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Posts Tagged ‘power purchase agreement’
Monday, January 12th, 2009
Although it’s terribly cliché to do so, given that change in the air and the fact that uncertainty clouds any economic prognostication, I will take this opportunity to offer a few predictions for 2009. I must admit, however, that as a Cubs fan, my DNA is programmed for eternal optimism:
1. The acronym PPA (Power Purchase Agreement) will become common parlance throughout the country, not just on the coasts. With President-elect Obama pronouncing the doubling of alternate energy a central goal of his administration and financing for any project still difficult to obtain under nearly any circumstance, specialty financial vehicles such as the PPA will be the preferred mechanism for getting solar projects off the ground.
2. Within the green building industry, interest in existing buildings will take precedence over the previous focus on new construction. As new projects have trouble getting off the ground, more attention will be paid to making our existing homes, offices and community facilities more efficient and environmentally sound.
3. This focus on existing buildings will lead to a fundamental shift in how we evaluate “green” buildings. We will no longer look to LEED Platinum as the preeminent standard, but instead to specific gains in energy and water efficiency. We can only hope that in 2009, when homeowners are asked about their HERS rating, there will no longer will be that awkwardness reminiscent of high school days gone by.
4. Because overall construction levels will fall significantly, green building’s share of total construction activity will exceed 10% – the level projected by many to be reached in 2010.
5. Interest in energy/water efficiency and sustainable practices may finally catch on with the general public, altering even kitchen and bath remodeling decisions.
6. The US will finally come to grips with its most pressing construction problem – the fact that construction practices are evaluated almost entirely on completion metrics (“on-time” and “on-budget”) and only rarely on performance metrics. Indeed, by far the most common concern raised by small contactors about green practices is not their lack of “expertise” in this area. It is the fact that their work is evaluated against design, product and performance specifications. Until we realize that we have never truly evaluated the performance of most contractors, we will not see significant reductions in energy consumption, nor I believe, come up with a pragmatic mechanism for promoting green collar job opportunities for smaller, under-capitalized firms that must now “guarantee” performance over the long term.
Tags: community development, green banking, green building, green jobs, power purchase agreement, ShoreBank, triple bottom line
Posted in Green Collar | No 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 »
2. Within the green building industry, interest in existing buildings will take precedence over the previous focus on new construction. As new projects have trouble getting off the ground, more attention will be paid to making our existing homes, offices and community facilities more efficient and environmentally sound.
