We recently moved our corporate offices to Olde Towne Gaithersburg, an up-and-coming area not too far from where I live. With this move I reduce my daily carbon footprint and spend no frustrating time in traffic on the Interstate. Included in the view from my new office are railroa
d tracks. I have been here a few days and every couple of hours a train goes by. Not a commuter train, although they use these tracks too, but a CSX freight train. I see the trains go by in one direction with what seems to be an endless string of coal-filled cars and then back empty in the other direction. I have been aware that the coal industry makes heavy use of the rail industry, but I am now seeing the process firsthand.
In just a few days, I have witnessed thousands of tons of coal go by my office window. These trains are a constant reminder to me of how much coal is burned to power our lives with electricity.
I spend a lot of time working on renewable energy projects, especially solar photovoltaic (PV) and solar thermal, which are great alternatives for generating electricity and heat. I plan to invest more time on reducing electric and natural gas usage by creating efficiencies for property owners.
Heating and cooling typically account for over one third of the energy used in a residential or commercial building. It is widely accepted by engineers (but little known by the public) that one of the most efficient ways of heating and cooling a building is through the use of geothermal ground source heat pumps (GHP).
7 Benefits of Geothermal Heat Pumps (GHPs)
- Reduce Energy Consumption – The biggest benefit of GHPs is that they use 25%-50% less electricity than conventional heating and cooling systems. This translates into a GHP using one unit of electricity to move three units of heat to or from the earth.
- Lower Operating Costs/Usage/Emissions – According to the EPA, geothermal heat pumps can reduce energy consumption—and corresponding emissions—up to 44% compared to air-source heat pumps and up to 72% compared to electric resistance heating with standard air-conditioning equipment.
- Improve Humidity Control – GHPs also improve humidity control by maintaining about 50% relative indoor humidity, making GHPs very effective in humid areas.
- Design Flexibility – Geothermal heat pump systems allow for design flexibility and can be installed in both new and retrofit applications. Because the hardware requires less space than conventional HVAC systems, the equipment rooms can be smaller in size.
- Increase Temperature Control – GHP systems also provide excellent "zone" space conditioning, allowing different parts of your home to be heated or cooled to different temperatures.
- Durable and Reliable – GHP systems have relatively few moving parts, and because those parts are sheltered inside a building, they are durable and very reliable. The underground piping where heat is exchanged often carry warranties of 25–50 years, and the heat pumps often last 20 years or more. Since they usually have no outdoor compressors, GHPs are not susceptible to weather or vandalism.
- Quieter – There isn't any concern about noise outside the home/commercial property because there isn't an outside condensing unit like with traditional air conditioners. A two-speed GHP system is so quiet inside a building that users do not know it is operating. There are also no tell-tale blasts of cold or hot air.
Why are geothermal heat pumps (GHPs) not more prevalent? There are new and innovative ways to overcome the typical barriers to entry with GHPs. I would like to see widespread adoption of GHPs in commercial, industrial, office and residential buildings, which could help reduce the loads of coal that pass by my window each day.
I keep hearing about U.S. solar manufacturers going under from time to time and I find it upsetting. In my opinion, the U.S. Department of Energy (DOE) needs to slow down the funding of domestic widget manufacturers and start creating incentives for end users so that consumers and companies will want to purchase and install clean energy solutions. We need to first boost the demand and then manufacturing will fall into place, even if we begin using imported hardware.
The latest to fall, Solyndra, a designer and manufacturer of solar photovoltaic (PV) systems for commercial rooftops announced earlier this week that they will be filing for Chapter 11 bankruptcy protection, divesting its assets and laying off all its 1,100 workers. This will likely result in a loss to taxpayers of the $535 million in federal loan guarantees. Once again, this is an appalling example of how policy makers don't seem to understand how to fix the economic situation in the United States.
If the demand is there the markets will figure it out. As demand increases, production increases. As production increases, costs decrease. As costs decrease, price decreases, which in turn helps further increase demand. It is a wonderful cycle that feeds itself until you have a balanced thriving market.
In a statement released by a spokesman for the Energy Department, Dan Leistikow said: “Congress recognized the risks inherent in such an effort and wisely set aside funding to offset any potential defaults or losses.” According to the DOE's website on September 1st, $38.7 billion in loans have been guaranteed. How much money has been set aside for losses?
So how do you boost demand? Make Americans want renewable energy products, like solar, by making it cheaper to own or at least buy the power from renewable energy systems. Instead of these complicated incentives like SRECs and loan guarantees for domestic manufacters who cannot compete with hardware made in China and elsewhere in Asia, why not take simple steps to promote the mass deployment and use of renewable energy systems.
