Direct Energy Assistance Loan (DEAL) Rural Energy for America Program (REAP)
• DEAL offers EE home upgrade loans • USDA program that offers grants and to state employees loan guarantees for rural clean energy • Paid off via automatic monthly projects payroll deduction • From 2003 to 2014, wind project • Interest-free loans assistance worth $150,832, and loan guarantees totaling $8,319 • Up to $6,000 per homeowner • Energy efficiency: $40,124 • Terms up to 60 months, with monthly payments of $50 or $100 • Solar: $961,361 • Simple & streamlined structure • Biomass: $105,703,595 – (one large biorefinery project)
11 Many of Nevada’s clean energy programs are run by the Governor’s Office of Energy (GOE)
Performance Contract Audit Assistance Revolving Loan Program
• Funds financial grade audits for • Administered by GOE, originally energy efficiency, which is the first funded by ARRA step to a performance contract • Standard loan terms and sizes for upgrade large projects $100,000 – $1 million • Since 2014, GOE awarded $328,000 • Since 2009, more than $17.4 million • As of 2015, has received three has been loaned to 20 projects. additional applications. •Original $8 million in funding has • Expects to process more than revolved and increased to more than $680,000 that will lead to $17 million, primarily due to moving performance contracts for efficiency unspent ARRA funds from other programs into the Loan Fund
12 Source: 2015 State of Nevada Energy Report, Governor’s Office of Energy (GOE) Ratepayer dollars used to support Demand Side Management rebates approx. $50 million annually
• Funded through charge on utility bills • Nevada Power DSM program cut by $11 million in Dec 2015
Nevada Power + Sierra Annual DSM ~Budgets (millions) $70 $60 $50 $40 $30 $20 $10 $0 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: NV Energy PUCN Dockets and SWEEP 13 NV Energy proposed annual budgets of ~$70 million of DSM grants for 2016, but several programs denied
Nevada Power- DSM Programs Request 2016 Sierra- DSM Programs Request 2016 Program Budget Program Budget Residential Lighting $4,500,000 Residential Lighting $1,400,000 Refrigerator Recycling $1,100,000 Refrigerator Recycling $500,000 Residential AC $9,000,000 Home Energy Reports $520,000 Pool Pumps $1,850,000 Solar Water Heating $200,000 Home Energy Reports $ 700,000 Non-Profit Agency Grants $110,000 Solar Water Heating $100,000 Energy Smart Schools $400,000 Non-Profit Agency Grants $150,000 Commercial Services $4,500,000 Energy Smart Schools $1,800,000 Energy Education $250,000 Commercial Services $13,000,000 Energy Assessments $600,000 Energy Education $400,000 Market and Technology Trials $100,000 Energy Assessments $1,100,000 Demand Response - Residential $1,750,000 Market and Technology Trials $400,000 Demand Response - Commercial $2,677,000 Demand Response - Residential $16,300,000 Demand Response - Agricultural $690,000 Demand Response - Commercial $5,600,000 Total $13,697,000 Total $56,000,000
14 Source: Source NV Energy www.leg.state.nv.us/Interim/78th2015/Exhibits/Energy/E120815J.pdf Successful NV Energy renewable grant program gone through 90% solar funds, 75% hydro/wind funds
• RenewableGenerations program created by 2003 legislature • Supports distributed generation technology • Funded through charge on utility bills • Since 2003, over $257 million spent
NV Energy Renewable rebates 2003-2015 (million $) Initial Program Funding $295.3 Amount Spent/Committed $257.1 Remaining Funding $38.2
Source: NVEnergy http://energy.nv.gov/uploadedFiles/energynvgov/content/Programs/Queue%2 15 0and%20RenGen%20Update%20v5.pdf EVs a growing part of Nevada’s future, though penetration of EVs and charging stations still low
Nevada EV Landscape • Transportation uses more energy than any other sector in Nevada
• GOED and associated Brookings report name clean energy as one of the main pillars for a new diversified Nevada economy • GOED worked with Tesla, and provided tax breaks to assure that new “gigafactory” built in Nevada • Nevada’s economic future now more intertwined with the success of electric vehicles • “Electric Highway” of charging stations announced for Route 95 16 Key Takeaways
• Nevada highly dependent on imported fossil fuels; only domestic energy sources are renewable; increasingly exposed to natural gas fuel price
• SB-123 driving increased natural gas and renewables; price of those renewables lowered by tax abatements for utility-scale plants
• Wide variety of programs in Nevada, through multiple entities, supporting both large- and small-scale clean energy and energy efficiency
• Support for distributed generation and efficiency is declining with reduced rebates and dwindling budgets
• Most state-level support for clean energy is in the form of grants/rebates, not financing; one state-supported financing program highly innovative
17 Thank You
Jeffrey Schub, Executive Director Coalition for Green Capital [email protected] Twitter: @CGreenCapital Nevada Green Bank Study Deliverable 2 – Review of Existing Green Banks Jeffrey Schub, Executive Director, CGC
April 2016 Project Deliverables
(1) Market & (2) Green Bank Review (3) Market Sizing Policy Review Review
(4) Financing Synthesis Gaps & Needs Assessment
(5) Green Bank & (6) Green Bank Recommendations Financing Form & Solutions Next Steps
2 Table of Contents
• 2.1 – Green Bank Model Overview • 2.2 – Green Bank Examples & Products • 2 .3 – Green Bank Product Deep Dive
3 Many large projects – fossil & renewable – can access financing, but not so for distributed projects
Centralized Projects Distributed Projects
• Utility-scale • Smaller scale • Power directly to grid • Scattered locations • Strong credit • On-site energy use • Traditional project • Varying credits finance • Range of structures • Relatively easy to and approaches to finance finance
4 Many clean energy markets suffer from expensive or lack of capital
Markets With Adequate Private Capital • High-credit residential rooftop solar • Credit-rated large commercial efficiency projects Markets With No or Expensive Private Capital • Low-to-moderate income residential upgrades • Non-rated commercial solar & efficiency • MUSH and non-profitprofit rooftop solar • Community-solar • Residential energy efficiency • MUSH energy efficiency • Grid storage and micro-grids • Alternative fuel vehicles and infrastructure Distributed biomass, biofuels, CHP and fuel cells • 5 Green Banks fill the financing gap and draw in the capital needed to make clean energy markets grow
A green bank is a public financing authority that leverages private capital with limited public-purpose dollars to accelerate the growth of clean energy markets
Deploy public-purpose Implement new market capital efficiently to behavior and lower maximize private Green Bank price to spark demand investment
Inefficient Tepid Clean Energy Capital Consumer Market Markets Demand
6 Green Bank is a public institution that channels public and private investment
1 Capitalization of Green Bank
Government 2 Innovative financing structures 3 Private investment flows Creation & Public Capitalization 1
Private Green Bank Investors
2 3 Public Private Payback Payback Investment Investment
Low Carbon Consumer Savings, Job Projects Creation, Taxpayers Protected, GHG Reductions 7 Green Bank plays dual role of increasing the flow of capital and building market to increase demand
Financing Projects • Leverage public dollars • Stimulate private investment • Fill market gaps Generating Demand • Turn-key solutions • Harmonized programs • Local Community-based Marketing • Trustworthy source of reliable consumer information • Cross-agency coordination
8 Green Banks are flexible institutions that can employ various financing methods to suit the need
a. Credit Support b. Co-Investment c. Warehousing
Green Bank Project Senior Capital Private Capital
Green Bank Credit Green Bank Enhancement Origination Project
Private Project Private Capital Purchase of Portfolio 9 Example: 85% of all vehicle purchases are financed with a loan or a lease
$25,000 Auto loans can eliminate 100% of upfront cost of a car.
Auto Loan
Loan Loan Down Down Payment Payment Payment Payment Price Upfront Year 1 …. Year 5
10 Energy financing structured so that repayment plus remaining utility bill are less than prior utility bill
BEFORE AFTER
Savings
Renewable/ Efficiency Utility Bill Financing Payment
Utility Bill
No energy Clean Energy upgrade Upgrade 11 Green Banks recycle capital, re-leveraging private investment multiple times
Original Investment
Year 0: Initial Year 6: investment Investment is leverages fully repaid private capital First Recycling
Year 6 Year 12: Funds are re- Investment is loaned, attracting fully repaid more private capital Second Recycling
Year 12 Year 18: Funds are re- Investment is loaned, attracting fully repaid more private capital
12 Green Banks create jobs and economic development with local investment
More Jobs for Contractors New Investments for Lenders • Increased Demand • New Profitable Opportunities • Greatest barrier to adoption of • Green banks stimulate market clean energy technology is the growth, create demand for upfront cost financing products • Public-private financing • Lenders become active in growing, eliminates that barrier, enables low-risk market demand for clean energy services • Lenders can expand business
• More Local Jobs • Early Safety Net • Trained professionals with good • Green Bank partnership provides wages needed to install equipment initial assurance about risk • Must be done locally, jobs cannot • Credit enhancements encourage be outsourced market entry • More demand and an expanding • Lenders can learn about market market meets new businesses structure with govt security
13 Range of financial tools, applied to prioritized markets, through innovative structures
Financing Green Bank Mechanisms Markets Products & Services • On-Bill • Direct Debt • Residential EE • PACE • Wholesale Debt • C&I EE • ESA • Subordinated Debt • Multifamily & LI EE • Loan Loss Reserve • MUSH EE • Warehousing Customer • Distributed Generation Acquisition • Securitization • Community Solar • Standardization • Solarize • Energy Storage • Data Collection • Big-data • EV’s and Charging • Targeted
14 Property Assessed Clean Energy (PACE) Financing can be offered as a product with or through the GB
PACE & Green Banks • PACE is a financing mechanism that collects repayment through property tax system • PACE is product potentially offered by Green Bank. Not an alternative to a Green Bank. • All PACE programs, no matter the sector served, must have two components to operate effectively – program administration and capital for making loans • A Green Bank can offer either or both to help operate PACE • CT GB administers and makes loans for commercial PACE • RI Infrastructure bank administers commercial PACE, capital from private lenders
15 Table of Contents
• 2.1 – Green Bank Model Overview • 2.2 – Green Bank Examples & Products • 2 .3 – Green Bank Product Deep Dive
16 Interest in Green Banks is growing across the country
Established Institutions
1 Connecticut Green Bank
2 Hawaii Green Infrastructure Authority
3 New York Green Bank
4 New Jersey Energy Resilience Bank
5 California CLEEN Center (IBank)
6 Rhode Island Infrastructure Bank
7 Montgomery County (MD) Green Bank
States with Active Initiatives to Explore Concept States With Related Programs
8 Maryland – Legislation 11 Virginia – Gov’s Climate 13 NE Dollar & Energy Saving Loan for Study & Task Force Change Commission 14 Pennsylvania HELP 9 Nevada – Legislation 12 D.C. – Energy Office for GB Study Study 15 WHEEL 10 Vermont – Govt Steering Committee 17 Varying capitalization sources and org structures, common principles and objectives
Eligible Source of Funds Institution Key Products Oversight/Structure Staff Technology and Initial Capital Connecticut • Solar, fuel-cell, • C-PACE • RGGI funds, utility • Quasi-public • 33 1 Green Bank geothermal, • Smart-E loan bill surcharge • Independent biomass • Solar Lease II • ~$35M per year board of directors • Energy efficiency • Solar Loan
Hawaii Green • Solar (primary • Solar leases for LMI and • $150 million bond • PUC oversight • 5 2 Infrastructure focus) non-profit sector, paired issuance backed by • Econ Development Authority • Energy efficiency with on-bill recovery ratepayer fee Agency administration New York • Renewable energy • Issued RFP for private • $350 million in • PSC oversight • 12 3 Green Bank • Energy efficiency sector financial capital from RGGI • Division of state • Clean intermediaries & bill surcharge, up energy office transportation to $1 billion in 2025 New Jersey • Combined heat • Water treatment. • $200M of disaster • Jointly • 5 Energy and power wastewater plants relief funds from US administered by 4 Resilience • Fuel cells • Hospitals, healthcare HUD PUC and NJ Bank • Off-grid solar facilities Economic backup • Transportation and transit Development infrastructure Authority
18 Varying capitalization sources and org structures, common principles and objectives
Eligible Source of Funds Institution Key Products Oversight/Structure Staff Technology and Initial Capital California • Efficiency (first • SWEEP (MUSH market • Pre-existing • Division of state • TBD 5 CLEEN Center priority) efficiency) bonding authority Infrastructure • Renewable • CEEP (commercial market of the state IBank Bank generation efficiency) • Governor appoints the board Rhode Island • Renewables • Commercial & Residential • $3M from RGGI • Body politic of the • 12 6 Infrastructure • Efficiency PACE Program • $2M from ARRA state Bank • Grid and demand- • Efficient Buildings Fund • $2M from • Governor appoints side upgrades for municipal buildings ratepayers board • QECBs • General bonding authority Montgomery • Renewable energy • TBD • $20M from utility • Independent non- • TBD 7 County Green • Energy efficiency merger settlement profit Bank • Grid and demand- • Has official side upgrades designation, bylaws and board as defined by county
