Financial Vehicles Within Integrated Home Energy Improvement Programs

1. Financial Vehicles Within Integrated Home Energy Improvement Programs Brandon Belford Energy Efficiency & Renewable Energy U.S. Department of Energy

2. Financing Tools Must be Integrated into Comprehensive Home Energy Improvement Programs • Every successful energy efficiency program depends on four functional pillars • Demand Creation • Workforce training & certification • EM&V, data collection, and continuous improvement • Financing • Financing must address a broad spectrum of needs from small dollar reactionary replacements to comprehensive building retrofits • No one product is effective across the entire spectrum • Multiple complementary products maximize the effectiveness of the portfolio • Different product serve different market segments Financing programs allow payments on investments to be stretched out in time, the same as the benefits created bythe improvements are accrued

3. The First Step is to Define Program Goals Determine the Target Sector • Residential • High or mid-level credit quality • Reactive or Whole house retrofits • Multi-tenant • Commercial • Small business (Main Street commercial, mid-size retail) • Large commercial • Non-profit and institutional • Size of entity (very small non-profits may be difficult to finance) • Industrial • Keep in mind that many but not all industrial facilities may be able to self-finance

4. Develop an Action Plan • Integrate finance activities with other aspects of energy efficiency programs • Demand creation • Workforce training & certification • EM&V, Data collection & continuous improvement • Identify key milestones and decision points • Plot expected timelines • Plan for reporting and data collection • Build risk assessment and mitigation plans

5. Revolving Loan Fund – Overview

6. Loan Loss Reserve – Overview

7. On-Bill Financing – Overview

8. Qualified Energy Conservation Bonds (QECBs) – Overview

9. QECB Mechanics - Operating Model The diagram below outlines QECBs cash flows as direct subsidy bonds • U.S. Treasury allocates QECBs bond volume to a Qualified Issuer • The Qualified Issuer sells taxable QECBs as a 17 year bullet maturity to investors • Bond proceeds are used to fund a qualified project • The issuer pays a taxable coupon semi-annually to the investor and repays principal at the end of 17 years • U.S. Treasury pays issuer the lesser of the taxable coupon rate or 70% of the tax credit rate • Net Interest Cost (example only): 6.00%----Taxable rate 3.70%----Minus Direct Subsidy (5.29% tax credit rate x 70% subsidy ) 2.30%----Equals Net Interest Cost (Taxable Rate- Direct Subsidy) $$$$ Bond Proceeds Qualified Project Qualified Issuer $$$$ Principal RepaymentYear 17 Taxable Investor $$$$ Bond Proceeds 6.00% taxable couponpaid semi-annually (2.3% Net Interest Cost) Bond Allocation 3.70% Direct Subsidy paid semi-annually U.S. Treasury

10. Support Resources Department of Energy • Project Officer/Account Manager • Technical Assistance Team • Dedicated consultants for investigating, designing, and implementing programs • Playbooks and implementation guides for emerging finance programs • Case studies • Sample RFPs • Sample lender agreements • Sample underwriting criteria • Peer-to-Peer Networks Stakeholder Groups • NASEO / NGA / NACO / Council of Mayors • Potential for consolidated RFP efforts