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Being open about cash can fund your efficiency dream

Everyone avoids talking about sex and money in polite conversation. In the power industry specifically, it may be even more gauche to talk about money than sex. But, a little sexy talk about money may be exactly what’s needed to give a lift to energy efficiency projects in search of funding.

Earlier this summer, the Environmental Defense Fund released a report titled—in a throwback to an old Tom Cruise flick—“Show Me the Money.” In it, analysts discussed the difficulties in accurately evaluating the return on investment (ROI) for future green/sustainable projects, especially those in the areas of energy efficiency. For investors, understanding ROI is a pre-requisite for funding these projects. No ROI, no investment. 

We spoke with Matt Golden of the Environmental Defense Fund’s Investor Confidence Project (ICP) about how to remedy this, starting with an understanding of why utilities are so loathe to talk about financing.

“Well, financing is not a utility's core competency,” Golden said. “If you asked a bank to provide power, they similarly might not be that good at it. Traditionally, utility financing has asked utilities to invest either their own money or ratepayer funds into project. However, with many of the newer approaches being proposed, such as on-bill repayment, the utility is being leveraged as a repayment vehicle, and the rate tariff as a credit enhancement, but the actual funds and underwriting is done by private financing entities. The fact that we are not talking about utilities becoming finance firms seems to have opened their minds to the topic.”

Golden cautioned, however, that finding capital and financing up front isn’t the only issue with getting energy-efficiency projects green-lighted. There’s also an issue of uncertainty when thinking about investments vs. cost savings, and a lack of standardization to help alleviate this uncertainty.

The easiest way to find those financers looking for projects is to build a database/marketplace of them—sort of the eHarmony of willing finance firms. But how many utilities or investors really have the time to build those databases and connections themselves?

“While there is currently not an established marketplace for energy efficiency projects, we can already see that the industry is responding to fulfill this need,” Golden added noting that ICP itself works with companies such as Noesis Energy to create technology platforms to connect developers and investors.  

Golden added that Noesis isn’t alone in eyeing this marketplace prize. And, once the marketplace reaches “a critical mass of deal flow and investors willing to commit capital,” more traditional market players such as investment banks and utilities may be eager to enter (or re-enter) the game.

Golden believes the winner of the marketplace game here will be the one who does the best job of catering to investors and project developers. And that doesn’t mean variety. It means security, stability, calm.

“Investors don’t want a choice of 31 flavors; they want vanilla,” he advised. “Creating a marketplace where investors can evaluate projects on an apples-to-apples basis is imperative. Once again, the precursor to this capability is the standardization of projects and datasets that allow for the analysis of credit, asset and performance risk factors. Establish an environment where investors feel that they can manage risk, and the market will thrive.”

Whatever marketplace ends up the winner, Golden sees a bit of underlying good news: All of them seem to understand that “standards cannot be proprietary, and consolidating the industry around common standards benefit all,” Golden noted.

To get your efficiency deal done before a marketplace is in full swing (which could take a bit of time), Golden suggests approaching established players by leveraging networks such as the one ICP is developing and packaging potential projects with economic assessments.

Golden concluded, “Positioning your project financially establishes your company as an project developer who understands investors.  It differentiates yourself from other channels that are typically more comfortable concentrating on the engineering aspects of projects.”  

 

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Kathleen Wolf Davis's picture

Thank Kathleen for the Post!

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