19 Connecticut Green Bank offers a diverse suite of 1 products, focus on solar and energy efficiency
Product Description Results Overview Smart-E loan • Loan loss reserve for local banks • $2.5M of public funds enables $30M • Established 2011 through allows for loan terms, can target of private investment in clean energy Public Act 11-80 lower FICO scores through credit enhancement • $48M initial funding from C-PACE • Commercial energy efficiency • Over $100M in deals repurposed system benefit and clean energy loans • Private investor purchased first $27M • Repayment through tax of C-PACE transactions charges assessment • Raised new public-private warehouse • Green Bank was created by • Secured by lien on property to increase loan volume repurposing existing agency Solar Lease II • Green Bank acts as a solar • $60M total funding (5:1 ratio private developer, pooling many leases to public dollars) to utilize depreciation and ITC, • Will fund rooftop solar PV systems on attracts private funds, open to about 1,500 homes and 40 businesses Milestones Achieved1 FICO scores ≥ 640 • Catalyzed $663M of investment Solarize • Outreach through community • Lowered installation cost 30% • Achieved private: public networks, tiered pricing, and • 1/5 interested customers signed temporary monopoly for installer contracts leverage ratio as high as of 10:1 • Doubled amount of solar in • Created and induced over communities 8,000 jobs in 4 years Solar Loan • 15-year solar loan to finance • $4.9M approved ($3.25M closed, • Installed over 130 MW of installation of solar PV systems $1.35M funded) capacity since inception. • Green Bank acts as warehouse • Assisted 230 homeowners
Sources: 2013 Annual Report. “Connecticut's Green Bank: Energizing Clean Energy Finance.” 20 Connecticut’s Solar Lease 2 (SL2) program provides 1 local installers with financing offering
Program Overview Financial Structure • In SL2, Green Bank acts as solar developer: • Expect sponsor equity IRR of 9% from 2014 to 2034 • Establishes special purpose entity (SPE) • 20-year term for subordinated debt at a 2% yield with • Uses federal and state incentives level payments of principal and interest starting in 2015 • Acquires tax equity from US Bank in order • Repurposed ARRA-SEP funds of up to $3.5M with a to utilize investor tax credits coverage ratio of 200% • Pools many smaller leases • Performance-based incentive of $15.2M over 9 years • Allows property owners to lease Solar PV and from 2029 through 2034 solar hot water systems • Overall IRR ~2% • Property owners make lease payments over 20 years, opportunity to purchase system at 5 years Bank CEFIA US Bank Syndicate Milestones Achieved Funding • Funded projects will generate 14,000 kW annually and create more than 1,000 jobs • Green Bank provided $9.5M public funding to SPE CT Solar Lease 2 LLC attract $50M of private capital • Assurant provides comprehensive insurance and warranty management Towns Commercial & • Works with syndicate of local banks and 640+ FICO AA Rated Customers and Multifamily financiers including: US Bank, First Niagara, Homeowners Companies Schools (C-PACE) Webster, Liberty, and Peoples United
21 Connecticut’s unique state-wide PACE created 1 significant investment, pipeline, national praise
Program Overview Milestones & Lessons Learned • Legislation established Green Bank as single • Financed over $100 million in upgrades statewide administrator of PACE • Sold $24M of PACE loans to Clean Fund in • Requires consent of existing mortgage lender nation’s first commercial EE securitization • Funds C&I, MF for EE, RE, and micro-grid • Green Bank worked hard to onboard towns, • Green Bank provides 100% of upfront municipalities across the state financing • GB worked with mortgage lenders to acquire • As single administrator, Green Bank consent of senior lien position standardizes underwriting • Need adequate staff to acquire customers
Step 1: Step 2: Step 3: Step 4: CGB CGB CGB sells CGB makes lends to bundles loans, gets new loans customers loans cash
22 CT transition from grants to loans brings leverage, 1 spike in total clean energy investment
Connecticut Grant-Making Authority versus Connecticut Green Bank
FY 2000 – FY 2012 – FY 2015 FY 2011 FY 2014 (CGB) (CCEF) (CGB) Model Subsidy Financing Financing Years 11 3 1 Energy (MW) 43.1 65.3 62.6 Investment ($MM) $350 $350 $365 Leverage Ratio 1:1 5:1 5-10:1 Investment % Loans 9% 57% 77%
23 1 CT Green Bank drives job creation
Jobs Created due to Connecticut Green Bank 5000 4500 4000 3500 3000 2500 2000
Number ofNumber Jobs 1500 1000 500 0 FY 2012 FY 2013 FY 2014 FY 2015 Direct Jobs Indirect Jobs
Source: Connecticut Green Bank Comprehensive Annual Financial Report, FY 2015, available at http://spark2.cronindev.com/wp-content/uploads/2015/11/Connecticut-Green-Bank-2015-CAFR.pdf. 24 2 Hawaii GEMS program targets underserved markets for low-cost residential solar financing
Overview Financial Structure1 • Established June 2013 through Act 211 • $150M from rate-reduction bonds, secured by • $150M initial funding through rate-reduction bonds Green Infrastructure Fee • Provides lease financing for local installers • Fee will be added to utility ratepayer bills, other • Will be overseen by Green Infrastructure Authority fees will be reduced to offset the cost of the new fee Staff within Department of Business, Economic • Bonds not tied to state’s credit rating Development, and Tourism (DBEDT) • Proceeds paired with private tax-equity investment • Seeks to fill market gaps by targeting low-moderate • Distributed solar leases provided through installers income segments, renters, non-profits • Repaid directly or through on-bill repayment • Lease repayments do not repay bond holders
Green Energy Market Securitization Program Structure
Private Proceeds GEMS Lease Lease Bond Installers Customers Fund Holders Bonds
Fees Lease payments On-bill lease Ratepayers Utility payments
Source: 1) “DBEDT Files Applications with PUC to Implement Green Energy 25 Market Securitization Program,” DBEDT Press Release. New York Green Bank focused on catalyzing private 3 wholesale financial markets for clean energy
Program Overview Financial Structure • Established in January 2014 Eligible Eligible Financial Guiding Principles • $350M in funding from system benefits Technology Products charge and RGGI, will increase to $1B • Enhance private • Renewables • Credit • Part of New York State Energy Research & sector (e.g., solar, enhancements Development Authority participation wind, hydro, (e.g., reserve • Focus on financing projects that have • Partner with thermal, account, junior difficulty accessing financing existing market bioenergy, interest) • First investments used $49M in public funds participants tidal) • Loans (e.g., to leverage $170M in private capital • Operate • Energy mezzanine, exclusively in efficiency subordinated, or Financing Approach wholesale • Combined senior) • Issued an open market solicitation to private markets heat power • Warehousing with sector lenders, investors, and other industry • Does not provide • Electric the likelihood of participants grants or vehicle being taken out by • Solicitation is very broad, open to both subsidies infrastructure private third investors and clean energy project developers • Recycles public • Fuel cells parties • Constantly receives submissions, including capital • Anaerobic resubmissions by previous applicants Digestion • Offshore wind
26 New Jersey Energy Resilience Bank applies similar 4 principles to resiliency in response to Sandy
Program Overview Target Markets • Proposed by Governor Christie in 2013 • Water treatment plants; wastewater treatment • Capitalized by $200M from Community plants Development Block Grant-Disaster Recovery • Hospitals and long term care facilities Funds allocated to New Jersey by U.S. • Colleges and universities; state and county Department of Housing and Urban Development correctional Institutions • Goal to finance resilient power projects to protect • Multifamily housing; primary and secondary against power outages during weather events schools that serve as community shelters during • Has authority to make loans, give grants, and disasters provide credit enhancements for bond issuances • Other facilities that serve as community shelters and private financing during disasters • Transportation and transit infrastructure
Early Program Guidelines • Initial focus will be on waste water treatment facilities • Energy Resilience Bank (ERB) will offer up to 90% of funding; remaining from private sector • 8o% of ERB funds will be loans; 20% will be grants; a quarter of loan can be forgiven • Eligible technologies include CHP, Fuel Cells and Batteries & Inverters for solar systems (not actual panels)
27 Recently created state and county institutions are now ramping up
State Current Status
• Created by executive action within Governor’s Infrastructure Bank • Will operate like a green bank, filling financing gaps and investing in partnership with private sector • Will use existing bonding authority, entirely self-sufficient 5 California CLEEN Center • First programs will be SWEEP and CEEP, to provide long-term, low- cost financing for energy upgrades for MUSH market and commercial market buildings • CLEEN Center business plan outlines future objectives of financing renewables and other sectors • Created through bi-partisan budget legislation • Built from existing Clean Water Finance Agency – given expanded responsibility to address clean energy, named Infrastructure Bank 6 Rhode Island First two roles are centralized state-wide PACE administration, and Infrastructure Bank • creation of municipal building upgrade financing program • Capitalized with small pieces of money from multiple sources, including bond issuances. • Legislation passed unanimously by County Council 7 Montgomery County • Working Group will determine GB activities and markets Green Bank • Will be a designated 501(c)(3) non-profit • Capitalized $20M from Exelon as part of Pepco merger settlement 28 Recently created state and county institutions are now ramping up
State Current Approach & Status
• At legislative, direction, Maryland Clean Energy Center completed study of the need for a state Clean Energy Finance Initiative in 2015. Maryland 8 • Upon completion of study, government formed official Task Force of department heads to design implementation strategy • State legislature passed SB360 in summer 2015, directing interim 9 Nevada legislative committee on energy and state energy office to investigate need and potential creation of a Green Bank • Dept. of Employment and Economic Development, Dept. of 10 Vermont Commerce, Dept. of Agriculture have launched assessment of need and role of a state Clean Energy Finance Initiative • Governor’s Climate Change & Resilience Committee advanced the 11 Virginia creation of a state Green Bank as the number one recommendation to the governor based on Committee deliberations in 2015
• District energy office is conducting formal study and assessment for District of Columbia Green Bank creation in nation’s capital to support achievement of 12 large environmental and energy goals. Study completed spring 2016.
29 13 States with similar finance programs demonstrate 14 success in offering low-cost loans
Nebraska’s Dollar & Energy Saving Loan: Pennsylvania’s Keystone Home Energy Loan Limited Product Menu, But Great Outreach Program (HELP): Standardization • Established 1990 • Established 2008 • Funds have revolved from $24M to $74M • $20M initial funding from Pennsylvania State Overview • 28,000 projects to date Treasury • Maintained default rate of 0.08% • By 2011, Keystone had financed $52.4M (7,966 loans) • Interested borrowers approach local financial • Underwriting standards follow Fannie Mae institution, which approves projects and • Leverages AFC First’s network of 1,800 coordinates with the Nebraska State Energy approved contractors Office (NSEO) • Tiered rate structure offers borrowers more Program • NSEO provides 65%–75% of funding at 0% attractive financing for deeper energy retrofits interest, private lending institution provides • Keystone HELP sold $29M to a syndicate of remainder at 2.5%–3.5% private banks1 • NSEO works with 286 local Nebraska lending • WHEEL2 aggregates loans, attracts institutional institutions in all 93 counties investors, creates secondary market • Market through local lending institutions • Partner with private sector administrator • Allow private banks to keep returns • Leverage contractor networks Lessons • Lending institutions take the risks • Align with contractor incentives so contractors Learned • State energy office helps customer calculate are encouraged to advertise program energy savings • Standardize underwriting standards
1) Had to create special purpose vehicle to get rating. 30 2) “WHEEL” stands for Warehouse for Energy Efficiency Loans. 15 WHEEL works across states to aggregate energy efficiency financial products
Warehouse for Energy Efficiency Loans (WHEEL)
• Came out of Pennsylvania’s Keystone HELP Loan program • Provides lower-cost financing for residential energy efficiency • Uses public capital as credit enhancement to secure private debt Overview • Open financing platform that any state may enrol in as a sponsor by contributing subordinate or credit-enhancing capital to the pool
• A collaboration between Renewable Funding, State of Pennsylvania Treasury, Citigroup Global Markets, and the Energy Programs Consortium that utilizes the RenewFund financing platform to deploy institutional capital for state and utility programs • Warehouse facility funded by Citigroup and Pennsylvania Treasury Program • Low/no cost subordinate capital provided by state sponsor using by ARRA, utility, and other funds • Warehouse repaid via issuance of an investment grade security • Unsecured loans; 640+ FICO; Up to 10 year terms • Return provided to sponsors who participate in WHEEL, based on actual defaults and repayment levels.
