Buying Local Energy Efficiency
by Joel on March 30th, 2010
At a time when credit is so tight, it is commendable that many local and state governments are using stimulus funds to create new financing options to help homeowners and businesses pay for the upfront costs of energy saving measures. One problem is that most of these loan funds are quite small. Indeed, among the largest is a $30 million pool established by the State of Ohio – a state with 11 million people and a GDP of $466 billion. The vast majority of the pools have less than $10 million in capital. That amount only provides a drop in the bucket of what our economy needs. Even a conservative estimate suggests that hundreds of billions are needed for energy makeovers at the local level.
One solution is to create a secondary market – a mechanism by which the loan funds can sell the initial loans to another party and obtain the cash needed to make new loans. The buyer of the loans, then, will be entitled to the payments that will come in slowly over time.
One challenge to the development of this secondary market is that each governmental entity was free to develop its own program guidelines and rules. Consequently, each loan program is likely to have idiosyncratic underwriting policies, pricing structures, and loan terms. But secondary markets like conformity; therefore, aggregating these disparate loans into pools to sell to investors will be extremely difficult.
The Department of Energy (DOE) is working feverishly to develop a secondary market for some types of loans, most notably, unsecured loans to homeowners. It is unclear if similar efforts are underway for other types of borrowers, such as multi-family rental properties or commercial buildings.
I, however, believe DOE should consider seeding an intermediary that can purchase all of these loans (likely at a discount, since many carry below market interest rates) to allow the funds to recycle more quickly at the local level. This intermediary also could set standards, ensure more consistency and conformity, and better leverage this large, initial investment. Doing so would allow capital to flow into new projects, make development of a secondary market easier, and help ensure that stimulus funds benefit more American families and provide a bigger boost to local economies.
What do you think?
Tags: buy local, energy conservation loans, energy efficiency, energy finance, on-bill financing
