Energy Efficiency Efforts Have Been Inefficient in California
Markets for energy efficiency (EE) in California remain under-served, due to intolerance towards payback times, high customer costs and revenue generated, according to A new white paper published by the California Clean Energy Fund.
The paper, first in a series, targets initiatives in business and policy working to overcome adoption barriers in smaller buildings- residential, small commercial and small industrial existing structures. The answer, according to authors Bob Hinkle and Steve Schiller, is in aggregation-financial, technological and geographic.
One of the most basic, and least risky, responses to growing energy demand in the US has consistently been energy efficiency. According to the McKinsey Global Institute, it is the lowest cost measure to achieving large-scale greenhouse-gas reduction.The paper exposes the lack of efficiency measures across the board- industrial efforts have been discouraged by potential business interruption, and both industrial and commercial users are often under the strict leash of budget priorities. Essentially, the low rate of return on energy efficient measures is serving as an investment barrier.
When residential EE measures are employed through utility incentives, they “typically focus on single EE measures, failing to capture benefits of multiple integrated upgrades,” per the report. Residential and small commercial customers in New England, California and in the Midwest have financed efficiency projects through monthly utility bill supplements through On-Bill Financing programs.
Some utilities have avoided this due to lending law violation concerns. Utilities are “generally reluctant to perform what are considered traditional banking functions,” and could benefit from financial institution partnerships to avoid issues of compliance.
Limited solutions have been provided to small commercial and residential customers, who represent a significant portion of potential EE savings in California.
In California, third-party participation in efficiency programs could be assisted by a “decoupling plus” incentive program, which allows private utilities to generate shareholder earnings through EE investments. Businesses can also receive project financing through Energy Services Agreements.
Energy Services Agreements allow the provider to serve as financiers and owners of EE assets and works with service providers to carry out installation and maintenance. ESA payments are structured to be under the customer’s baseline utility cost and escalate at a fixed rate.
The EARN Group offers EARN Equity Certificates, for bulk purchase of owned homes, differ from traditional borrowing situations in that the lender is instead an investor who will receive a percentage of the home price upon sale. If retrofitted with energy efficient improvements, the EARN investor would fund an amount (by purchasing an EARN certificate), equivalent to a fixed percentage of the home’s value, and would later be entitled to the additional percentage.
California has passed AB 811, which allows efficiency improvements to be financed by contractual assessments, like property taxes, on existing properties. While AB 811 can impact initial cost issues, it does not assist in raising capital to fund projects and administrative costs.
Stimulus funds could be the desert oasis for EE projects, but could also be used to establish revolving loan funds. These would allow for the quicker deployment of funds and would be repaid through shared energy bill savings.
The authors suggested that these assessments be formally integrated by city and municipal agencies as a financing option. One of the strongest points in the paper was the formal integration of energy efficiency effectively as a renewable, proposing that energy efficiency assets receive the same IRS depreciation treatment and tax breaks as sources of renewable energy, like solar.
Suggested in the paper is a potential aggregated solution to better implement California’s Loading Order of preferred energy resources, where the state could require that efficiency audits and upgrades are performed each time a property changes hands, which would provide the necessary opportunities for efficiency financiers. Currently, efficiency projects are a series of private transactions, whereas state requirements would allow for more determinable return.
Energy efficiency is the highest priority for meeting our current energy demands, according to the report, a sentiment echoed by a report that ties energy efficiency to national security. Through better sets of guidelines for homeowners and incentives towards risk-averse investors, energy efficiency will rise far beyond expectations of its most familiar form — improved insulation.
Source: Zaher Karp - Matter Network
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Tags: California Clean Energy Fund, Energy Efficiency
