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Posts Tagged ‘energy conservation loans’
Tuesday, September 15th, 2009
Despite current economic conditions, many home improvement projects are holding their own. And the best way to get exactly what you want in your home is to customize its features. But “custom” doesn’t mean it has to be an expensive endeavor. Instead it just might mean saving money while protecting the planet. Here are a few ideas:
Tax Credits.
By incorporating sustainable materials and energy saving products in your home improvement project, you can recoup even more of your project costs and generate a social return. Thanks to President Obama’s America Recovery and Reinvestment Act of 2009 (ARRA) that was signed into law last February, tax credits have been extended and expanded for energy-saving improvements that had expired two years ago. This will save you money at tax time!
Tax credits are available in 2009 and 2010 for 30% of the cost of energy-efficient doors and windows, insulation, air conditioners, furnaces, heat pumps, and boilers for your primary home, up to a lifetime cap of $1,500. Plus you can include the cost of installation for these products. Starting this year, solar water heaters, geothermal heat pumps, and wind energy systems are also eligible for a tax credit of up to 30% of the cost and are available until 2016. More information about energy-efficient improvements and tax credits is available from the Alliance to Save Energy at www.ase.org.
Lower Utility Bills.
By conserving energy you lower your monthly utility bills by 25% to 45%. By including double-paned windows and extra insulation in the attic you can keep cool or warm air from escaping so the HVAC system doesn’t have to work as hard to maintain the right temperature.
Healthier Environment.
And the less electricity and water you use, the less of an impact you make on the earth’s resources while also reducing the amount of greenhouse gas emissions being emitted into the environment. By some estimates, one-third of all hazardous gases are emitted by homes. To discover the more than 40 categories of Environmental Protection Agency (EPA)-approved, home-improvement products and materials like insulation, appliances, windows, siding, and more, visit www.energystar.gov.
Make it Happen.
From our experience with ShoreBank’s Home Energy Conservation Loan Program, I suggest contacting a certified home energy auditor to arrange an in-home inspection of air leaks, insulation, and overall efficiency of mechanicals and appliances to help you determine which improvements offer the best value and environmental impact.
For more information, please visit, www.sbk.com.
Tags: community development, energy conservation loans, energy efficiency, Energy Tax Credits, green banking, ShoreBank, triple bottom line
Posted in Mortgage Lending | 3 Comments »
Tuesday, June 2nd, 2009
Last week, I attended an invite-only discussion coordinated by the Department of Energy’s Energy Efficiency and Renewable Energy (EERE) group about the business models needed to exponentially expand energy efficiency within the residential sector. This sector is clearly a priority for the Department of Energy and President Obama. Given how inefficient most homes are and the potential for a residential energy efficiency initiative to drive significant job creation, the government will be directing billions in the coming months on this sector.
The discussion covered the usual issues such as the lack of uniform standards; inadequate processes for verification of savings; problems in the credit markets; and ineffective marketing approaches and messages. A more interesting facet of the discussion related to the philosophical differences among the attendees. One critical question centered on the marketing messages needed to catalyze consumer behavior. One school of thought focused on the need to improve how we communicate the financial benefits of energy efficiency to homeowners. A second approach suggested that emphasizing other types of benefits, such as safety, comfort, etc., may be more effective than sticking to the usual economic rationale. While I can see merits in both, I find myself siding with the latter approach. In particular, I look with envy at the way the organic food sector has just exploded – and this is a product that typically costs more than the alternatives, not less.
The second philosophical question reflects whether the large governmental influx of funds will help catalyze the marketplace or stymie its development. In particular, there is some question about whether the government will let the marketplace lead the way or will overly direct how it develops. Personally, I am fearful that in their haste to get stimulus funds into the community quickly, DOE will rely heavily on old models and existing programs. While many, such as the ENERGY STAR brand, have proven quite effective, we need to create and deploy new models, most of which don’t exist today. Moreover, due to the public ire about waste and fraud, officials are rightly concerned about demonstrating success. Yet, experimentation, and, indeed, failure, are critical for market development and expansion. Neither is likely to be seen by DOE as a measure of success, nor a milestone to be touted to the public.
