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Archive for the ‘Green Collar’ Category
Tuesday, March 9th, 2010
One would assume that energy lending is suffering. Lenders are not only lending less, but actually reducing average balances on credit cards, home equity loans, and lines of credit. In fact, the contrary is true – energy lending seems to be growing by leaps and bounds. Many people ask me why I believe energy finance is poised for explosive growth.
Here are my five reasons for this growth:
- As credit is so difficult to obtain for any kind of project, the federal government is extremely focused on creating new loan programs, like energy finance, that expand credit in all sectors.
- The credit crunch is forcing many in the energy efficiency community to reach out to new types of partners to create these loan programs. In the past, the efficiency community concentrated on developing partnerships with very large commercial banks for easier replication and escalation. The problem is that pilots require experimentation, a willingness to develop new processes and procedures, and, often, an assumption of added risk – elements that do not easily mesh with these large banks’ established lending platforms, especially for lending products, such as residential mortgages, that highly value routinization, efficiency, and standardization. The credit crunch has meant that smaller, mission-driven institutions, which are eager to pioneer new types of loan structures and quite adept at pulling in philanthropic partners to leverage public dollars, such as our colleagues in Portland, are now courted more routinely as partners.
An increasing number of states are legislatively mandating that utilities create on-bill financing mechanisms. As a result, utilities are being thrust into the finance business. Consequently, they are now more eager to develop partnerships, explore leveraging models, use their expertise in measurement and verification of savings, and, with contractor oversight, to develop effective energy lending programs.- The severe economic downturn, budgetary shortfalls at all levels of government, and growing discontent with government (and elected officials), puts a premium on programs that promote job growth, are revenue neutral, and are open to a wide swath of the electorate. Energy financing programs are among the few policy options that offer all of these elements.
- The extreme run up in energy prices in 2007 and 2008 has altered perspectives on where future energy prices are headed. Most people now believe that energy prices will rise over time and that escalation will greatly outpace overall inflation. Indeed, rising costs for energy, like death and taxes, is now seen as one of the few certainties in life.
All of these reasons have thrust energy finance into the national spotlight and to much higher prominence in the financial services industry, especially if the Department of Energy is successful in its efforts to create a new secondary market for loans tied to residential energy efficiency improvements. Naysayers look out: energy finance is poised for growth.
Tags: energy efficiency, energy finance, financial crisis, on-bill financing, ShoreBank, triple bottom line
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Tuesday, February 9th, 2010
Energy finance is clearly a hot topic if a panel on the subject at the Midwest Energy Efficiency Alliance annual conference has an overflow crowd. In years past, the topic might have garnered a couple of dozen of attendees and not the capacity crowd seen last month.
Panelists who were representing a wide array of energy efficiency financing models – from Property Assessed Clean Energy programs (PACE), to on-bill financing options, to governmentally supported private and public financing efforts – illuminated similarities among the programs. These similarities offer the following important lessons for financing programs targeting the residential sector:
1. No model fits all areas. Because no one financing option is perfectly suited for all geographies, incomes, and housing types, a variety models is needed. For instance, although the PACE model is likely to prove quite helpful for many localities, this model may not be feasible for a municipality with elevated levels of foreclosure or a very low tax base, or for one teetering on bankruptcy. Likewise, an on-bill financing program that relies solely upon a utility’s coffers to fund the loans may have too small a capital base to cover a meaningful portion of the units in the utility’s territory. This problem is particularly acute for dense urban areas, such as Chicago, where the capital need is conservatively estimated to be in the billions.
2. Tie the financing to the property or meter. If utility savings are the source of repayment of the loan, the financing should be tied to the property or meter. Otherwise, depending upon the timing of the sale or move, the savings could fall well short of what is needed for repayment, leaving the homeowner or renter to fund the difference. However, equally important, if the financing remains in place after the initial owner or tenant leaves, the improvements should be limited to ones that are not easily removed, such as air-sealing, insulation, HVAC systems, and windows, which will continue to generate savings well after the original owner departs.