1) Had to create special purpose vehicle to get rating. 31 2) “WHEEL” stands for Warehouse for Energy Efficiency Loans. …and around the world
National Initiatives Conclusions Drawn from the OECD International Conference on Green Investment Banks (GIBs) UK Green Investment Bank • Established 2012 • Investment activities to mobilize private • $4.7B initial capital Role of capital GIBs • Encourage co-investment in clean energy Clean Energy Finance Corporation projects from institutional investors • 2013 launch • Leverage public expenditures to encourage How GIBs • $10B initial capital private capital markets to make loans and Work investments in clean energy markets Malaysia Green Technology • Clean Energy, energy efficiency Target Financing Scheme • Ecosystem adaption Sectors • Established 2010 • Electric vehicles and air quality • $1B loan to be used until 2015 CGC led the Green Investment Bank discussion at Japan Green Fund OECD’s Green Investment Finance Forum in • Created 2013 Paris in 2014 & 2015. At the event former U.S. • $14M annually from cap and Vice President Al Gore called on all OECD trade revenues members to establish CEFIs.
32 Green Banks are also being created around the world
Sources: OECD, “Green Investment Banks – Policy Perspective.” 33 Global Green Bank Network just launched, hub for new Green Bank Development, knowledge sharing
Green • Help Gov’t Bank Create New Creation Institutions
Green • Connect Bank Attract Investors & Capital DFIs with Network Green Banks
• Best Practices Know- & Data from How All Green Banks 34 Table of Contents
• 2.1 – Green Bank Model Overview • 2.2 – Existing Green Banks • 2 .3 – Green Bank Product Deep Dive
35 Financing at appropriate term and rate means payback period no longer matters, all about cash flow
No Grant or Financing - 7 Year Payback 1 A deep efficiency project has high upfront cost and 20 long payback –barriers to adoption
10
0 0 1 2 3 4 5 6 7 8 9 10 -10
-20
Annual Cost/Savings Cumulative
50% Grant - 4 Year Payback
10 3
0 100% financing eliminates these barriers – NO 0 1 2 3 4 5 6 7 8 9 10 UPFRONT COST, IMMEDIATE SAVINGS, NO -10 PAYBACK PERIOD -20
Annual Cost/Savings Cumulative 2 Even a large grant covering 50% of the cost only reduces those barriers – doesn’t eliminate them 36 For example, efficiency loans enable installation of expensive technology paid off with savings over time
EE YR1 YR2 YR3 Investment Kwh Savings Kwh Savings Kwh Savings
x Price x Price x Price
YR1 YR2 YR3 $ Savings $ Savings $ Savings
YR1 YR2 YR3 Loan Pmt Loan Pmt Loan Pmt
37 Example: CGB’s Residential Solar Tax Equity Fund expands customer access to rooftop solar
• CGB created unique public-private financing platform • Product enables local developers to offer financing to customers who otherwise would have to pay all upfront
Green Bank -Subordinated Debt -Loan Loss Reserve -Equity Residential Local Solar Solar Lease Installers Customers Fund Private Investors -Senior Debt -Tax Equity
38 Example: Connecticut Green Bank grows residential solar with more financing and less subsidy
$10.00 70,000
$9.00 CGB Launched 60,000 $8.00
$7.00 50,000
$6.00 40,000 $5.00 30,000 $4.00
$3.00 20,000 (kw) Capacity Installed InstallationCost($/watt) $2.00 10,000 $1.00
$0.00 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Cost to Consumer Subsidy Installed Capacity 39 PACE financing is new construct designed to increase lending security, make building investments appealing
Commercial Building Capital Stack • PACE lien is new tax assessment Prop Tax & PACE Lien • PACE is lower cost, longer term than commercial loan Mortgage • PACE seniority secures repayment Equity • PACE stays with property upon sale
40 Example: CGB’s C-PACE enables secure efficiency investment at scale
Centralized State-wide Green Bank Administration
Portfolio Securitization + Credit Support Private Green Bank 4 Investors Cash Purchase
Loan Loan 1 3 Payment
Commercial 2 Tax Building PACE Collector Assessment
41 Example: Green Bank offers standard credit enhancement to retail lenders to serve the market
• Green bank defines terms of loan loss reserve and risk- mitigation mechanism for residential EE & RE loans • Banks enter market with reduced risk and offer good terms
Commercial Project Loan Borrower Bank
Commercial Project Loan Borrower Green Loan Loss Bank Bank Reserve Commercial Project Loan Borrower Bank
Commercial Project Loan Borrower Bank 42 Example: Green bank loan warehouse for SMB building upgrades, following by private sale
• Green bank directly issues loans for project, and builds portfolio that has scale, diversified risk • Then sells portfolio to private investor to recycle capital • Good for projects too small for PACE (<$100k) Portfolio Securitization + Credit Support Private Green Bank 3 Investors Cash Purchase
Loan Loan 1 2 Repayment
Commercial Building Upgrade Project 43 Example: Green Bank can work with private partners to create programs tailored to low-moderate income • Green bank offers solar financing, coordination with relevant agencies, and market info • Private party installs simple efficiency package, then solar, through single financing repayment – cash flow positive
Green Bank -Rooftop solar Solar Lease financing Alternative Underwriting – LMI Utility Bill Households Private Partner Payment History -Acquires customer Energy -Audit & Installation Savings -EE Financing Agreement
44 Thank You & Appendix
Jeffrey Schub, Executive Director, Coalition for Green Capital [email protected] Twitter: @CGreenCapital Testimonials: Customers Benefitted
“I am just elated…I love the fact that the monthly payments are consistent, whether it’s month number one or month number 200, it is the same and to me that just means a lot.” -Susan Young, first customer of new Connecticut Green Bank’s Low- Moderate Income product
“Our congregation sang praises on another level when we announced the planned improvements. Now that the boiler is replaced, everybody comes in with a smile because they are thrilled it’s warm enough to hold church services in the winter.” Jenice Thompson, Co-Pastor, Calvary Temple Christian Center
Sources: Dixon, Ken, “Malloy touts solar energy savings,” CTPost, July 21, 2015, available at: http://www.ctpost.com/news/article/Malloy-touts-solar-energy-savings-6397928.php. Connecticut Green Bank Annual Report, FY 2014, available at http://www.ctgreenbank.com/wp- 46 content/uploads/2015/12/AnnualReport_FINAL_5.4.15-SinglePages.pdf Testimonials: Governors Meeting Goals
“Connecticut’s innovative programs are reducing energy costs for households of all income levels, [and] creating local jobs. Commonsense policy is moving our state forward on multiple—and critical—fronts. Through these public-private partnerships and forward-thinking approaches, we are scaling clean energy deployment in Connecticut as we grow jobs.” -Governor Malloy, Connecticut
“Smart and innovative financing is crucial to developing renewable energy resources […] Here in New York, we have made great progress with NY Green Bank, and we are joining with other leaders to continue spurring the growth of a clean energy economy.” -Governor Cuomo, New York
Sources: Connecticut Green Bank Press Release, “Governor Malloy Attends Kick-Off Event for Solar For All in New Haven,” January 20, 2016. Green Bank Network Press Release, available at: https://www.nrdc.org/media/2015/151207-1 47 Testimonials: Private Sector Engaged
“Rural communities represent a vast, underserved market for renewable energy across the U.S. and beyond…Today’s announcement represents an inflection point for our industry; with this new access to affordable project finance capital, distributed wind is now positioned to grow rapidly and meet customer demand for affordable wind energy in these communities.” -Russel Tencer, CEO of United Wind upon receiving construction loan financing from the New York Green Bank
“We were able to help another family to save money, save energy, and live more comfortably. That’s what we do!” Sue Dombrowski, CorePlus Federal Credit Union
Sources: United Wind Press Release, “United Wind Secures $13.5M Financing for Major Expansion of its WindLease Program,” October 8, 2015 48 Connecticut Green Bank Annual Report, FY 2014, available at http://www.ctgreenbank.com/wp- content/uploads/2015/12/AnnualReport_FINAL_5.4.15-SinglePages.pdf Nevada Green Bank Study Deliverable 3 – Nevada Clean Energy Market Size Jeffrey Schub, Executive Director, CGC
April 2016 Project Deliverables
(1) Market & (2) Green Bank Review (3) Market Sizing Policy Review Review
(4) Financing Synthesis Gaps & Needs Assessment
(5) Green Bank & (6) Green Bank Recommendations Financing Form & Solutions Next Steps
2 Current market size presented in terms of energy and dollars invested
Objectives Limitations
Total • Determine total amount of public • Limited access to private sector Investment and private investment for each financial information market segment • Availability of data varied across • Present single dollar figure years, necessary to extrapolate when representing current market size current data was unavailable • Use most current values available • Most data exists at state level Current size of individual clean energy Total • Determine total amount of installed • Units of measurement vary across markets Installed capacity or net energy savings for technologies Capacity 1 each market segment • Availability of data varied across • Present single measurement of total years, necessary to extrapolate when installed capacity or net energy current data was unavailable savings • Most data exists at state level • Use most current values available
Notes: 1) Total installed capacity is defined as the maximum generating capacity of 3 a given facility or technology. In the case of energy efficiency, it represents the first- year GWh or MMBtu saved. Serviceable Addressable Market (SAM) describes the market segment that should be targeted
SAM = Economically viable market
• SAM – Serviceable Addressable Market – Total possible investment that is technically, economically, and politically viable for a given technology – Total possible installed capacity based on available resources (e.g., units, households, people in the market, natural resources) and constraints
• SAM calculated based on variety of reports, studies and assumptions to account for county-level market
4 Market sizing focuses on four current clean energy markets
Clean Energy Technologies Considered in Market Sizing
Technology Definition
• Solar photovoltaic (PV) installed in the residential, commercial and industrial, and utility markets. Residential and commercial and industrial markets are referred to as distributed 1 Solar generation markets • NREL assessment only considers PV, not solar thermal or CSP • Electricity generated from geothermal heat 2 Geothermal • Includes hydrothermal resources only
• Wind power technology including turbines, blades, and towers, and services installed in 3 Wind residential, commercial, and utility-scale markets
• Technologies, methods, or strategies that result in using less energy to produce the same service or level of comfort Energy 4 • Technologies may include a conservation or efficiency strategy that helps users save energy Efficiency in the built environment or a technology that is more efficient than traditional types • Only address electricity, includes CHP
5 Data from NREL economic potential analysis, plus other relevant market and policy inputs
Methodology • NREL assessment produced economic potential estimates for multiple renewable technologies all 50 states • 6 different scenarios depending on policy and market conditions • This study considers low and high estimates across scenarios for each technology • Also includes other key data points from trusted sources • Efficiency market size from SWEEP market assessment
6 Estimated Nevada market potential for economically viable clean energy is at least $26 billion
High & Low Scenario Addressable Market by Technology
Potential Energy Capacity Investment Need (millions) Selected Technologies High Scenario Low Scenario High Scenario Low Scenario
Utility 352.8 GW 5.7 GW $511,600 $8,200 1 Solar Distributed 0.3 GW 0.3 GW $1,000 $1,000
2 Geothermal 4.242 GW 1.391 GW $10,605 $3,478
3 Wind 6.329 GW 1.526 GW $2,609 $10,822
4 Electric Efficiency 7,040 GWh $2,590
TOTAL N/A N/A $528,404 $26,090
7 1 Nevada has 5th most installed solar capacity in the nation, installed 3rd most in 2015
Sources: SEIA, “Solar Spotlight: Nevada,” March 4, 2016. 8 1 Nevada has fifth largest solar market in the country
2015 Nevada Solar Capacity Installed Solar Market Facts By Market Segment (MW) • 1,240 MW installed through ‘15 • 417 MW installed in 2015, 198 in 4th quarter alone • $833 million invested in solar ‘15
• 6% YoY cost decline, 48% cost Utility- decline since 2010 Scale 316 • NV Energy reached net-metering cap of 235 MW in August ’15 Residential 95 • As part of new net-metering tariff, there is now no capacity cap
Commercia l 6 Sources: SEIA, “Solar Spotlight: Nevada,” March 4, 2016; Savenije, David, “NV Energy hits net 9 metering cap ahead of schedule, adding fuel to solar debate,” Utility Dive, August 24, 2015. 1 Installed solar capacity dominated by utility-scale
NV Energy Solar Projects Capacity Tech Project (MW) Apex Nevada 20 PV Crescent Dunes 110 CSP LV Valley Water 3 PV Mountain View 10 PV Nellis Solar Star 13.2 PV Nellis Array II 15 PV Nevada Solar One 69 CSP Searchlight Solar 17.5 PV Silver State Solar North 52 PV Spectrum Nevada Solar 30 PV Crescent Dunes Project Sources: NV Energy Solar Projects, at 10 https://www.nvenergy.com/renewablesenvironment/renewables/solar.cfm 1 Nevada has some of best solar resources in the nation
11 Sources: NREL 1 12th most technical potential, but share of potential that is economical is FAR higher than any other state
Technical Potential Economic Potential % of Technical State (TWh/yr) (TWh/yr) Potential
Texas 41,309 17,066 41% New Mexico 17,561 3,368 19% Kansas 13,637 0 0% Arizona 13,580 2,720 20% Nebraska 10,614 0 0% Oklahoma 10,280 208 2% Montana 10,174 0 0% South Dakota 10,001 0 0% Colorado 9,998 28 0% Minnesota 9,565 0 0% Nevada 9,494 7,705 81%
California 9,192 92 1% 12 1 Nevada has enough solar potential to more than power than entire state
• NREL finds Nevada has 5,727 GW of utility scale technical potential, capable of producing 10,614 TWh/yr – In 2014 Nevada used 35 TWh of electricity – 4.4 GW of residential & 4.7 GW of commercial technical potential
• NREL economic potential ranges from 3,532 GW to 60 GW, depending on market and policy assumptions • To be conservative, this report estimates that only 10% of economic potential is realized and can be deployed into the market
13 1 Realizing Nevada economic solar market potential requires minimum $9 billion of investment
Distributed Utility Solar Total Solar Technical Potential 4.348 9.1 4,357 (GW) Economic Potential- 3,528 3.4 3,532 High (GW) Economic Potential-Low 56.6 3.4 60 (GW) Market Potential-High 352.8 0.3 353.2 (GW) Market Potential-Low 5.7 0.3 6 (GW) Investment Need- $511.6 $1.0 $512.6 High (billions) Investment Need- $8.2 $1.0 $9.2 Low (billions)
Notes & Sources: Assumes utility install cost of $1.45/w and distributed install cost of $3.00/w. NREL, “Estimating Renewable Energy Economic Potential in the United States: Methodology & 14 Initial Results,” July 2015; SEIA/GTM Market Watch. 2 Nevada has second most installed geothermal in the nation
Geothermal Capacity by State as of April 2014
Sources: Shevenell, Lisa, “Nevada Geothermal Update – 30 Years of Power Production,” Geothermal 15 Resources Council Bulletin, July/August 2015. 2 Nevada geothermal market growing, supported by world leader in geothermal equipment
Number of Developing Geothermal Market Facts Geothermal Projects by State • 600+ MW installed capacity through 2014 • As of 2014, 16 fields, produced 2.742 million MWh generated • Equal to ~7.5% of retail electricity sales in Nevada • First projects built 30 years ago • More projects in development in Nevada than any other state • Ormat, based in Nevada, supplies equipment to more projects than any other developer in the world
Sources: Shevenell, Lisa, “Nevada Geothermal Update – 30 Years of Power Production,” Geothermal Resources Council Bulletin, July/August 2015; EIA; “2015 Annual U.S. & Global Geothermal Power 16 Production Report,” Geothermal Energy Association 2 Nevada has second highest identified geothermal resource potential in the nation
Electric Power Generation Potential By State
Sources: US Geological Survey, “Assessment of Moderate- and High-Temperature Geothermal Resources of the United States,” Fact Sheet 2008-3082, U.S. Department of the Interior, 2008. 17 2 Nevada needs several billion dollars to tap economically viable geothermal investment
Nevada Geothermal Market Potential & Investment Need Estimated Capacity Source Potential Type Investment (MW) Need (millions) Low USGS Conventional, identified 1,391 $3,478 NREL Economic Potential – Low 3,841 $9,601 High NREL Economic Potential – High 4,242 $10,605 USGS Conventional, undiscovered 4,364 $10,910 USGS Unconventional 102,800 $257,000 Conservative estimates show Nevada Geothermal SAM is between $3.5 and $10.6 billion.