Tags: community development, energy conservation loans, energy efficiency, green banking, green building, ShoreBank, triple bottom line
Posted in Green Collar | 1 Comment »
Tuesday, May 12th, 2009
Even reaching the low hanging fruit often requires a ladder
Every year, as part of our Earth Day events, ShoreBank hosts a seminar for nonprofits about the opportunities available to reduce energy usage in their facilities and incentives available from utilities and foundation to complete the energy efficiency retrofits. As part of this year’s event, we asked representatives from ComEd, our local electrical utility, to complete an energy audit of a nonprofit facility. ComEd graciously agreed and presented the findings at the event.
The results were typical of our nonprofit customers – lots of low cost opportunities, such as changing bulbs/ballasts to more efficient varieties, switching to LED exit signs, and adding sensors for irregularly used spaces, such as meeting rooms and bathrooms. The identified measures included replacing inefficient lighting in a building that was built less than 3 years ago. In total, the costs of the measures was less than $40,000, with a pay-back estimated under 3 ½ years.
The reaction to the findings was also typical. The CFO was against spending the funds, especially to replace lighting that was only a few years old, irrespective of the large incentives offered by the utility and the quick pay-back on the measures.
Fortunately, the story doesn’t end there. Thanks to a recoverable grant from the Federal Home Loan Bank of Chicago, ShoreBank is able to offer very low-cost loan to cover these upfront cost. With this low cost funding, and an Executive Director committed to making the improvements, the retrofit is moving forward.
The story is instructive for a couple of reasons. For one, it demonstrates the importance of intermediaries such as ShoreBank. ShoreBank was instrumental in connecting the facility owner to the resources needed to understand the options available. In this case, we discovered that for-profits in Illinois are eligible for free energy audits, while nonprofits are not. So, without our focus on this sector, a whole set of owners, who maintain a large number of older buildings, would fall outside of the established programs.
Secondly, the example illustrates the importance of capitalizing loan funds focused on energy efficiency retrofits. In this case, the risk is very limited – it is a small loan to a large and well established nonprofit. But the perceived risks are high – since the loan is collateralized only by the lighting equipment and the nonprofit is dependent upon state grants, at a time where the state faces a massive budget deficit. By utilizing the funding from the Federal Home Loan Bank, we could offer terms that allowed the project to move forward. We see this financing piece as a critical mechanism to providing a ladder to pick the low hanging fruit.
Tags: community development, energy conservation loans, energy efficiency, green banking, ShoreBank, triple bottom line
Posted in Green Collar | 1 Comment »
Thursday, March 12th, 2009
It’s certainly an interesting time to be a banker, let alone, one focused on alternative energy and energy efficiency. Even the oft-quoted, “best of times, worst of times” quip doesn’t begin to adequately describe the world at hand. Since there is so much bad news about, I will stick to the “best of times” theme for the moment.
One reason for the “best of times” sentiment relates to provisions in the stimulus package. In particular, the change in the investment tax credit (ITC) from a tax credit to out-right grant opens new opportunities for our triple-bottom line orientation. The ITC is available for the owners of solar, wind, and geothermal systems.
The primary benefit of this change is to eliminate the need for a tax credit investor – which, most often, was a very large bank. Now, instead of selling the tax credit to one of these banks, the owner simply obtains a grant from the US Treasury. While these large banking institutions are often fantastic partners, their involvement presented a challenge for many deals, especially for the small, community-based deals ShoreBank is typically involved with.
For one, the large banks weren’t interested in smaller deals because the transaction costs (and hassle) far outweighed the limited upside for these institutions. With billions of tax liability to offset (hard to believe the good old days were just a few quarters ago), smaller deals were simply too onerous to complete given staffing and time constraints. And since even small deals required hundred of thousands of dollars of tax liability, few alternative investors existed. Consequently, it became very difficult to monetize the ITC credits for deals between $250,000 and $5,000,000 in size.
Secondly, the large banks were very risk averse and had numerous limitations on the deal structure – most of these were not unreasonable, given the risks to them, but cumbersome enough that deals were very hard to put together. Probably the most onerous related to restrictions on other loans needed for the transaction and on requirements of the owner/manager. Again, neither worry was necessarily unwarranted, but both definitely made life complicated.