3. New sources of liquidity are entering the field. Development Finance Organizations (DFOs), in particular, could represent an important new source of liquidity for energy finance programs. DFOs are public finance entities capable of issuing bonds to support public purpose projects. A development finance entity, for instance, could potentially issue bonds to provide the capital for an on-bill financing program, thereby lessening the need for the utility to find the funds internally or to have to borrow them directly.
As the number of energy finance pilots grows and diversity of program types multiplies, there is an acute need for dialogue among the practitioners about lessons learned, limitations for other locales, and opportunities for collaboration. I applaud the Midwest Energy Efficiency Alliance for beginning this critical conversation.
Tags: energy finance, green banking, Midwest Energy Efficiency Alliance, on-bill financing, ShoreBank, triple bottom line
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Tuesday, January 12th, 2010
One prediction for 2010 is that this year will be seen as a defining time for a new industry – the energy finance “industry.” Through the creation of Property Assessed Clean Energy (PACE) programs, the launch of on-bill financing initiatives, and the development of numerous other types of energy lending offerings, an unprecedented number of new financing options for energy efficiency and alternative energy projects will enter the marketplace.
As I have mentioned previously, most of these new options will by developed and managed by institutions well outside of the formal banking sector. Because most of these new programs involve some type of statutory authorization, more often than not, program design and implementation fall to folks far afield from the financial sector, such as Commerce Commission staff, City Councils, and legislative staff on State Energy Committees.
One consequence is that some basic tenets of lending may not be well articulated in the program designs, statutes, and implementation plans. I will concentrate on four elements that I see as most critical to the energy finance programs and which are often misunderstood:
1. Credit Risk: A fundamental part of any lending program is the borrowers’ capacity and likelihood to repay the debt. In most cases, varying types of borrowers can present different credit risks – a homeowner, for instance, offers very different risk profile than a small business borrower. Groupings that overlook these distinctions can present problems later on as the financing programs attempt to locate the cash needed to fund the loans.
2. Liquidity: Financing programs involve providing cash to pay the upfront costs to install energy saving (or energy producing) measures. The cash has to come from somewhere – ARRA funds, utility borrowings, municipal coffers, banks, CDFIs, the credit markets, etc. In many cases, the initial funds may be quite limited, so the sources of cash are very likely to change as the program scales up. Understanding how these funds are to be obtained throughout the program’s life is a critical feature of the program design. It’s also important to realize that any lending program of notable scale inevitably involves integration with the capital markets – where else will the billions in cash come from?
3. Demand: Even if borrowers with very low risk can be found and cash made available to them at advantageous terms, the targeted borrower still has to elect to borrow the funds (and install the energy saving measures). The notion that attractive capital will inevitably lead to demand for the loan product is highly questionable (see Marrion Fullers’ excellent synopsis of lending programs at http://www.sentech.org/energysummit/documents/3_Fuller_Summary.pdf).
4. Contractor Training and Certification: While financing programs are explicitly about delivering capital in the least costly and most flexible way, providing debt is not the primary purpose of these lending programs – the purpose is to deliver energy savings/production. Without trained and certified contractors and a mechanism for measurement and verification of the expected energy savings/ production, these financing programs cannot achieve their primary objective – even with full repayment of the loans.
Good programs, such as those developed by my colleagues in Portland, AFC First, Renewable Funding, and many others, have these elements front and center in their program design. Hopefully, other new entrants will follow their lead.
Tags: green banking, on-bill financing, Property Assessed Clean Energy, ShoreBank, triple bottom line
Posted in Green Collar | 3 Comments »
Tuesday, December 1st, 2009
I am often asked to describe an innovative “energy loan” product created by ShoreBank. My answer may seem surprising. In my opinion, one of our most innovative “energy loan” products is the same conventional single-family mortgage product we’ve offered to customers for more than 30 years!
