For commercial property owners in California looking to finance energy efficiency upgrades for their buildings, the process should be a bit easier and cheaper come early next year, thanks to a new pilot program approved last week by the state?s Public Utilities Commission.
Based on an ?on-bill repayment? feature, the program would allow the property owner to avoid large upfront costs and instead pay for upgrades through regular installments on his utility bill. The idea is that the energy cost savings would cover or exceed the loan or the leasing repayment added to the bill each month. The repayment remains on the property?s utility bill until it?s paid off, even if the property changes ownership, and the utility would have the authority to cut off service for nonpayment.
The concept is not new. About a dozen states offer similar programs. California?s new twist is the source of financing and the obligation to repay the loan regardless of a change in ownership.
While programs in other states are financed through loans from the utility (using ratepayer money) or government funds and grants (using taxpayer money), California?s approach would be the first to rely solely on private third-party financing, according to Brad Copithorne, a director of financial innovation at the Environmental Defense Fund and a co-author of the proposal that served as the blueprint for the program.
?We?ve already had a lot of interest from the big Wall Street banks, regional banks, leasing companies and other types of private investors,? Mr. Copithorne said in a telephone interview. E.D.F. estimates that the program could generate up to $6 billion in private investment for energy efficiency and renewable energy projects in the state over the next 10 years.
What has kept these investors away from the market in the past was the level of risk associated with these loans. If the property owner defaulted or went into foreclosure, the lender was often unable to recover any unpaid loan balance.
?When the repayment becomes legally part of the electric rate tariff for that property, the risk to the lender goes down because the property owner needs to pay it to keep the lights on,? he said. ?So it gets much easier to finance these projects.?
Besides attracting new types of investors, lower risk also means lower interest rates on the financing, which should bring more property owners into the market, he noted.
Unlike programs in other states, the California program will be available to any commercial property for any type and size of project. E.D.F. expects likely targets to include shopping malls, strip malls, multi-tenant commercial buildings and college and corporate campuses. Projects could range from replacing old heating and cooling systems with more efficient models to adding insulation to installing high-efficiency lighting systems or adding rooftop solar panels.
?Over time, we would like to see the market finance any kind of project or technology that will help lower the utility bill,? he said.
California has set an ambitious target to lower its greenhouse gas emissions by 80 percent below 1990 levels by 2050. A recent Lawrence Berkeley National Laboratory study concluded that energy efficiency improvements to buildings could produce almost 30 percent of the reductions needed to reach this goal.
Time will tell if the new on-bill repayment program will deliver on expectations. The Public Utilities Commission has directed the state?s investor-owned utilities ? Sempra Energy, Southern California Edison, and Pacific Gas and Electric ? to have the program operating by March 31 of next year.
Mr. Copithorne said E.D.F was already working with officials in other states including Texas, Ohio and North Carolina. ?If we can show that this creates investments and create jobs, doesn?t rely on taxpayer or ratepayer money, and it?s all free market, I think it appeals in red and blue states,? he said.
E.D.F. also plans to pursue legislation next year to extend the program to residential customers.
Source: http://green.blogs.nytimes.com/2012/11/12/a-new-way-to-foot-efficiency-upgrades/
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