Now that the large banks aren’t needed, we see lots of potential for smaller firms to become the owners of these systems, especially qualified installers who have been active in the energy industry for some time. If the installers are going to provide 5-year warranties anyway, why not collect a portion of ITC grants as additional compensation – this piece of the pie could be worth several hundred thousand dollars.
We believe the change in the ITC structure from tax credit to grant should unlock lots of entrepreneurial potential and open the door for green job opportunities that simply weren’t possible before the passage of the stimulus bill. It’s one reason to be excited to be a banker nowadays.
Tags: community development, energy conservation loans, environmental sustainability, green banking, ShoreBank, triple bottom line
Posted in Green Collar | No Comments »
Monday, February 2nd, 2009
Better keep those energy drinks close by, ‘cause we’re going to need ‘em
With record amounts of funding for energy efficiency and alternative energy likely to be included in the federal stimulus package, the practical implications of all of this money are beginning to set in. Indeed, at the recent Midwest Energy Solutions conference, sponsored by the Midwest Energy Efficiency Alliance, discussion of the impending federal funding appeared to spark both euphoria and panic among industry professionals.
Clearly, the volume of spending will lead to a lot of new green collar jobs – the requisite number of knowledgeable contractors, program administrators, architects, and financiers simply doesn’t exist. The amount of spending under discussion is many times (some say upwards of 30 times) the level currently deployed annually. To put this in perspective, according to Sheree Dallas Branch, program manager with Wisconsin’s Department of Administration, approximately 100,000 homes are weatherized annually under existing DOE programs – and 10% of those are in Wisconsin alone. The President’s plan calls for 2,000,000 homes to be weatherized. For the mathematically challenged, that’s a very large increase.
I believe the funding offers an even more compelling opportunity. Because most energy efficiency programs are tied to utility sponsored initiatives, evaluation centers almost exclusively on “cost effectiveness.” This analysis looks at the costs to save the kWh or therm as compared to the cost to produce or procure them. The analysis completely ignores other benefits, such as employment, social equity, carbon savings, or reductions in other harmful emissions. The analysis also is completely detached from metrics the public cares most about – ones focusing on how individual households or communities are better off. It is no wonder we have such trouble engaging public support for energy efficiency programs.
In contrast, the stimulus package, as the name implies, is focused on stimulus – economic output and job creation. These are metrics that the public cares deeply about. It is my sincere hope that the federal funding not only catalyzes the industry and marketplace, but even more fundamentally, alters the way we evaluate energy efficiency programs and how we communicate their benefits to the wider world.
Tags: community development, energy conservation loans, green banking, green jobs, Midwest Energy Efficiency Alliance, ShoreBank, triple bottom line
Posted in Green Collar | 1 Comment »
Friday, December 19th, 2008
Last month, I had the distinct pleasure to attend a unique conference in the truly world-class city of Berlin. The conference, organized by KfW, a German Development Bank, focused on how to “green” the financial services industry around the globe – from microfinance institutions focused on the very poor to the larger commercial banks targeting small and medium enterprises in more affluent areas. Particular attention was focused on the innovative work being done on financing of energy efficiency and alternative energy projects throughout the world. The participants voiced a near unanimous concern that the current financial crisis had greatly hindered on-going efforts to green the banking sector and that decisive action was needed in the next few months to maintain the momentum.
The discussion raised a fundamental question about the best strategy for achieving the dual objectives of ensuring adequate financing for green efforts and institutionalizing green lending in the commercial banking sector. My take is that due to the compressed timeline for reorienting the economy away from fossil fuels and given the depth and breadth of the financial crisis, these two objectives may no longer overlap. I am not convinced that we have the time to incrementally incent existing banks to increase their green lending – the hurdles are simply too great to get them to do so and time available way too short. Instead, I think we will need to look seriously at capitalizing (new or existing) institutions focused on the green sector and hope that their efforts and outsized returns lead more established entities to enter the market later.
Certainly, in the US, we have seen how institutions focused on developing financial products for new markets have transformed banking. I need only look outside my window to see the results. When ShoreBank was founded, no banks thought of low wealth areas as ideal places to grow and thrive. Today, ShoreBank faces increasing competition from mainstream banks in these communities and we now have commercial banks and other types of financial intermediaries on nearly every corner surrounding our branches. Our success was a catalyst for a wholesale change in the overall industry. I believe a similar pioneering effort is now needed within the green sector.