My retort is contrary to what most people think. For many in the energy efficiency industry, “energy loans” have features that distinguish them from conventional loans. “Energy loans” may have different underwriting guidelines (such as higher debt-to-income or loan-to-value limits), more generous terms (such as longer amortization periods) or, may be originated and serviced by unconventional “lenders,” such as utilities or municipalities.
This existential question about what makes an “energy loan” was the focus of a panel at last month’s Behavior, Energy, and Climate Change Conference. Interestingly, a common theme among myself and my fellow panelists was the idea that “energy loans” are not categorically different from other loan products we each have offered for decades. What is different is how we engage with customers to guide them towards choosing more energy efficient products. We all recognized that our existing loan products could be used for energy projects. We didn’t need to create novel loan products – but we did need to create novel lending programs.
For each of the panelists, “energy lending” involves developing ways to prod our customers into choosing energy efficient products. For instance, AFC First Financial Corp (AFC), one of the largest non-bank lenders for energy efficiency projects, discovered it had to focus on educating contractors. Contractors interact with customers at key times, such as when a customer’s furnace stops operating and he or she needs a new one immediately. According to AFC, 80% of consumer choices are reactionary. As a result, AFC needs to be sure consumers are making smart choices at these critical moments. Although having a flexible loan available to consummate the deal and a reduced interest rate for an energy efficient model can help to steer the consumer towards a more efficient product, without the contractor making the consumer aware of the benefits of the efficient model at this decisive time, the consumer is not likely to choose the ENERGY STAR qualified furnace over a conventional one, irrespective of the financing options. So, AFC spends a lot of time working with its contractor network to ensure contractors are able to accurately and articulately explain why efficient models are better choices.
For ShoreBank, our energy lending programs similarly focus on ensuring that our customers choose more efficient products. For example, we provide a free energy audit at the time of loan application to help customers understand the benefits of completing air sealing, adding insulation, and choosing ENERGY STAR qualified windows, HVAC systems, and appliances
The key is to drive consumer behavior towards more efficient outcomes, not necessarily to create “energy loan” products. While the current financial crisis has necessitated a need for unconventional approaches to lending (whether for energy efficiency projects or more mundane credit needs), I hope this crisis does not cause us to focus too much attention on the creation of new “energy loan” products at the expense of creating more effective “energy lending” programs.
Tags: energy efficiency, green banking, green loan, ShoreBank, triple bottom line
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Tuesday, November 10th, 2009
Like many in the energy efficiency industry, I believe the United States is on the cusp of a major transformation in how we think about energy, but not for the reasons usually given. To paraphrase Thomas Jefferson, “every [industry] needs a new revolution” – and I believe the American Recovery and Reinvestment Act (ARRA) may just do the trick!
My sense is that one of the most important impacts of ARRA will be the expansion of the participants in, and beneficiaries of, energy efficiency funding and programs. These new actors and interest groups, I hope, will bring needed changes that will make the industry more effective, broad-based, and transformational.
As I referenced in my blog post last month, my concerns reflect very deep seated reservations about the governance and oversight of efficiency programs and funding – especially, in regards to how the goals, evaluation metrics, and allocation processes are determined.
My hope is that ARRA funds will radically transform the equation because:
- A primary goal of ARRA programs is job growth, not to the exclusion of energy savings, but certainly valued equally to the Kwh and BTUs saved.
- ARRA has led to a proliferation of new actors within the energy efficiency industry. In the world of finance, for instance, there are now non-profits, community development financial institutions (CDFIs) (such as our affiliate, ShoreBank Enterprise Cascadia), utilities, governmental agencies, and many others that offer novel types of loans for energy saving improvements.
These unconventional lenders bring new energy and new concerns to the field of energy efficiency. For instance, for my colleagues in Portland, while reducing energy consumption is a priority, so too are creating social equity, job opportunities for disadvantaged populations, and proliferation in access to responsible credit for under-served communities. Reconciling this larger set of goals against the historical focus on energy savings alone will be an important challenge going forward.