Notes & Sources: Assumes $2,500/kw install cost. SEE http://energy.gov/eere/geothermal/geothermal-faqs. NREL, “Estimating Renewable Energy Economic Potential in the United States: Methodology & Initial Results,” July 2015; US Geological Survey, “Assessment of Moderate- and High-Temperature Geothermal Resources of the United States,” 18 Fact Sheet 2008-3082, U.S. Department of the Interior, 2008. 3 To date only 1 utility-scale wind installation in Nevada, but a leader in distributed wind
Top States for Small Wind Capacity
Wind Market Facts • Only 1 utility-scale project built in the state • 151.8 MW Spring Valley Wind Project, built in 2012 • $280 million of capital investment • Began operation Aug 2012 • NV Energy also supports smaller, distributed installations • 2nd largest distributed energy market (13 MW) in the U.S.
19 Sources: NV Energy, AWEA, Pattern Energy, U.S. DOE 2014 Distributed Wind Market Report 3 Limited natural wind resource due to minimal elevation changes
Avg Wind Speed @ 30m Avg Wind Speed @ 80m
20 Sources: NREL. 3 Even limited natural resource, though, still over a billion dollars of potential investment
Nevada Wind Market Potential & Investment Need Potential Estimated Investment Source Capacity (GW) Need (millions) DOE Wind Vision 1.526 $2,609 Low (@80M) High NREL – Low 6.329 $10,822 NREL - High 20.349 $34,796
• NREL estimates technical wind potential in Nevada is 24.5 GW, which would produce 72 TWh/yr • Economic potential ranges between 1,526 and 20.35 GW • Even in low scenario, wind can produce over 50% of state electricity needs Notes & Sources: Assumes install cost of $1,710/kw, based on LBNL study. See http://newscenter.lbl.gov/2015/08/10/study-finds-that-the-price-of-wind-energy-in-the-united- states-is-at-an-all-time-low-averaging-under-2-5%C2%A2kwh/. AWEA, NREL, “Estimating Renewable Energy Economic Potential in the United States: Methodology & 21 Initial Results,” July 2015. 4 Market potential studies show Nevada can reduce electricity usage by over 20% with efficiency
Nevada Building Efficiency Market Efficiency Market Facts Potential (Annual Savings) • Nevada can reduce electricity usage by 7,040 GWh with efficiency investment • 2,820 GWh in residential building sector
• 4,220 GWh in commercial Commercial Residential building sector 4,220 2,820 60% 40% • Represents 22.2% savings versus baseline electricity usage • Reduce peak demand by 1.7 GW
Sources: Geller, Howard, “The $20 Billion Bonanza – Best Practice Electric Utility Energy Efficiency Programs and Their Benefits for the Southwest. 22 4 Residential electricity savings potential driven by lighting, cooling, whole home retrofits & information
Nevada Electric Efficiency Potential in Residential Buildings
Sources: Geller, Howard, “The $20 Billion Bonanza – Best Practice Electric Utility Energy Efficiency 23 Programs and Their Benefits for the Southwest. 4 Commercial building efficiency drive by CHP, retrofits, and efficient new construction
Nevada Electric Efficiency Potential in Commercial Buildings
Sources: Geller, Howard, “The $20 Billion Bonanza – Best Practice Electric Utility Energy Efficiency 24 Programs and Their Benefits for the Southwest. 4 Achieving savings requires $2.59 billion in total investment
Nevada Electric Efficiency Investment Needs
Annual Investment (millions) NPV of Total Year 1 Year 5 Year 10 Year 15 Year 20 Investment Residential $17 $96 $169 $128 $45 Commercial $64 $178 $295 $223 $78 Total $81 $274 $464 $351 $123 $2,590
$2.59 Billion of efficiency investment will produce $5.97 billion in cost savings.
Sources: Geller, Howard, “The $20 Billion Bonanza – Best Practice Electric Utility Energy Efficiency Programs and Their Benefits for the Southwest. Year 15 & 20 residential & commercial annual 25 investment break down estimated based on Year 10 ratio. 4 Other data points confirm EE potential market size
• RCG Economics performed top-down market size estimate and came to similar figures – Assumed that each of Nevada’s roughly 1 million housing units received upgrade $5,000 per unit→ $5 billion potential – Unreasonable to assume all housing units are part of SAM – Rather, assume one quarter of units are upgraded →$1.25 billion – Study also assumes 100k commercial buildings upgraded at $10,000 per building →$1 billion RCG top-down study suggests attainable efficiency SAM of $2.25 billion – Similar to SWEEP $2.59 billion estimate.
Sources: RCG Economics, “EnergyFit Nevada Financing Option Analysis: CD Secured Option & PACE 26 Project,” Prepared for HomeFree Nevada, Inc., June 2013. Distributed energy market potential is over $3 billion in Nevada
High & Low Scenario Addressable Market by Technology
Potential Energy Capacity Investment Need (millions) Selected Technologies High Scenario Low Scenario High Scenario Low Scenario
Utility 352.8 GW 5.7 GW $511,600 $8,200 1 Solar Distributed 0.3 GW 0.3 GW $1,000 $1,000
2 Geothermal 4.242 GW 1.391 GW $10,605 $3,478
3 Wind 6.329 GW 1.526 GW $2,609 $10,822
4 Electric Efficiency 7,040 GWh $2,590
TOTAL N/A N/A $528,404 $26,090
27 Key Takeaways
• Entire clean energy market SAM could be as high as half a trillion dollars, driven by enormous utility scale solar potential
• Also enormous untapped wind potential – over $10 billion of investment opportunity
• Distributed solutions are smaller share of overall SAM, but still far greater than current investment capacity
• Distributed solar market size, residential and commercial, estimated to be $1 billion
• Building efficiency opportunity is over $2 billion of cost-effective investment
• If a Nevada Green Bank were to primarily focus on distributed energy solutions, the SAM for the Green Bank would be approximately $3.5 billion of capital investment
28 Thank You
Jeffrey Schub, Executive Director, Coalition for Green Capital [email protected] Twitter: @CGreenCapital Nevada Green Bank Study Deliverable 4 – Financing Gaps & Needs Assessment Jeffrey Schub, Executive Director, CGC
May 2016 Project Deliverables
(1) Market & (2) Green Bank Review (3) Market Sizing Policy Review Review
(4) Financing Synthesis Gaps & Needs Assessment
(5) Green Bank & (6) Green Bank Recommendations Financing Form & Solutions Next Steps
2 Table of Contents
• 4.1 – Interview Summary • 4.2 – Barrier identification • 4.3 – Market prioritization
3 Market & policy review and market sizing informs central questions facing NV clean energy future
Key Nevada Energy Questions • How does NV continue to grow its distributed solar market? • How does NV replace coal with clean electricity while keeping prices low for residents and businesses? • How does NV drive energy efficiency installations across multiple market segments? • How does NV replace gasoline cars with electric vehicles?
Stakeholder interviews are essential in order to discover obstacles to success and public forms of support necessary
4 Wide range of stakeholders interviewed for Nevada Green Bank Study
Market Interviews for Green Bank Study
Utility Representatives and Regulators 12
Policymakers, Government and NGOs 24
Clean energy project developers and installers 7
Banking, real estate, small business interests 8
Total 51
Questions focused on market size, demand, marketing techniques, challenges, barriers to growth, and opportunities
5 More than 40 organizations interviewed (1/2)
Organization Sector Organization Sector
Governor’s Office of Economic Government - Economic City of Las Vegas Government Development (GOED) Development Housing and Urban Development (HUD) Government Governor’s Office of Energy (GOE) Government - Energy – Nevada Chapter Small Business Administration (SBA) – Charles Schwab Finance Government Nevada Office Independent Financial Consultant Finance Southwest Energy Efficiency Project Non-profit/NGO Nevada Banker’s Association Finance (SWEEP) - Nevada Office US Green Buildings Council – Nevada Non-profit/NGO Umpqua Bank – Nevada Office Finance Chapter Valley Electric Association Utility Green Chips Non-profit/NGO NV Energy Utility Energy Foundation Non-profit/NGO SW Gas Utility National Association of State Energy Non-profit/NGO Public Utilities Commission of Nevada Officials, Nevada Lead Regulator (PUCN) Nevada Sustainable Energy Coalition Non-profit/NGO USDA- Nevada Chapter Government Solar NV Non-profit/NGO Southern Nevada Water Authority Government (SNWA) Clean Energy Project, Nevada Non-profit/NGO Nevada Housing Division Government Jones Lang LaSalle Real Estate City of Reno Government Davis Strategies Stakeholder MGM Resorts International Stakeholder
Non-exhaustive list of interviewed organizations. 6 More than 40 organizations interviewed (2/2)
Organization Focus Area
Washoe County School District Stakeholder Nevada Venture Accelerator Stakeholder Council of MLS Stakeholder Sierra Nevada College Stakeholder Hamilton Solar Project Development Southland Project Development Greenview Global, Green Building Project Development Consultants 1 Sun Solar Electric Project Development Go Solar - Total Energy Solutions Project Development SolarCity Project Development Bombard Electric Project Development Green Building Economics Project Development Finance/Project Southland Development Finance/Project Ameresco Development
7 Non-exhaustive list of interviewed organizations. Questions focused on market size, demand, marketing techniques, barriers to growth
Financial institutions Clean energy providers Policy experts • Are demand for energy- • Are you able to meet demand, • Are there any gaps in the focused capital and the supply or is it more / less than you provider / developer products of capital well-matched? If can supply? Why? landscape (by energy not, what prevents them from • What would be helpful for segment, by project size, being matched? increasing the amount of other)? • How does your organization business you do? What • What are your metrics for generate deal flow? would drive increased end success (i.e., jobs, clean • Are there any gaps in the user demand? What about energy deployment, financial products landscape investor demand? pollution, financial return)? (by energy segment, by project • What types of financial • Is there potential for size, other)? instruments do you primarily financing new programs? • What do you view as the use when raising capital and • Have you worked with the largest impediment to when working with clients? private sector, and if so, in achieving scale (financial, • Do you use public capital, and what way? regulatory, technological)? if so, how?