How about a straight forward rebate on a solar production per Kwh or a feed-in tariff? Just keep it simple such as an additional credit on your electric bill. It comes down to making solar cheaper for the consumer which is much better than maintaining the status quo of relying on burning dirty coal for domestic energy generation. You can give all the money you want to manufacturers, but if demand for their product is not there, they won't sell a thing. In the States that have good incentive programs, solar is growing quickly. This growth has lead to cheaper production costs over time but more importantly it creates local jobs to sell and install these products.
We live in America, which is supposedly the best free market economy in the world. Why don't we set up our incentive programs to use our best assets? The capitalistic free market is full of eager entreprenuers and capital rich venture funds that are searching for places to deploy money.
I work with several companies that have more money then they know what to do with, ready to deploy into renewable energy projects and they struggle to find projects that can meet their reasonable required return on investment.
Don't get me wrong, the DOE's loan guarantee program is not all bad. It is helping to get many projects off the ground. But with many of the State solar incentive programs oversubcribed and with eager private capital available in the marketplace ready to deploy, I think that helping domestic manufacturers is the wrong move at this time.
Besides, as long as the deployment of solar grows in this country, even if the solar panels are ultimately not made by a U.S. company, you can guarantee they will be installed by a U.S. based company through a domestic workforce.
When it comes to renewable energy projects in the United States and Canada, money does not seem to be the hardest part. Lack of viable projects is the most difficult. Greenavise has access to capital sources looking to deploy over $1 billion in the renewable energy arena. More and more financiers are emerging and many of them are competing for the same projects. Below is a review of what investors are looking for.
Investors want a Strong Experienced Development Team. Most of the capital sources we work with have established relationships with trusted contractors whose projects they are willing to finance. If you don't have a reasonable level of experience, investors are usually willing to pay a development fee and give some level of participation to the inexperienced party. They might insist that the developer use the investor's preferred contractors and give up control. It should be noted that even if you would be asked to give up control of a project you can certainly insist on a development fee and then you can use your involvement in this early project to build your brand or company resume.
Investors want Sizeable Projects. The bigger the better. Investors who have hundreds of millions of dollars to invest in renewable energy projects can't spend a lot of time on underwriting small deals. It just isn't worth the time when a small deal takes almost as much time to bring to fruition as a big one. This is what drives the average size of acceptable projects up. That said, most of the sources that we work with are willing to aggregate systems or will work with developers that can generate a pipeline of dealflow in order to create the scale that they are looking for in an investment.
Investors want "Shovel Ready" Projects. This is a term that is floated around a lot when discussing renewable energy projects. "Shovel Ready," in reference to solar and wind projects, often means:
- The project has an executed Power Purchase Agreement (PPA) with the price to be paid per kWh by the host/off taker specified in the PPA, along with a signed interconnect agreement when necessary.
- A capable Engineering, Procurement and Construction firm (EPC) has been secured or has bid on the project.
- The required building permits have been issued.
- If necessary, the land for the project has either been purchased (or an option has been secured) or a land lease has been signed (or an option has been secured).
- An investor package has been created that includes a pro forma for the project, a timeline of the use of funds and presents a viable financial picture that can be presented to sources of capital (equity or debt).
- The window of opportunity based on the tax structure, PPA, lease or purchase option, EPC contract, and other factors has been clearly identified and is outlined in an Executive Summary.
It is much easier to find financing for projects that have all of the above. It does create a chicken or the egg problem in that some capital must be expended to get to this point (professional fees, legal fees, time, travel, etc.). However, if the project is not even close to "shovel ready," it is difficult to get financiers interested in underwriting a deal which may never happen.
The U.S Energy Information Administration reports that for the 52 weeks ended on June 12, 2011, the United States mined 1,057,367,000 tons of coal. The vast majority of this coal is used to produce electricity. The coal is burned in power plants to boil water that generates steam. The steam turns turbines to create the electricity that powers our modern world. However, this process is anything but modern.
Coal is a dirty rock that is substantially contributing to our climate problem. The harmful effects of burning coal have been well documented, but in our "out of site out of mind" world, nobody seems to care. Virtually unnoticed, each day thousands and thousands of railroad cars travel across the United States full of coal that is on its way to be burned at power plants.
To put this in perspective, the Empire State Building weighs approximately 365,000 tons. Each day the United States burns about 2,714,140 tons of coal or the equivalent of 7.4 Empire State Buildings.
Clean energy alternatives like solar, geothermal, biomass and wind are available. There is a lot of talk about cost, incentives and grid parity, but these are not the most important factors in deciding where and when to implement these technologies. The true cost of coal is not discussed enough.