My hope is that all of the energy unleashed by ARRA funding will lead to a radical transformation in the energy efficiency space. Underserved communities will be better represented in the sector and, in turn, begin to demand greater inclusion in utility sponsored programs. By doing so, they could become allies for the energy efficiency community and greater advocates for these programs and funding. That would be a welcome change, indeed!
Tags: American Recovery and Reinvestment Act, green banking, ShoreBank, ShoreBank Enterprise Cascadia, triple bottom line
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Tuesday, October 27th, 2009
Most banks offer their customers the option of banking online in addition to writing paper checks and conducting transactions at brick-and-mortar branches. However, at ShoreBank we see online banking as more than a way to provide convenient banking options (though it certainly does that). We also see it as an integral component of our commitment to the environment and our position as a triple bottom line institution.
The environmental impact of paperless, electronic banking should not be underestimated. We’re talking about more than the occasional four-by-two inch ATM receipt. For example, Greendig.net estimates that if every household in the U.S. switches to electronic banking, it would save 16.5 million trees each year. That’s paper for envelopes, paper for stamps, paper for checks…all being saved.
Many customers also seem specifically attracted to the green aspects of paperless banking. In 2008, Newsweek reported that 57% of U.S. consumers expressed an interest in green banking when polled about it.
ShoreBank has always seen its environmental commitment as integrally connected to its community development mission. For example, supporting businesses like Indie Energy—a company that designs and builds environmentally-friendly, renewable energy systems throughout the Chicago region— creates jobs for people in the community while making their homes more energy efficient and affordable. By encouraging energy-efficiency whether by financing a green business or providing homeowners with free energy-audits—ShoreBank is helping homeowners lower their utility bills and tackle global warning by working to reduce greenhouse gas emissions.
Want to learn more? One easy-to-use tool for gaining a better understanding of the link between environmental and economic community development can be found on our new website, https://www.sbk.com/. It’s a fully-functional bank website with state-of-the-art technologies to make it easier to manage your money. It also has stories that will engage you in ShoreBank’s mission. Now you can manage your finances and build wealth while seeing, through customer stories, how we are building stronger, healthier communities and reinvigorating the lives of our customers.
So I am encouraging you to browse https://www.sbk.com to help “put a face” onto the opportunities and people we work with —both through online and good old fashioned brick-and-mortar banking. I think you’ll enjoy learning more and hope from these stories you will either begin or continue supporting ShoreBank in its mission.
Tags: community development, environmental sustainability, green banking, ShoreBank, socially responsible investing, triple bottom line
Posted in Green Collar | 2 Comments »
Tuesday, October 13th, 2009
The explosive growth in funding for utility-led efficiency programs is one of the most hopeful signs for bolstering energy efficiency efforts in the Midwest and across the country. Thanks to a growing number of states instituting energy efficiency portfolio standards, funding levels are expected to multiply in the coming years. Indeed, according to the Midwest Energy Efficiency Alliance, utilities are expected to spend nearly $900 million annually on energy efficiency in the region by 2012. In Illinois, annual funding will top $250 million by then, up from under $10 million just a few years ago. This level of sustained spending could be transformational on many levels.
However, one detail that gets too little attention is the degree to which important policy decisions regarding priorities, goals, and acceptable uses of these funds have fallen to the regulatory bodies overseeing utilities. While extremely competent and professional, these commissions were established to set utility rates, adjudicate grievances, and ensure continuity of services – not administer programs, promote economic development, nor be the driving force behind the enormous task of transitioning the economy to a low carbon future. In essence, we have transformed the judiciary into a unit of the executive branch without any discussion of the benefits, consequences, or merits of doing so. More alarming, we have done so for one of the most pressing and important challenges we face as a nation (and species).