Goal: Identify which markets a Nevada Green Bank should prioritize, and the kinds of solutions that could help those markets grow
8 Table of Contents
• 4.1 – Interview Summary • 4.2 – Market Gaps & Barriers to Growth • 4.3 – Market Prioritization
9 Numerous interviews uncovered obstacles to creation of efficient clean energy market
Clean Energy Supply cannot access adequate Demand, and Clean Energy Demand cannot find clear path to Supply
Inefficient Market Market Clean Energy Supply Demand Market
• Institutional capital • Residential demand • Commercial lenders • Commercial demand • Contractors • Municipal, • Developers University, School, • Utility and Hospital (MUSH) demand
10 Many obstacles to clean energy growth perceived 1 across technology markets
Barriers Identified Supply-Side • Few clean energy specific financing products available “In Nevada, the real estate and building • Many projects too small to attract institutional investors market are still recovering from the worst • No entity willing to guarantee savings outside of certain markets of the great recession.” • Appraisers don’t account for energy improvements • Most banks treat clean energy investments like any other loan – no favorable treatment due to savings • Financial institutions are not clean energy experts, can be difficult for them to evaluate projects “Getting financing at attractive rates is Lacking sufficient size of investment, financial institutions are • tough as the state still struggles to come often uninterested in offering DG clean energy finance products out of the recession.” Demand-Side • Lack of demand for clean energy projects • Confusion around incentives available • Consumers cannot or are hesitant to take on more debt • High upfront costs, long pay back periods • Debt is often not available for terms that match payback • Competing uses for scarce capital – business equipment investments, residential home improvements, etc. 11 • Lack of central unbiased info source; difficult to quantify savings Obstacles to efficiency, as well as combined 2 electric/thermal and efficiency/renewable projects
Perceived Obstacles Supply-Side “There are many smaller casinos that • Executing projects and applying rebates & tax credits are can’t or won’t do retrofits, because the confusing and complex- many commercial customers unaware of the rebates available to them interest rates are too high.” • Except for some very large buildings, deep, whole-building projects hard to finance • Municipalities, Universities, Schools and Hospitals (MUSH) are “Many commercial building operators hard to finance because they often don’t have expertise to do are unaware of the Sure Bet [Commercial complex contracts, and have lower or non-existent credit ratings Services] rebates. And if they need • Barring some large casinos, many smaller gaming and hospitality financing, that just adds to the businesses have credit issues that make financing a challenge complexity because they sometimes don’t Demand-Side have the expertise in house.” • Paying back loan for energy improvements means another bill – few opportunities for on-bill finance • No entity currently coordinates energy audits, electric efficiency, “For commercial building owners, one of thermal efficiency, and renewable energy the biggest impediments to doing upgrades is information about the • Unwillingness to pay a lot for audits up front payback of technologies and how to • Lack of trust about how much projects will save finance them” • Lack of trust and hassle associated with allowing multiple contractors into space 12 • Split incentives in rental buildings Rooftop solar market suffers from reliable 3 information sources and lack of simplicity
Perceived Obstacles Supply-Side • Even with secured financing, Nevada banks focus on doing “A lot of folks want a choice other than the business with customers they have history with utility – solar, solar and storage – but it’s • For smaller local Nevada companies doing DG solar, can be hard to know who to trust and what difficult to offer financing; companies have to match-make policies are here to stay.” financing which eats up resources or slows/stops deals Demand-Side • Lack of information about various options, and competing clams in the residential market leads to lack of trust in rooftop solar developers “With the NV Energy rebates declining, • No central state-backed location to get unbiased information on access to finance is becoming more solar important than ever.” • Confusion around incentives available, and ongoing changes to solar policies • If an installer can’t offer a turnkey product, and a commercial customer doesn’t have the upfront capital, they often end up walking away.
13 Perceived obstacles to growth of electric vehicle 4 market
Perceived Obstacles Supply-Side • Transportation is Nevada’s largest source of GHG, but is the least- addressed sector for clean energy solutions “With Tesla and the Gigafactory, it makes sense for Nevada to be a leader in • Large transient population and growing population make addressing transport sector emissions a challenge. adoption too. But we aren’t there yet.” • Low population density outside of urban areas makes mass transit more challenging • Charging stations not attractive investments without high utilization from EV adoption • Too much uncertainty in EV market growth for private investment “As solar, EV and battery prices decline, in public charging stations we can imagine a distributed energy Demand-Side future that takes advantage of our local resources; EVs and batteries in the • Uptake of EVs in Nevada is increasing, but still will take years for significant penetration garage, solar feeding peak A/C demands at load centers, and a smart two-way • Current EV models expensive for most Nevadans system that supplies electricity where it is • Nevadans without a garage are left out of market because can’t most needed.” charge at home • Public charging stations still limited, so range anxiety persists
14 Table of Contents
• 4.1 – Interview Summary • 4.2 – Barrier Identification • 4.3 – Market Prioritization
15 Turn-key financing solutions with strong market engagement needed to overcome key market barriers
Priority Markets & Reasons for Prioritization
• Large market potential for residential energy efficiency Residential • Opportunity for significant gains in consumer savings Whole-Building • Coordinated approach can overcome financing and customer acquisition barriers Upgrades • Small deals can be aggregated to reach scale, attract investors
• Commercial building upgrades has largest efficiency potential Commercial • Much of commercial sector looks more like residential sector, similar challenges Whole-Building • Efficiency can lower operating costs for businesses, make them more profitable Upgrades • Need for solution for immediately positive cash-flow, one-stop shopping
• Approximately $1B of investment needed to reach DG solar potential Distributed • Any net-metering policies must be augmented with widely-available financing Solar PV • Aggregation of small deals is critical for getting capital to flow (+ Storage) • Solar + Storage increasingly viable option due to falling technology prices and NEM rates; higher total upfront costs means financing even more critical
• Motor gasoline is largest single source of fossil-fuel energy use in NV Electric Vehicle • Scale of challenge + current stage of market development calls for precise pilots Transportation • Vehicles and charging stations have to be deployed simultaneously; not a chicken- Pilot and-egg problem; a complementary goods problem; need both at once
16 Whole-home residential upgrades address consumer costs and clean energy substitution
• Whole-home energy upgrades can help consumers save money e.g. efficient home envelope lowers A/C unit size • Whole-home means more upfront cost to realize savings • Competing demand on disposable income (especially in low-income homes) leads to low uptake • Lack of affordable financing options for homeowners in NV • Contractors often only replace equipment when it breaks; unable to do larger more comprehensive jobs • Lenders have little interest in offering small-scale loans for sectors with little track record. Project aggregation can address this, but currently no actor to play this role.
17 Whole-building commercial upgrades similar opportunity, but different financing challenges
• Small and medium commercial buildings have limited ability to self finance (smaller balance sheet) • Also have limited ability to get external finance from ESCOs (small project size) or banks/lenders (lack of credit history) • Despite large potential, many money-saving upgrades are not pursued • In order to begin lending in the space, banks may require larger portfolio sizes (loan warehousing) and some risk mitigation (credit enhancements)
18 DG solar and solar + storage hold vast economic potential, need better finance and info support
• Large investment opportunity in the Nevada, due to unique geographic conditions • Declining solar rebates and changes to net metering rates may hinder growth potential • Changes to net metering rates also make self-consumption more attractive, opportunity for battery storage • Without coordinated approach to support distributed solar, will be limited to smaller market w/ daytime peak loads • Batteries allow for more self consumption, but add to up- front cost; financing solution key to supporting this new and unique market opportunity
19 Growing the EV market requires innovative market deployment mechanism; current trajectory too slow
• Increased electric vehicle uptake can lower Nevada’s reliance on imported fossil fuels • Increases load growth for utilities and allows for better grid balancing and planning around distributed batteries • Gigafactory and plans for charging stations along Route 95 show Nevada commitment, but no holistic solution on table • Number of public charging stations in Nevada could be increased through targeted financing pilot • Utilize innovative procurement methods to bring down costs, optimize a charging network to enable EV adoption
20 Key Takeaways
• Residential & commercial whole-building, LMI, and electric transportation are greatest need, all have multiple barriers to growth
• Lack of centralized source of reliable information reduces market transparency
• Capital is “available” to invest, but lenders are unfamiliar with markets and need more education and risk mitigation
• Project aggregation is critical across markets to demonstrate size and attract capital at scale/low-cost
• Needs to be somebody’s responsibility to effectively and broadly market financing offerings and tailor them to consumer needs
• This entity needs to own the task of managing and optimizing the combined energy analysis required for whole-building approach to prove savings
21 Thank You
Jeffrey Schub, Executive Director Coalition for Green Capital [email protected] Twitter: @CGreenCapital Nevada Green Bank Study Deliverable 5 – Recommended Green Bank Solutions Jeffrey Schub, Executive Director, CGC
May 2016 Project Deliverables
(1) Market & (2) Green Bank Review (3) Market Sizing Policy Review Review
(4) Financing Synthesis Gaps & Needs Assessment
(5) Green Bank & (6) Green Bank Recommendations Financing Form & Solutions Next Steps
2 Table of Contents
• 5.1 – Value of Green Bank • 5.4 – Applicable Green Bank Lessons • 5.3 – NV Green Bank Financing Solutions • 5.4 – NV Green Bank Market Development Solutions
3 Market analysis points to need for increased financing, program coordination, trustworthy info
• Numerous financing gaps in clean energy market • Lack of financing creates barriers to adoption • Existing govt programs are scattered across utilities, state government, local government and NGOs • No central entity for reliable, unbiased market info • No unified effort to create a robust, clean energy economy
Nevada Green Bank Solution Public-private financing, paired with effective demand generation and increased consumer trust can drive Nevada’s clean energy economy.