Rocks and fire are the tools of the caveman. Ipads and 3d flat screen televisions are technological marvels. It takes electricity to power these modern marvels, but it is truly mind boggling that we get most of our electricity by burning rocks. The United States has created so much advanced technology and has the ability to develop any technology it puts its collective public and private resources behind. However, it seems that we have not put our collective efforts to modernize and change what powers our world.
Power Purchase Agreements (PPAs) have played a key role in the traditional energy generation industry and have been adopted by the renewable energy industry as a means of financing high up front project costs.
While I applaud early pioneers in the solar industry for using PPAs, below are 4 reasons why I do not believe it is the best approach for widespread distributed solar project development.
1. Size – PPA providers generally want sizable projects. Most providers are looking for projects of over 1 megawatt (MW) and will only go as small as 250 kilowatts (kWs). This eliminates many projects from finding reliable sources of capital. There are many buildings, especially in urban settings, that have sizable rooftops with Southern exposure, but don't meet the minimum size requirements of PPA providers.
2. Credit – PPA providers also look for investment grade bond-rated hosts/power purchasers. This is great if your company is Walmart or another Fortune 500 company. The problem is that many viable host companies may have a desire to go solar and the ability to pay, but are passed over by PPA providers because they don't meet their stringent and inflexible credit requirements.
3. Time – PPAs for photovoltaic projects are generally 15 to 25 year agreements (but typically 20 years). This means the PPA providers will generally only look to building owners but not tenants as potential customers, since most leases are for less than 20 years. Commercial leases vary but typically are divided into 5 year increments with extensions, in some cases beginning with a 10 year initial term. This eliminates many potential hosts even though the lease term may extend multiple times for well over 20 years.
4. Legal Costs – PPAs are generally lengthy complex multiple agreement documents that require significant drafting time, negotiating and legal review. This discourages many hosts from taking on the hassle and expense of moving forward with a PPA.
PPA providers typically must be assured that the host will occupy the location for 20 years and operate under an agreement to buy all power produced by the system. As much as I can understand this quest for contractual certainty, I don't fully agree with this strategy which eliminates so many projects from being viable. Coming from a real estate background, I have little doubt that in most cases, if one user vacates another tenant will replace them (and the power company is often required to purchase the energy at a wholesale rate until the power would be purchased by a new occupant). Real estate has historically used vacancy factors in its financial underwriting, even when well known national or international investment-grade tenants are occupying space. Why can't a similar factor apply to PPAs? I believe that more attention must be given to solving landlord tenant issues to make solar a more attractive option.
In conclusion, there are many eligible hosts who are ready, willing and able to join the renewable energy revolution and do their part in helping our environment. However, the barriers to entry are just too high. PPA providers, banks and other sources of capital need to either become more flexible in their underwriting or consider offering alternatives to the PPA to open up the market to the masses in the business world.
As an alternative to PPAs, solar financing can work and can be cash neutral or cash positive under a lease structure or utilize other financial tools. We need to make this work for every business willing to make this commitment with solar being a viable option on a mass scale.
It doesn't matter if you have the best project in the world. Without answering the following 3 questions, your renewable energy or energy efficiency project probably won't get funding.
1. What is your previous experience with a renewable energy or energy efficiency project?
Lenders and equity investors don't want to put money into your first project, or your second, or third most likely. I know it is a chicken and egg problem, but it is true. A proven track record helps tremendously in opening up financing options. If you don’t have experience with a project that is successful, your best option may be to partner with someone who does.
2. What is the project?
This may seem like a loaded question, but at the end of the day all this comes down to is have you crossed your t’s and dotted your i’s. Outline your project in black and white. Lending and equity institutions are in the business of minimizing risk and are interested in projects that are clearly explained in detail. In addition, they want proven technology and like to do business with organized and experienced developers.
The more proof the project is going to be viable, the better. Creating a project plan that includes any of the following, is helpful: site control agreement, a power purchase agreement (PPA), an interconnect agreement, permits, contracts, warranty information, etc.
3. What is the repayment plan?
A famous movie line once said “show me the money”. This is the golden rule for any equity or debt provider. What is their exit strategy? Investors want a credible plan for repayment. Whatever the method of repayment, a repayment plan should be well documented through spreadsheets, contracts and include any other relevant supporting information. This should also include providing collateral.
If the project goes bad, how are the lenders/investors being repaid? The financial strength of the developer or borrower will be important. Be prepared to provide full financial information including a balance sheet, income statements and tax returns.
Combined heat and power (CHP) technologies (also known as cogeneration) simultaneously produces both electricity and heat from a single fuel such as natural gas, biomass, biogas, coal, waste heat or oil that is strategically placed at or near a facility/consumer to supply onsite energy needs. Heat that normally would be wasted in electricity generation is recovered and used, thereby increasing the overall efficiency.