One consequence of managing these funds through the commission process is that decisions are made according to a very narrow set of criteria. Particularly important is the amount of energy saved compared to resources expended – with no consideration given to the overall economic output produced, jobs created or maintained, markets transformed, or dollars leveraged. Nor does the process evaluate the equanimity of how funds are spent, with assurances of equal distribution to all geographies, incomes, and sectors. Accountability is thought of primarily in terms of seeing that the money produces tangible energy savings, not any of the other elements we all expect and demand from government, such as open access, transparency, helping disadvantaged communities and businesses, incenting innovation, etc.
Given the importance of the decisions being made and the coming scarcity of public dollars, we need a healthy debate about which investments should be made, which outcomes and evaluation metrics are most pertinent, and what process should be used for measuring success and impact. Some states, such as Connecticut and Massachusetts, have created new bodies to ensure that investment decisions better reflect a broad array of policy goals. In Massachusetts, for instance, alternative energy investments are directed by the Massachusetts Technology Collaborative, which seeks to increase installed capacity, as well as foster other important priorities, such as driving innovation, improving global competitiveness, and fomenting job creation. Hopefully, the establishment of these new agencies and wider set of priorities portends the start of the necessary and critical discussion about our best way forward.
Tags: Blog Action Day, Climate Change, community development, green banking, Midwest Energy Efficiency Alliance, ShoreBank, triple bottom line
Posted in Green Collar | 1 Comment »
Tuesday, September 8th, 2009
It wasn’t long ago developers thought “green” design made sense only in upscale markets, not in the low to moderate income neighborhoods where we at ShoreBank focus. Thankfully, much has changed in the past few years.
When we began planning for our application for a New Markets Tax Credit allocation–a federal tax credit for commercial investments in low income communities–we had numerous discussions internally about how to use the program to promote green projects in Chicago, Detroit, and Cleveland. Eventually, we made the controversial decision to focus exclusively on financing/supporting projects involving green buildings, alternative energy installations, and energy efficiency retrofits. The assumption was that we could use the subsidy provided by the tax credits to incent borrowers to pursue LEED certification or capital intensive but cost effective green technologies and design features. We were convinced that we would have to tussle with potential investees about the requirements and hold fast to our commitments in the face of significant push-back from the project sponsors.
Interestingly, now that we have been awarded a $35 million allocation of the tax credits, we are discovering a vastly different landscape. Our growing pipeline of potential projects consists of a wide array of building types: retail, hotel, mixed-use, industrial, education, and office. Perhaps the only commonality among them is their intent to achieve at least a LEED Silver certification and inclusion of alternative energy systems and technologies. More telling, all of the sponsors were committed to achieving a LEED rating prior to reaching out to us about tapping our New Markets Tax Credits allocation. We did not have to push the developers or even initiate the conversation about choosing to build green. LEED certification was part and parcel of their plans from the outset.
There are a variety of reasons for the decisions to build green. In many cases, doing so is required for other types of public subsidy, such as TIF assistance, Enterprise Zone benefits, or allocations of low income housing tax credits. But reasons extend beyond these governmental requirements. In some cases, the developers believe “green” offers a competitive advantage. In other cases, sustainability is a fundamental component of the developers’ “triple bottom line” objectives. An example of the latter is the redevelopment project planned for a vacant commercial building on Chicago’s southeast side, not far from some of the planned Olympic venues. For the developer, this green project offers a profitable way to promote development in this very needy tract–the tract is under 20% of the area median income and has a poverty rate above 40%, making it one of poorest in the city. Yet, this project is about bringing not only 100 new jobs to this underserved community, but also healthy food options to residents of this food desert through the opening of an organic produce store.
We are pleased to see this progression in the marketplace and excited to help further the green economy by helping these great projects get off the ground (none could move forward without the subsidy provided by these tax credits). With developers more open to green requirements than we expected, we can push further by catalyzing creation of new types of financial modes involving third party ownership of alternative energy systems, being more stringent around energy efficiency requirements (as well as “green” design), and promoting greater opportunity for residents.