4 Table of Contents
• 5.1 – Value of Green Bank • 5.2 – Applicable Green Bank Lessons • 5.3 – NV Green Bank Financing Solutions • 5.4 – NV Green Bank Market Development Solutions
5 Nevada Green Bank should draw lessons on financing and demand generation from other Green Banks
Demand Generation A• Green Banks need to generate their own pipeline of demand – cannot just make capital available B• Cash flow is key – can overcome payback period barriers by making deals net cash flow positive from the start C• Design financing to work in concert with other state programs Financing Structure & Private Sector Engagement D• Green Bank can sit in varying places in financing landscape to fill the market gap and to create suitable partnerships E• Green Banks get greatest leverage through credit enhancements F• Green Banks create attractive scale for private investors through warehousing
6 A Green Banks need to generate their own pipeline of demand – cannot sit and wait for projects
• Not Field of Dreams – “if you build it they will not come.” • Demand for clean energy looks different from demand for other kinds of goods & services – “Rational” consumers should want clean energy when it is cheaper – But few have ever thought about their energy consumption or actively engaged in an energy purchase decision – And those that have thought about it, place it at low priority • Energy customers across sectors do not actively seek out clean energy solutions (and associated financing) • As a result, without planned and focused demand generation, capital made available sits unused
7 A Broad gulf between capital supply and clean energy demand must be filled by series of activities
• Green Banks plus external partners must construct a pathway connecting capital to customers that makes adoption turnkey and seamless – Develop go-to-market channels – Train those channel partners (contractors, originators, ESCOs) – Design financing to suit precise energy service that is offered – Minimize project management requirements for customers – Make information highly accessible and easy to understand – Provide a central source of unbiased information for customers to make informed decisions – Include technical assessments to show projected savings • All of these activities minimize barriers to adoption and simplify purchase decision for customer 8 B Cash flow is key – financing can be designed to ensure customer cash flow is positive throughout project
• A large barrier to adoption of clean energy – especially deep energy efficiency – is the long payback period • Many consumers & businesses will not invest their money in a technology that has a payback period > 4 or 5 years – Solar and deep EE can have a payback of 20 years or more • 100% upfront financing completely changes the payback period calculus → no upfront cost to customer, so no wait to make their money back • Rather, financing terms can be set so that loan repayment is immediately less than monthly savings from upgrades
9 B Financing structured so repayment plus remaining utility bill are less than prior utility bill
BEFORE AFTER
Net Savings
Renewable/ Efficiency Utility Bill Financing Payment
Utility Bill
Grid Clean Energy Electricity Upgrade 10 B Financing at appropriate term and rate means payback period no longer matters, all about cash flow
No Grant or Financing - 7 Year Payback 1 A deep efficiency project has high upfront cost and 20 long payback –barriers to adoption
10
0 0 1 2 3 4 5 6 7 8 9 10 -10
-20
Annual Cost/Savings Cumulative
50% Grant - 4 Year Payback
10 3
0 100% financing eliminates these barriers – NO 0 1 2 3 4 5 6 7 8 9 10 UPFRONT COST, IMMEDIATE SAVINGS, NO -10 PAYBACK PERIOD -20
Annual Cost/Savings Cumulative 2 Even a large grant covering 50% of the cost only reduces those barriers – doesn’t eliminate them 11 B Aiming for net cash flow positive projects will dictate certain Green Bank behaviors
• Payback period becomes N/A – no longer a concern • Clean energy adoption now looks like a way to lower operating expenses, rather than taking on debt • This requires Green Bank to have flexible terms • Must conduct technical evaluation of projects to know project savings • Gives Green Bank more confidence in accepting only the stream of savings as the pledge for repayment • Green Banks should only finance projects that can be cash flow positive – “savings-to-investment ratio” must be >1
12 C Design financing to work in concert with other state programs
• Often Green Banks operate in an existing and complex landscape of public programs and institutions • Creates market confusion – hard to know where to start • Programs can overlap or leave gaps • If not designed to work in concert – rules of one program may restrict participation in another unnecessarily • A question of central coordination/communication and careful program design
13 C Coordination with other state activity and information transparency can maximize value of public dollar
• Design financing program guidelines so loans can be easily paired with any other benefits • Ensure that your lending criteria don’t prohibit using grants from other entities • Make it easy for borrowers to use multiple public finance sources if needed • Provide info and explain Green Bank in the broader context of state activity so customers & contractors understand how your program fits in • This goes a long way toward alleviating market confusion and maximizes the value of public dollars
14 D Green Bank can sit in varying places in financing landscape to fill the market gap
• There is no hard rule about Green Banks acting as retail lender, wholesale lender, or another kind of financial intermediary • Can lend directly to projects OR create warehouses/credit enhancements for other partners to do direct lending • Institutional flexibility for using different financing structures helps fill requisite financing gaps • Determination of the role a Green Bank should play is driven by the target market, the observable gaps, and the available private sector partners
15 D The same Green Bank can engage in all three types of lending, depending on market need
Credit Support Co-Investment Warehousing
Project Senior Private Green Bank Capital Capital
Green Bank Green Bank Credit Origination Enhancement Project
Private Project Private Capital Purchase of Portfolio
16 D Chosen financing strategy depends on needs of private lenders and existence of retailing partners
• Acting as a wholesale lender will be ineffective if there are no downstream origination partners • Alternatively, providing direct loans may be unnecessary if private companies (banks, contractors, originators) are only in need of capital support (e.g. LLR) and training • Engaging with banks (retail and wholesale) and marketing channels (ESCOs, project developers and contractors) will make clear Green Bank place in the market that will be most valuable
17 E Green Banks get greatest leverage through credit enhancements
• Credit enhancements like loan loss reserves (LLR), partial loan guarantees, subordinated debt, and other types of insurance can draw in private capital at great scale • A direct Green Bank loan with 100% of the capital is good – a Green Bank LLR of 10% that leads to 100% financing from a private lender may be better • Preserves public capital – risk of repayment is so low, enhancement unlikely to be drawn upon • Plus gets private lenders comfortable and familiar with clean energy lending – can sooner lend on their own
18 E Some credit enhancements can get 10-to-1 leverage, attract 10 private dollars per single public dollar
• Credit enhancement can be offered in exchange for agreement by private lenders to reduce rates and offer better terms – Ensures that the benefit of the credit enhancement actually flows through to the end customer • Standard-offer credit enhancements—available to enrolling lenders—is an efficient way to build lending network • And because private partner is doing the underwriting and lending, their staff can quickly learn about clean energy lending practices → hastens private lender market entry
19 F Green Banks create attractive scale for private investors through warehousing
• Distributed projects (solar or EE) are often unattractive to private lenders to finance – Small scale – Varying technologies – Inconsistent project structures and partners – Differing borrowing credits • The cost and hassle of underwriting deters market entry • For example, small-to-medium commercial properties that aren’t credit rated struggle to finance projects – Private banks struggle to underwrite if no credit rating – Capital made available often requires personal guarantee of owner
20 F Green Bank warehousing & aggregation can bridge this market gaps
• Green Bank directly finances projects that fall in the gap • Takes on the market activities that private sector won’t do, even though the projects are low-risk and save money • Smaller loans can then be pooled together, creating scale and diversifying risk • Then the Green Bank can bring the whole portfolio to private lenders to purchase – now much more cost effective and attractive for a private lender to invest • Green Bank can also try to set up warehouse or line of credit before making loans, but may be more challenging
21 Table of Contents
• 5.1 – Value of Green Bank • 5.2 – Applicable Green Bank Lessons • 5.3 – NV Green Bank Financing Solutions • 5.4 – NV Green Bank Market Development Solutions
22 Public-private financing solutions can support market gaps and grow target markets
Solar & Efficiency Solutions A• Whole-home upgrade loans with deep EE & solar B• Tariff-based financing for rural households, LMI, renters C• Small-to-medium business building upgrades D• Revamped Commercial PACE for larger projects E• LMI-specific program with alternative underwriting Innovative Market Solutions F• Green Bank Net-Metering Aggregation G• Solar-plus-storage combined-financing H• EV fleet conversion & charging station network licensing
23 A Multiple potential product and financing structures to consider for whole-home solution
• Market assessment finds lack of simple, turn-key, statewide financing product to support whole home upgrades for both deep efficiency and roof-top solar
• Nevada Green Bank could implement one or more from proven models –1 DEAL-like financing on-paycheck through employers –2 Standard-offer credit enhancement to build network of lenders –3 Warehouse for Energy Efficiency Lending (WHEEL) program –4 New revamped Fannie efficiency mortgage product
24 1 State’s DEAL financing program for employees can be carried into private sector for easy adoption
• GOE offers Direct Energy Loan Assistance – an interest- free loan to state employees for home upgrades • Repaid through simple structure via a monthly payroll deduction from paycheck • Similar structure can be pushed out to large employers to offer to their own staff – Green Bank could provide employers marketing materials, contractor networks and technical assistance – Green Bank could provide credit enhancement to support loan directly from employer or partner lender – Or Green Bank could directly provide capital for loan via employer
25 2 Nevada GB could provide Standard Offer Credit Enhancements to enable network of local lenders
• One of simplest potential structures is to set aside of pool of funds to serve as a loss reserve, which a lender can draw upon in the event of loss • Reserve would be open and available to any lender allowable under program rules • In exchange, lender would make loans available for clean energy projects that, if designed properly, wouldn’t be made without the reserve • Range of conditions and rules to be considered
26 2 Basic structure designed to draw lenders into the market that wouldn’t otherwise participate
Hypothetical Model for NV GB Standard Offer LLR
Project Loan Lender Borrower
Project Loan Lender Borrower Loan Loss NV GB Reserve Project Loan Lender Borrower
Project Loan Lender Borrower
27 2 Range of product parameters to consider for credit enhancement
• What kind of lender is eligible? – Credit unions? Community banks? Commercial banks? • How much loss will the reserve cover? – First loss or second loss reserve? – Up to 10% of loan amount? 20%? How much leverage can you get? • What are the lending terms? – Up to the lender? Set max rates? How to ensure borrower benefits? • What are the underwriting criteria? – Standard limits for all lenders? Or do they set their own rules? • What technologies are eligible? – Is solar included? How does that impact max loan size? • How is the product marketed? – Do banks do own marketing? How to reach contractors?
28 2 Michigan Saves ran one of the first programs of this kind to support residential upgrades
Michigan Saves Home Energy Loan Program Lenders
Home Energy Loan Program • Personal, unsecured loans up to $30k, fixed rate not to exceed 7%, term up to 10 years depending on loan size • Single family homes only • Must use a program-certified contractor • Can install pre-approved items, or get a whole-home upgrade based on comprehensive audit
Notes & Sources: http://michigansaves.org/ 29 2 CT has second loss reserve, ~10:1 leverage, standard underwriting, max terms, lower terms for bundles
CT Green Bank Smart-E Loan Program
Notes & Sources: CT Green Bank; Energize CT, at http://www.energizect.com/your- 30 home/solutions-list/smarte. 3 WHEEL product would give Nevada access to national existing lending platform & public capital markets
WHEEL Overview • The Energy Programs Consortium, Pennsylvania Treasury, Renew Financial and Citi collaborated together to implement WHEEL in April 2014. • States participate in the program to gain access to a warehouse of capital available for unsecured residential energy efficiency loans. • Each participating state sponsor contributes public funds as socialized “structured equity” and yield support for the EE loans financed under WHEEL • State sponsors can receive a return on their contribution into WHEEL if cash is available after securitization and senior capital holders are paid out. • Renew Financial operates the loan program, working with a network of contractors • WHEEL completed first securitization in June 2015, with $12.6 million in securities backed by $16 million in loans from PA, KY and OH. • WHEEL rates now 9.99% to 7.99%, max loan $20,000, min FICO at 640 • Max loan size means few renewable energy projects, almost all efficiency • EXAMPLE: NY Green Bank made $20 million subordinated capital investment into WHEEL to support extension of up to $100 million of loans in New York.
31 3 Nevada could follow established process for state enrollment in WHEEL, just as other states did
• State Sponsor (GB) commits capital to WHEEL to gain access to warehouse 1
• Contractor, such as Renew Financial, originates loans in the state 2
• WHEEL purchases and aggregates loans across all participating states 3
• WHEEL sells loan through securitization to secondary market investors 4
• WHEEL repays investors and sponsors 5
• Sponsor recycles or reallocates funds to invest in more projects 6
32 4 GB could support new Fannie efficiency mortgage product to simplify new home and re-fi upgrades
Fannie Mae HomeStyle Energy Efficiency Mortgage • “HomeStyle Energy” is new, revamped EE loan product from Fannie Mae, designed to streamline home improvement lending • Can finance efficiency improvements up to 15% of assessed property value • Can be a new home purchase, or refinance of existing home • Can also be used to pay off existing, higher interest debt for prior efficiency improvements (including PACE loans) • Energy assessment required, except for streamlined $3,500 weatherization project, Lender can deliver loan to FNMA before upgrade complete • Lenders given $500 per loan completed as incentive • Built-in network of lenders; requires broader awareness in real estate industry • New home purchases could be a milestone point when consumers consider upgrades 33 B On-bill financing structures open up clean energy to low-income and renters, increase lending security
On-Bill Financing Mechanisms • As PACE is designed to increase lender security, on-bill financing mechanisms allow loans to be repaid on the existing utility bill • Upfront costs are financed and repaid over time • Wide variation in program structure depending on capital source, recovery, etc. ACEEE Report on OBF Benefits
Notes & Sources: ACEEE, “On-Bill Financing for Energy Efficiency Improvements, 34 April 2012. B Range of potential on-bill structures can open capital markets, streamline for utilities or increase security
OBR v OBF Loans v Tariff-Based Financing
On-Bill On-Bill Tariff-Based Recovery Financing On-Bill Financing Capital Source Private Lenders Utility Utility* Financing Type Loan Loan To-the-meter tariff Obligation tied to: Individual Individual Building/meter Borrower Borrower Stays with No No Yes Property?
*Because financing is tariff-based, capital technically must come through the utility. However, underlying capital source can be any partner utility chooses.
35 B GB would have to work with regulator, government, utilities to set parameters and implement
• What is geographic coverage? – Statewide? IOUs? Rural? What form of regulatory approval needed? • Whose capital is used? – Open platform for lenders? Single lender? Utility capital? Feds? • Tied to the meter? – Tariff-based system to stay with property? Or unsecured loan? • Shut-off provision included as security? – Is power shut off if customer pays electric bill, but not financing? • Bill neutrality requirement? – Must projects save money every month? Or can it fluctuate? • What help do implementing utilities need? – Are utility systems capable? Who pays for upgrades if needed?