Interest in CHP technologies has grown over the past decade as consumers and providers seek to reduce energy costs while improving service and reliability.
According to the United States Clean Heat and Power Administration (USCHPA), CHP systems:
- produce almost 8% of U.S. electric power;
- save building and industry owners over $5 billion per year in energy costs;
- decrease energy use by almost 1.3 trillion BTUs/year;
- reduce NOx emissions by 0.4 million tons/year;
- reduce SO2 emissions by over 0.9 million tons/year; and,
- prevent release of over 35 million metric tons of carbon equivalent into the atmosphere.
As an efficient, clean, and reliable source of energy, CHP is designed to:
- meet the thermal and electrical base loads of a facility;
- greatly increase a facility's operational efficiency;
- decrease energy costs;
- reduce the emissions of greenhouse gases; and,
- help fight climate change.
CHP can be modified depending on the end user's needs. The EPA has said that CHP technology exists in a wide variety of energy-intensive facilities nationwide, including:
- industrial manufacturers - chemical, refining, ethanol, pulp and paper, food processing, glass manufacturing
- institutions - colleges and universities, hospitals, prisons, military bases
- commercial buildings - hotels and casinos, airports, high-tech campuses, large office buildings, nursing homes
- municipal - district energy systems, wastewater treatment facilities, K-12 schools
- residential - multi-family housing, planned communities
CHP is efficient, reliable, helping the environment, and makes good economic sense.
Nine solutions to financing a renewable energy or energy efficiency project:
1. Power Purchase Agreement
A contract between two parties that enables a company (the seller) to install and own a renewable energy system on a client's (the buyer) site. The client agrees to pay for the energy as it is produced at a rate agreed upon in the contract for a set period of time instead of making a large investment upfront.
2. State and Municipal Revolving Loan Funds
A state or municipal pool of funds that capitalize a loan fund managed by the state or municipal government; loan repayments recapitalize the fund to allow additional lending on an ongoing basis.
3. Third Party Loans
A loan program administered by a third party such as a financial institution that is targeted at energy efficiency or renewable energy improvements. This can be a bank or a private investment group.
4. On-Bill Repayment
Clean energy improvements are repaid as part of the utility bill; this can be a personal or business loan, or it can be attached to the meter so that repayment transfers with tenancy.
5. Energy Savings Performance Contracting (ESPC)
An ESPC is a partnership between an energy services company (ESCO) and its customer formed for the purpose of financing and implementing cost-saving energy-efficiency improvements. The ESCO pays the up front cost of purchasing and installing new equipment, and the customer repays the ESCO over the life of the contract from the cost savings resulting from the project. The original capital used to finance the needed upgrades is typically secured from municipal leases, bonds, revolving loan programs, etc.
6. Property-Assessed Clean Energy (PACE)
Allows clean energy improvements to be repaid via an assessment on the property tax bill; the repayment obligation and savings transfer with ownership.
7. Energy Efficient Mortgages (EEM)
A mortgage that credits a home's energy efficiency in the mortgage itself. EEMs give borrowers the opportunity to finance cost-effective, energy-saving measures as part of a single mortgage and stretch debt-to-income qualifying ratios on loans thereby allowing borrowers to qualify for a larger loan amount and a better, more energy-efficient home.
8. FHA Power Saver (PowerSaver)
This is a new mortgage insurance product from the Federal Housing Administration (FHA) that will help lenders offer credit-worthy borrowers low-cost loans to make energy-saving improvements to their homes. This program supports loan amounts up to $25,000 for terms as long as 20 years.
9. Qualified Energy Conservation Bond (QECB)
A tax credit bond used to fund energy conservation projects. It is a bond that a borrower pays back the principal on the bond and the bondholder receives federal tax credits in lieu of traditional bond interest payments.
Greenavise worked with Skyline Innovations to install a Solar Thermal hot water system on one of its client’s 45 unit apartment building. “With no capital outlay and monthly savings, this project is a win-win for everyone. These are the kinds of solutions Greenavise brings to our clients,” said Mr. Friedman CEO of Greenavise. Green DC Daily
l-r: M. Healy/Skyline, S. Friedman/Greenavise, Counselmember M. Cheh, Counselmember J. Graham and G. Stackman General Counsel/Greenavise.
By assessing, managing and implementing sustainability policies and strategies, Greenavise Consulting improves our client’s Triple Bottom Line.
Triple Bottom Line measures an organization’s economic, ecological and social impact. In practical terms, Triple Bottom Line accounting means expanding the traditional reporting framework to take into account ecological and social performance in addition to financial performance.