Tags: community development, energy conservation loans, financial crisis, green banking, ShoreBank, triple bottom line
Posted in Green Collar | 5 Comments »
Tuesday, November 18th, 2008
An energy efficiency financing option receiving a significant amount of attention in policy discussions is “on-bill” financing. On-bill financing involves providing a utility-extending credit for various energy efficiency improvements, and then adding the ensuing loan payments to the beneficiaries’ utility bills. Proponents of the approach point to several benefits. For one, utilities already have elaborate billing systems, so transaction costs are limited – it’s just one more line item on an established customer’s bill. For another, there exists a notion that consumers are leery of having another bill to pay, so households may be more willing to undertake the improvements if the ensuing payments are simply added to an ongoing bill. Finally, there is a sentiment that customers will go out of their way to make payments if they are part of the household’s utility bill since failing to do so could result in “shut-offs” or cessation of utility service.
While I see potential value in the on-bill financing notion, I think we should critically examine the underlying rationale before moving too quickly to implement this concept.
Clearly, there is some validity to the notion that on-bill financing would have low transaction costs – especially for smaller projects, such as those costing less than $5,000. Yet, I am not convinced these costs are less manageable for other types of institutions, such as credit card companies, that routinely extend credit for even lower amounts.
Secondly, I am skeptical that very many efficiency projects have been derailed because of consumers’ concerns about having another bill to pay. With the average household possessing seven different credit cards, and with over-leveraged consumers being one of the key drivers of the current financial meltdown, it seems hard to imagine consumers running from any form of credit.
Most of all, however, I am reluctant to believe utilities will have lower losses than other lending institutions. If foreclosures are at record levels, utility payments must be faltering as well. Certainly, local press reports here in Chicago have indicated that shut-offs have risen dramatically at both the natural gas and electric utilities.
Given that utilities will charge all rate-payers for any losses that ensue, it would seem prudent to carefully analyze the risks and realities of the approach. My concern is that if on-bill financing is not implemented carefully, it could easily become a regressive tax on low income households that act responsibly and manage their financial obligations appropriately.
To ensure households have access to appropriate and responsible financing options for energy efficiency projects, ShoreBank continues to explore ways to use private capital to underwrite these critically important investments.
Tags: community development, energy conservation loans, green banking, green building, on-bill financing, ShoreBank, triple bottom line
Posted in Green Collar | 1 Comment »
Wednesday, October 29th, 2008
One of the most interesting changes in the energy efficiency arena is the extent to which finance has come to be more fully recognized as a key element of any effort. This recognition represents a fundamental shift from just a few years ago, when ShoreBank launched its energy efficiency lending programs, including our Homeowners’ Energy Conservation Loan Program.
The shift comes at an interesting moment given the turmoil in the banking sector, but I think presents a unique opportunity to develop more inclusive and creative financing options. With loans from conventional sources more difficult to come by, ensuring low cost, accessible financing options is critical. Developing these new lending vehicles will likely mean reaching out to more creative lenders, such as community development financial institutions (CDFIs).
In the past, CDFIs have been largely absent from policy discussions around energy efficiency, yet they present a tremendous vehicle for reaching less affluent communities and for leveraging philanthropic, utility, and public benefit funding. One only has to look at the excellent work done by The Reinvestment Fund in Philadelphia to see the possibilities. With home equity loans practically non-existent, reaching carbon reduction goals will require a broader dialogue and new partnerships.
Indeed, the credit freeze could not have come at a more inopportune time given climate goals. A recent analysis conducted by the World Business Council for Sustainable Development suggesting existing homes must reduce energy usage by a much greater levels than previously thought if carbon goals are to be met. However, the lack of financing options for homeowners presents one more impediment to meeting climate goals.
Tags: CDFIs, community development, energy conservation loans, green banking, green building, ShoreBank, triple bottom line
Posted in Green Collar | 4 Comments »
Tuesday, October 21st, 2008
Wow! So much has changed in the banking world since I last checked in. While adjectives describing this change abound, few include “innovative.” It is the topic of innovations in green banking that I would like to discuss today.