36 B Pay-As-You-Save (PAYS) tariff-based system is strong example of using cheap capital in rural communities
• PAYS is designed for easy adoption by rural utilities, to allow customers to lower energy bills with cheap financing • Tariff-based, tied to the meter, repaid with fixed charge • No loan, no lien – charge, by rule, is less than savings • Utilizes low-cost loans from USDA Rural Utility Service • Well-suited for Nevada rural communities
1 2 Loan Payment Contractor RUS (or Other 5 Utility 3 Capital Repayment Tariff Provider) Meter (Customer) 4 On-Bill Charge Notes & Sources: ACEEE, “On-Bill Financing for Energy Efficiency Improvements, 37 April 2012. B On-bill in Nevada could expand market access in ways that other solutions cannot
• Requires broad utility engagement – likely easiest to start with co-ops and munis in rural parts of state • Huge benefit of OBF is opening up clean energy markets for renters and low-income households that presently are effectively shut-out • Tariff-based solution brings most security, cheapest capital, though requires most utility & regulator engagement • From customer standpoint, low perceived complexity, not a loan so no new debt • Would need to compensate utility for any added costs
38 C Large market of small and medium size commercial buildings that are too small for PACE
• “Resi-mercial” market – upgrades that are more similar to residential size – less than $50,000 • Segment struggles to find energy-specific loan products because businesses are difficult to underwrite – No business-form of FICO score – Business are too small for Credit Ratings • Most commercial lenders decide it is too time-consuming (i.e. expensive) to underwrite this segment • Means only lending solutions are credit cards (~25% interest) or loans with personal guarantees from owners
39 C Nevada GB could create a direct lending product for small businesses, based on revolving loan model
• Nevada GB provides loans directly to businesses • Develops its own standardized underwriting criteria to minimize costs • Loans would be placed a in revolving pool, so capital is recycled over time • Can accelerate volume of lending by securitizing loan pool once it reaches critical scale that it then becomes attractive to private capital providers • Deployment requires contractor training, energy assessments and technical assistance to ensure uptake
40 C Direct lending model with revolving loan fund paired with securitization requires starting seed capital
Public Private Funds Investors
1 Seed Capital 5
Recapitalize 2 Fund Loan State Capital Loan Projects Markets Fund Securitization Repayment /Asset Sale 3 4
41 C New York loan product pairs energy assessments, technical assistance to support small businesses
Green Jobs Green New York • Loan program operated by state energy office (NYSERDA) • Targets small biz and single-family • Two options for small business loan – participation loan via partner lender and on-bill repayment • For participation loan, NYSERDA “Results demonstrate that small business provides 50% of loan capital at low customers benefit from dedicated project rate to pair with remaining capital implementation assistance, including from partner lender at market rate assistance identifying and accessing financial • Lender collects and remits payment incentives and low-interest energy efficiency back to NYSERDA financing, to help lower the cost of • NYSERDA lead gen through partner implementing energy efficiency improvements contractors that perform qualified recommended on Qualified Energy energy assessments Assessments.” – GJGNY Annual Report
Notes & Sources: NSYERDA Green Jobs – Green New York February 2016 Monthly Update; Green Jobs – Green New York 2015 Annual Report, Reporting Period Ending 42 June 30, 2015, Final Report, September 2015. D Commercial PACE product is well-suited for medium- to-large projects, but current structure is unworkable
• Commercial PACE is proven model, with growing market now over a quarter billion dollars • Most effective commercial PACE program in the country is operated by CT Green Bank through statewide model • Commercial PACE in Nevada requires significant reframing • Should not be presented as just one more kind of SID- based investment implemented by municipality • Instead, should be viewed as a building upgrade product that happens to use tax system to collect/secure repayment • PACE statute should be pulled out of NRS section related to SIDs – break link between projects and municipal bonding
43 D Nevada could follow lead of others, create statewide program, significantly simplify statute
• Enable a simplified model where any taxing entity can pass single resolution to enroll in statewide platform • Taxing entity still collects payment, but more akin to on-bill collection or payroll-based collection under DEAL • Have a statewide program to operate PACE in any county that enrolls (e.g. CT or RI) or create statewide district (CO) • Financing structure simplified, move away from muni bond – Could have open platform, where any capital provider can make a direct PACE loan to any building – Or could have GB-funded loan product if no private activity – No municipal bond needed
44 E Large LMI gap in Nevada, most existing solutions aren’t tailored to LMI needs
• Low-to-moderate income (LMI) households typically are underserved by existing clean energy solutions • However, these households have highest energy burden (energy costs as % of disposable income) • So LMI community needs clean and cheap energy solutions more than any other segment of the market • New, dedicated LMI solutions for home energy efficiency are needed to reach this market
45 E Energy burden is greatest for those who can least afford to pay high energy bills
Utility Cost as % of Disposable Income by Income Quintile
Notes & Sources: Consumer Expenditure Survey, Bureau of Labor Statistics, Accessed 46 on June 2015. E Specific considerations for LMI products
• Alternative Underwriting Criteria – Lower FICO score? Different Debt-to-Income Ratios? – OR, use different factors entirely, like utility bill payment history • Meeting LMI Household Needs – Simplicity, turn-key solutions, little time and attention required • Debt limitations – Can households take on more debt? Can non-debt solutions, like tariff-based financing, be more suitable? Or PACE • How to Address Renters – Split-incentive barrier prevents straight loan products for renters; LMI population disproportionately rents
Notes & Sources: CT Green Bank 47 E NV could adapt CT LMI product to focus on deep efficiency, potentially add solar when economical
CT Green Bank PosiGen Financing • PosiGen offers standardized rooftop solar leases specifically for LMI households • Fixed system size, 20 year lease, no escalator, fixed payment $55-$75 per month • Optional efficiency upgrade with savings guarantee, standard/limited set of measures • Alternative underwriting criteria – only considers utility-bill payment history • Does not look at FICO scores or debt-to-income ratios • Relies on community-based marketing to reach and engage with target customers • CT Green Bank made $5 million subordinated debt investment in lease fund
Green Bank Sub - Debt PV Lease + ESA LMI PosiGen Homes Private Repayment Capital
Notes & Sources: CT Green Bank 48 F Green Bank can aggregate net-metering payments, produce value for customers, certainty for utilities
• Rather than pay out NEM over time, Green Bank pays customer upfront, Green Bank “aggregates” NEM streams from utility
• Value of upfront “rebate” is higher for customer because of Green Bank’s lower discount rate
• Real energy costs lower than current NEM construct, monthly payments are the same when rebate used to pay down principal
• Utility has known annual costs, while still allowing for rapid, but predictable solar market growth
49 F With normal net-metering, customer realizes value over time, heavily discounted future payments
Value Flow Chart for Nevada Solar Lease with Traditional Net-Metering Structure Under Standard Assumptions
Notes & Sources: Assumes 6kw system in Las Vegas; installed at $3.50/w, 30% ITC and MACRS present value equal to ~25% of install cost; generation based on PVWatts data; assumes 0.5% annual degradation; assumes homeowner discount rate of 15%; household load profile data from Hugh Wynne et al., “U.S. Utilities – Has Nevada Created the First U.S. Market for Residential Energy Storage.” Uses real net-metering and electricity rates from 50 https://www.nvenergy.com/renewablesenvironment/renewablegenerations/NetMetering.cfm. F With aggregation, owner realizes higher upfront value immediately, using Green Bank’s lower discounting
Value Flow Chart for Nevada Solar Lease with Aggregated Net-Metering Structure Under Standard Assumptions
Upfront NEM “Rebate” is higher because of Green Bank’s lower Discount Rate
Notes & Sources: Assumes 6kw system in Las Vegas; installed at $3.50/w, 30% ITC and MACRS present value equal to ~25% of install cost; generation based on PVWatts data; assumes 0.5% annual degradation; assumes green bank discount rate of 4%; household load profile data from Hugh Wynne et al., “U.S. Utilities – Has Nevada Created the First U.S. Market for Residential Energy Storage.” Uses real net-metering and electricity rates from 51 https://www.nvenergy.com/renewablesenvironment/renewablegenerations/NetMetering.cfm. F Real energy costs are lower, and monthly total energy bills are equivalent to current NEM structure
Notes & Sources: Same assumptions from prior slides. Grid only prices and old NEM rates from https://www.nvenergy.com/renewablesenvironment/renewablegenerations/NetMetering.cfm. Assumes customer 52 NEM rebate is used to pay down borrowed principal F Simpler process and certain cost for utility that still allows rapid, but predictable solar growth in Nevada
Simpler Payment Process • Presently, utility has to make monthly payments, of variable amounts, to thousands of customers in perpetuity • Green Bank aggregation allows utility to pay just one entity and leave it to Green Bank to manage customer payments Known Cost of Net-Metering • Utility can pay Green Bank expected cost of NEM, based on industry and regulator projections, at start of year, creating total annual certainty • Sends signal of total amount of NEM rebate available to market that year Solar Growth Continues, but Predictably • Up to Green Bank to distribute rebates to market in manner that maximizes deployment given set amount of rebate • Green Bank could hold reverse auction and award rebates to installers seeking least amount of rebate per install, downward pressure on costs • May result in more solar than predicted, but utility cost is already known
53 G New net-metering rates create market opportunity for customer-cited storage paired with solar Estimated Annual Savings from Installing Battery for Existing Residential Rooftop PV Owner Annual Savings Battery + Non-TOU Rates ~$140 Battery + TOU Rates ~$220 • Lower NEM rates means that selling excess power back to grid has less value – opportunity for battery storage • New time-of-use (TOU) rates mean solar owners can arbitrage price differences, increase value of excess power by offsetting grid consumption when most expensive • Significant upfront cost to installing solar, though, for either new or retrofitted system – financing is critical
Notes & Sources: Hugh Wynne, et al, “U.S. Utilities – Has Nevada Created the First 54 U.S. Market for Residential Energy Storage?” Bernstein Research, Feb 1, 2016. H GB could support EV conversions, both through direct fleet financing and through innovative network design
• EV Fleet Conversion with ESCO-style Financing – Public fleets well-suited to partial or full conversion with EVs – No upfront cost in ESCO-like financing and equipment usage plan – Third-party owns vehicles, fleet operator pays usage fee (financing charge) over time, third-party manages charging /maintenance – Cost of capital is key driver of economic viability – Green Bank could support financing, extend offer to large employers (Casinos) • Green Bank to License/Finance Charging Network – New EVs simultaneously need new public charging – Most charging done at home and work place, but still need optimally located public charging stations – Green Bank can hold reverse auction to find third-party that needs lowest payment in order to build optimized public charging network – Green Bank provides financing, licensee builds network, gets charging revenue for set period of time – Others may build stations, too, but only licensee gets GB financing
55 Key Takeaways
• Greatest financing need is for a simple, state-wide consistent home upgrade loan program; multiple structures to consider that build on existing models in and out of state
• Though complex, on-bill structure is excellent way expand access to low-to-moderate income market segment and renters, who are currently shut out of market
• Small commercial segment needs its own tailored product due to underwriting challenges; larger commercial projects suited for PACE, but program needs major overhaul
• Innovative solutions for solar plus storage can give commercial businesses increased reliability, premium product for households, maximize value under TOU pricing
• Green Bank can coordinate centralized procurement and financing for efficiently designed EV charging network
56 Table of Contents
• 5.1 – Value of Green Bank • 5.2 – Applicable Green Bank Lessons • 5.3 – NV Green Bank Financing Solutions • 5.4 – NV Green Bank Market Development Solutions
57 Market development solutions can increase consumer confidence and grow demand for clean energy
Market Transparency & Reliability A• Contact point for customer inquiries B• Central repository of unbiased market information C• Consumer protection Demand Generation & Marketing D• Turnkey product design E• Contractor training on financing products F• Community-based marketing Simplified Government G• Single website for info across all programs H• Unified branding •I Program coordination across entities
58 A Nevadans need a clear and designated point of contact to understand process & offers they may be given
• Research consistently found market confusion over who plays the role of market “referee” • Who to call to help understand a PPA or an efficiency audit or to learn about financing • Green Bank can play that central point of contact • 411 for clean energy solutions in Nevada • Market reliability & trustworthiness is essential for growth • Reduce burden from GOE and others, reduce market confusion
59 B As single point of contact, Green Bank could be central repository for market and program information
• Provide introductory info on clean energy technologies • Clear explanation of full range of programs, rebates, financing across all entities, not just Green Bank • Paint road map of steps in order to actually adopt technology so process is clear to customers • Simple explanation of financial benefits of adopting clean energy (i.e. calculating bill reductions) • Facilitate price transparency, offer reviews for contractors • Create the “Kayak” or “Yelp” for clean energy services
60 C Green Bank can develop and implement consumer protection rules through its programs
Potential Consumer Protection Rules • Any new financing No customer All customers and burgeoning signs contract know expected market could be that increases savings from susceptible to bad energy costs their project business practices • Green Bank can Interest rate No customer protect customers and escalators will be able to on all financing take too much • Can develop clearly stated debt specific rules in partnership with No customer can key stakeholders take on PACE so combined loan-to- value exceeds 90% 61 D Green Bank can overcome barriers to demand by designing products with turn-key customer adoption