Tags: community development, energy efficiency, green banking, green building, ShoreBank, triple bottom line
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Tuesday, August 4th, 2009
Like the differing reactions to the recent arrest of Henry Louis Gates, environmental justice has always presented a challenge for the environmental community because of its potential to divide activists along racial lines. Thus, it was with some trepidation that I accepted an invitation to speak at a recent event on the topic.
The discussion, sponsored by the Justice in Journalism program in affiliation with the prestigious Annenberg School at USC, brings journalists who are undertaking in-depth explorations of race and poverty at a local level together from all over the country.
The focus of my session was the future directions of environmental justice. The discussion centered on what could be a fundamental shift in eco-justice. In the past, eco-justice largely examined the adverse environmental consequences to the poor and to minorities caused by economic patterns and activities. A paradigmatic example is the respiratory problems and elevated cancer rates experienced in minority communities that live adjacent to large industrial plants or transportation hubs.
Going forward, I believe environmental justice will center on the adverse economic consequences that environmental policies create for the poor and for minorities. While these policies are undoubtedly necessary for a number of reasons, including confronting global climate change and limiting respiratory ailments, many of these policies are likely to hit poor communities hard economically.
Indeed, one of the journalists at the event described just such an instance. In this case, he was researching the implications that the new environmental rules instituted by the Long Beach ports, which ban entry to older trucks, had on Latino truckers. For these independent and, sometimes cash-strapped, truckers, the rules present a significant economic challenge–either spend the capital required to upgrade to newer trucks or lose business at the port. The financial burden these rules pose on Latino truckers’ livelihood is another “toll” on an already vulnerable segment of the population.
I believe changes in environmental regulations should be arrived at without any additional expense and hardship to underserved communities. By staying focused on the triple bottom line, organizations, agencies and individuals can work together to ensure that sustainability and economic development are integrated and create benefits for all. It may take more than a “beer summit” to close the potential divide, but engaging in dialogue is an important first-step towards ensuring long-term environmental and economic justice.
Tags: community development, environmental justice, green banking, ShoreBank, triple bottom line
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Tuesday, July 7th, 2009
One of the more intriguing questions surrounding the stimulus package is the extent to which the dramatic increase in funding for weatherization ($5 billion) will lead to a sharp rise in number of contractors skilled in energy efficiency retrofits. For states such as Illinois, which have not invested heavily in energy efficiency programs historically, and consequently have a very limited base of contractors knowledgeable in energy efficiency basics, the outcome matters a great deal.
Without question, the contractor issue has been one of the thorniest challenges we have faced in our attempts to catalyze the market for energy efficiency. Our programs have demonstrated that banks and other financial intermediaries can stimulate homeowner interest in energy efficiency by coupling information and capital together. However, these efforts may have minimal impact on energy usage without a corresponding effort to organize, train, and certify the contractor community. We simply have no way to guarantee that the work will be done correctly or produce the projected energy savings.
Indeed, anecdotal evidence suggests that the likelihood of achieving the savings may be quite small without substantial training and quality control measures being put in place. One example comes from the Executive Director of the Midwest Energy Efficiency Alliance, who recently installed a high efficiency furnace in her home. Despite the 94% efficiency rating on the furnace, it took the contractor several attempts and lots of re-working to push the performance up from the low level initially seen. Only because this particular contractor tested the system’s performance and understood how to rectify the situation, the furnace performs at its rated level.
There does appear to be some reason for optimism, however. ComEd, our local electrical utility company, has had notable success in its efforts to engage the contractor community around commercial lighting retrofits. We believe that with a determined focus and the necessary resources behind it, a similar program could prove equally effective for the residential marketplace.
Tags: community development, energy efficiency, green banking, green jobs, Midwest Energy Efficiency Alliance, ShoreBank, triple bottom line, weatherization
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