Since the 1990’s, ShoreBank has been a pioneer in the field of green banking. Our conservation loans are good for the environment but also help our customers save money by reducing their utility bills. We carefully measure our conservation loans each year and look to find ways to increase our ability to do more lending in this area.
Last year, ShoreBank made $127 million in conservation loans. Many banks tout themselves as “green” for offering online bill pay and electronic statements, but ShoreBank backs up its claim by specializing in lending to homeowners to help make their houses more energy efficient and to projects that will create LEED certified green buildings.
ShoreBank’s commitment to being green is also reflected in its own branches and service centers. For example, ShoreBank’s new Central Loop Branch features:
* Recycled content flooring and ceiling tiles
* Energy efficient and zoned lighting
* Recycled content cubicle fabric
* 100% recyclable desk chairs
* A completely green galley kitchen that includes bamboo cabinetry, recycled glass countertops, recycled and porcelain flooring
ShoreBank is also committed to implementing green innovations in the target communities it serves— low-income, minority neighborhoods in Chicago, Cleveland and Detroit. One example of ShoreBank’s commitment to conservation lending is the construction financing ShoreBank provided for the Genesis Housing Development Corporation’s “Urban Green House.” Constructed in Bronzeville, a south side Chicago neighborhood it was the area’s first single-family environmentally sustainable home. With cost-saving green features such as central lighting shafts, cooling floor slabs, and a thermal rock bed and garden, the “Urban Green House” has been rated as the “greenest” new single-family residence in Chicago.
“There is sometimes a stereotype that ‘green’ consciousness only happens among a certain demographic and in affluent areas,” said Holly Marshall, Director of Operations at Genesis Housing Development Corporation. “The Bronzeville community has embraced this creative and eco-friendly approach to affordable housing and welcomes many more similar projects from ShoreBank in the future.”
Clearly, it is an exciting time to be involved in conservation banking. As I write this blog, a nonprofit organization called the Climate Group has just proposed “the UK Green Banking Charter” which would guide banks through the vital aspects and elements of green banking.
ShoreBank prides itself in its history of sustainable environmental leadership, and we’re confident that our expertise, investment, and innovation in conservation lending will continue to help change the world.
Tags: community development, energy conservation loans, green banking, green building, ShoreBank, triple bottom line, Urban Green House
Posted in Green Collar | 3 Comments »
Tuesday, October 7th, 2008
An increasingly popular idea about how to finance alternative energy and energy efficiency improvements involves the use of performance contracts or power purchase agreements (PPA). These types of financing arrangements involve a third party installing and owning the energy systems and then leasing the improvements back to the building owner. The structure has been used extensively by governmental entities (especially school districts) and by large Fortune 500 companies such as Google, Wal-Mart, etc.
At ShoreBank, we have been working for some time on what we call a “PPA for the rest of us” – meaning, performance contracts and PPA arrangements involving deals of less than $1 million, which cater to small nonprofits and other institutions, such as affordable housing projects, charter schools, and religious institutions. As we have explored doing so, we’ve discovered that these arrangements are far more complex than many people recognize. Aside from the credit issues that accompany these types of organizations, the long-term nature of the contracts and requirements for performance guarantees also present significant obstacles. Because the deals specify a fixed payment schedule from the beneficiaries, the interest rate on the financing must be fixed for the life of the agreement, usually 15-20 years in length. This fixed rate presents a significant hurdle given the lack of any secondary market. Similarly, due to the small size of the projects, and economic development goals, such as by small, minority contractors, performance guarantees are a concern. The firms involved are typically under-capitalized and therefore lack the financial strength to make the lender whole should the performance not meet required standards at some point in the future.
We believe that performance contracting and PPA arrangements offer a fantastic opportunity to promote energy efficiency and alternative energy. However, foundations, utilities, and governmental agencies must begin to partner with financial institutions to develop the requisite funding mechanisms and to create new types of performance guarantees if we are going to broaden the array of potential participants. Given the current financial crisis, we believe doing so is even more critical than ever and hope other partners will join us as we begin to pilot these initiatives.
Tags: community development, energy conservation loans, green banking, green building, power purchase agreement, ShoreBank, triple bottom line
Posted in Green Collar | 2 Comments »