Turn-Key Adoption Process
Customer signs on Customer asks to Customer is the bottom line to learn about his/her presented with receive technology, clean energy monthly savings & finance & rebate options monthly cost package
Elements of Turn-Key Program Design • Technology package tailored to customer’s needs • Matched with appropriate finance & rebate package • Simple & clear economic value proposition • Minimal need to make complex decisions • Make adoption more like buying a car
62 E Most important marketing channel for financing is contractors
• Financing products cannot be offered in vacuum • Green Bank must consider how products reach customers • Contractors are most logical go-to-market channel • Therefore, must be well-trained on financing products available, understand how the products work • Explain to contractors how to sell the benefits of adoption with financing – no upfront cost, savings from day one • Green Bank should design product design details in partnership with contractors to ensure product fits sales cycle and fits contractor needs
63 F Green Bank can also leverage community-based marketing models – word of mouth from neighbors
• Often best way to learn about a clean energy product is from a friend or neighbor. • More credibility than high pressure sales or door to door
Solarize Program at CT Green Bank • Piero -t -pier marketing program for rooftop solar • Administered at a town or neighborhood level • Residents with existing solar systems (“solar ambassadors”) host open houses and BBQs • Neighbors learn about how the system works and see actual neighbor utility bills • “Groupon” style tiered pricing model: the more neighbors sign up, the lower the pricing tier and cost per customer • Installers save money: on marketing costs and installation costs due to bulk neighborhood audits and installs • Installers pass these savings on to customers through lower tier “Groupon” pricing
64 G H Single website and brand across all state clean energy programs is essential to simplify market for customers
• Statewide, single brand and website for all programs – no matter the administrator – can maximize govt efficiency • Doesn’t require single administrator – website can sit above complex system of multiple programs • But from customer standpoint, all looks the same • Website can direct customers to different programs based on type, needs, geography and interests • Includes everything from utility rebates to local tax breaks • User friendly interface allows any kind of customer to learn about full package of support available to them • Single statewide brand reduces customer confusion 65 G H Energize CT provides model of single, unified brand and website that allows tailored searches for programs
66 I By coordinating programs across entities, public dollars can be used at maximum efficiency
• Utilities, contractors, GOE, Green Bank all coordinate to make programs designed to work together • Financing should be easily paired with utility rebates, so that a customer can seamlessly get both benefits – Any homeowner getting a loan for an efficiency upgrade is automatically offered all applicable rebates – Rules aligned so that contractors can easily operate in both utility programs and Green Bank financing programs – If utility programs are designed to emphasize certain kinds of technology adoption, Green Bank products should match • Do not want programs working across purposes so customers are forced to choose
67 Key Takeaways
• Today, Nevada lacks a centralized, trustworthy source of information on clean energy
• Green Bank can play role as market “referee” providing unbiased data & information
• New consumer protection measures can be implemented to ensure no Nevadan signs a contract that increases energy costs or puts them in precarious financial situation
• Green Bank can enable demand, not just offer financing, but designing programs to reach customers in a turn-key fashion – minimize barriers to adoption
• By coordinating financing, rebates and other activities across different entities, Green Bank can reduce market confusion and create simple pipeline for customer engagement
• By designing financing products to work in concert with rebates – through well-trained contractors – government can ensure public dollars reach customers efficiently
68 Thank You & Appendix
Jeffrey Schub, Executive Director, Coalition for Green Capital [email protected] Twitter: @CGreenCapital Nevada Green Bank Study Deliverable 6 – Green Bank Forms & Next Steps Jeffrey Schub, Executive Director, CGC
June 2016 Project Deliverables
(1) Market & (2) Green Bank Review (3) Market Sizing Policy Review Review
(4) Financing Synthesis Gaps & Needs Assessment
(5) Green Bank (6) Green Bank Recommendations Financing Form & Solutions Next Steps
2 Study finds that NV Green Bank can fill market gaps, animate private markets and lower energy costs
Existing policies & mechanisms in Nevada to support clean energy markets are losing strength
Financing gaps, lack of information and other market inefficiencies slow billions of dollars of potential investment
A Nevada Green Bank could drive significant private investment and economic growth while lowering energy costs
3 Primary considerations for Green Bank creation are legal authority, structure and funding
• Is Green Bank Activity Legal in Nevada? – Constitution limits direct lending or investment of public dollars in private businesses, unless through nonprofit – There are precedents and structures to navigate this • What is Optimal Structure & Location for GB? – Directly within government? A new corporation? – Which structure fits within legal constraints? • How will Green Bank be Funded? – Will it receive direct seed capital (grant) from the state? – Will it receive ratepayer funding? – Will it have bonding authority?
4 Table of Contents
• 6.1 – Potential Green Bank Structures • 6.2 – Legal Process • 6.3 – Green Bank Capital Sources • 6.3 – Next Steps
5 Green Banks are typically part of government, quasi- public or affiliated non-profits
Organization Placement – New or Repurposed
Government Agency Quasi-Independent
Independent Non- Profit
Institutional Examples of Each Structure
• Government Agency – NY Green Bank • Quasi-Public – CT Green Bank, RIIB, Hawaii GIA, CA CLEEN Center • Non-Profit – Montgomery County Green Bank (Michigan Saves is GB-like)
Best option for Nevada depends on existing institutional authorities and legal requirements.
6 Given NV constitutional limitations, creation of non- profit to be Green Bank is most viable option
Public Lending to Private • Direct lending or investment of public money to private entities is “The State shall not donate uncommon due to constitutional or loan money, or its credit, prohibition subscribe to or be, interested • Means that a government agency itself likely cannot act as Green in the Stock of any company, Bank because it cannot lend association, or corporation, • However, Nevada can grant state except corporations formed funds to a nonprofit, which then lends and invests in private sector for educational or charitable Nevada State • Provides clearest pathway for purposes.” – Green Bank creation Constitution
7 Nevada Capital Investment Corporation is best example of how Green Bank may be created
Senate Bill 75 Created Nevada Capital Investment Corporation (NCIC) – a 501(c)(3) under Treasurer
NCIC has Board of Directors with ex-officio member and appointees
Received $50 million grant in public funds from State Permanent School Fund
NCIC selects Hamilton Lane to manage investments – create Silver State Opportunities Fund
Silvers State Opportunities Fund makes direct investments in Nevada businesses
8 Table of Contents
• 6.1 – Potential Green Bank Structures • 6.2 – Legal Process • 6.3 – Green Bank Capital Sources • 6.3 – Next Steps
9 Given this legal precedent, Nevada can consider statutory v. legislative approach to external non-profit
Statutory Legislative Use GOE’s existing Create new, purpose- power to create a non- built quasi-public profit corporation non-profit
• GOE Director has authority to • Similar structure to Nevada directly create corporation, Capital Investment Corporation aligned with GOE purpose • Purpose-built non-profit with • Advantage of faster execution Board defined in legislation • Benefit of strong relationship with • Can clearly define funding source GOE, coordinate activities in a single document • Complexity of securing funding • Longer process, but more buy-in
10 Nevada GOE has statutory authority to create nonprofit corporations
“[GOE may] promote, participate in the operation of, and create or cause to be created, any nonprofit Corporation…which the Director determines is necessary or convenient for the exercise of the powers and duties of the Office of Energy. The purposes, powers and operation of the corporation must be consistent with the purposes, powers and duties of the Office of Energy.”
GOE could directly create a non-profit to serve as Green Bank without any new legislation
11 If Nevada goes legislative route, bill would comprehensive define powers and funding for the GB
Topics Legislation Should Address • Organization Placement & Structure – Creates and defines the new entity • Organization Governance – Describes the size, makeup, method of appointment and powers of Board of Directors • Funding Level & Source – Identifies specific sources of funding, when it should be given to the GB and what levels • Bond Authority – Outlines specific bonding capabilities and limitations on recourse • Types of Investment – Can specifically enumerate the financing tools allowed, or give broad authority • Eligible Technologies & Projects – Lists the specific kinds of clean energy technologies that can be financed • Related Mechanisms & Powers – May define GB powers as it relates to PACE and/or on-bill financing
12 Table of Contents
• 6.1 – Potential Green Bank Structures • 6.2 – Legal Process • 6.3 – Green Bank Capital Sources • 6.3 – Next Steps
13 State should consider all possible sources of funds, including bonds, prioritizing those that are accessible
Upfront Initial Recurring Revenue Bond Issuance Capitalization Stream Structures Budget Appropriations Ratepayer Surcharge GB General Bonds Renewable Energy Fund Renewable Energy Funds Project-Specific bonds Recently-Cut DSM Funds Revenue Stream Bonds Potential Federal Dollars Federal QECBs Foundation Grants Industrial Revenue Bond
Green Bank can receive an upfront capitalization to create capital base, receive continued funding for on-going support, and have bonding authority to recycle and leverage capital.
14 Upfront capitalization is critical, as it supports start- up costs and signals desire to impact the market
• Budget Appropriations – Simplest and most direct way to fund a Green Bank • Renewable Energy Fund Balance – Can re-purpose funds collected through renewable project property taxes, as part of tax abatement program • Recently-Cut DSM Budget Funds – $10 million in recent DSM budget cuts for NV Energy can be put towards financing to preserve over-time while still supporting EE • Federal Resources – USDA/RUS and DOE programs designed to support Green Banks – New potential federal Green Bank would seed state entities • Foundation Donations – Other Green Banks have received donations or low-cost program- related investments to support targeted investments
15 PUCN itself has proposed new structure for using DSM funds more efficiently outside utility purview
As Presented by PUCN staff to Clean Energy Task Force: “Staff proposal would be to take DSM out of utility resource planning and give same budget to private providers (who could then bid DSM projects/ programs into an RFP). This would ensure that ratepayers got the most DSM out of their funding.”
Notes & Sources: TAC – CLEAN ENERGY SOURCES RESPONSES – PUCN STAFF .http://energy.nv.gov/uploadedFiles/energynvgov/content/Programs/PROPOSED_TAC_Anne- Marie_Cuneo.pdf 16 On-going, dedicated funding streams support a growing capital base and provide Green Bank stability
• Renewable Energy Fund Stream – Renewable Energy Fund will continue to receive property tax collections on existing projects for a set term (20 years from commencement, subject to depreciation); these funds can be dedicated to Green Bank • Ratepayer Funds – PUC could create new ratepayer surcharge to collect funds for GB – Similar to funding mechanisms of other Green Banks – Could be capped after number of years or capital collected – Could effectively recapture the DSM funds that were cut last year – More cost-effective use of public funds, used for loans, not rebates – With surcharge, rather than current rate-base system, would also avoid expense of 15% rate of return on funds collected 17 Various bond structures can allow Green Bank to access more, cheaper capital and recapitalize
• Green Bank General Obligation Bonds – Green Bank could issues its own bonds, backed by its own credit • Project Specific Bonds – Can issue bonds that only have recourse to a specific project, repaid by stream of repayments from that project • Revenue Stream Bonds – If Green Bank had a dedicated stream of revenue, could bond against that future cash flow, similar to Hawaii GIA • Qualified Energy Conservation Bonds – State and local governments still have nearly $20 million in federally-subsidize bonding capacity, sits unused – Green Bank could pool that capacity for efficient allocation and issuance • Industrial Development Revenue Bonds – Green Bank could partner with DBI to use existing tax-exempt bond program
18 Of potential funding sources, most are technically accessible without legislative action
Statutory approach requires piecing together multiple existing sources of funds. Only thing completely unavailable without legislation is direct appropriation from the General Fund.
Available Under: Potential Funding Sources Statutory Approach Legislative Approach Direct Budget Appropriations No Yes Re-directed DSM Funds Yes (through PUC) Yes (still requires PUC) Renewable Energy Fund Yes Yes Qualified Energy Conservation Yes (through Executive Yes Bonds Order) Other Bonding Structures Yes (via direct bonds or Yes w/DBI) Federal Funds Yes Yes
19 Table of Contents
• 6.1 – Potential Green Bank Structures • 6.2 – Legal Process • 6.3 – Green Bank Capital Sources • 6.3 – Next Steps
20 To move forward with implementation, Nevada would choose legislative or statutory route
• Study recommends prioritizing Legislation before moving to Statutory route – Advantage of more clearly defining institution and funding, signals stronger mandate for action • Legislation could come through multiple routes – Interim Energy Committee (or its members) could advance BDR – New Energy Task Force could recommend BDR to Governor • Governor could directly introduce or could have GOE lead effort – Individual legislator could advance BDR separate from these efforts • If Legislative path isn’t viable, then GOE can still move forward with Statutory approach
21 Key Takeaways
• There is legal authority and precedent for a Green Bank in Nevada
• Requires creation of nonprofit– cannot be direct public lending from government to private sector
• Could pass legislation to create, or use GOE’s existing statutory authority to create non-profits
• Most funding sources are still available through statutory approach; potential for repurposing or granting to the GB
• Legislation to create, define and fund the Green Bank is cleanest and most robust approach, but statutory may be necessary
22 Thank You & Appendix
Jeffrey Schub, Executive Director, Coalition for Green Capital [email protected] Twitter: @CGreenCapital