Investment Fund Launches Model For Energy Efficiency Financing

According to the EPA, buildings in the U.S. account for 36 percent of total energy used in the country and 65 percent of all electricity consumption, so any improvements in building energy efficiency that can be made provide a tremendous opportunity for huge benefits. That said, when it comes to energy, funding has tended to flow more freely towards renewable energy generation projects than towards energy efficiency projects -- effectively creating a barrier to necessary work, which would otherwise make the country's buildings far greener.

One energy efficiency and demand response financier is seeking to address this problem. "What is missing in the energy efficiency industry is akin to what is allowing solar to take off now," says Mike Gordon, CEO of Joule Assets Inc, "There has been no ability to create investments, which can be re-bundled and sold to investors down the line."

By doing just this, Joule Assets plans to correct the shortfall in energy efficiency projects by providing access to the necessary financing that will allow small- and medium-size contractors to unlock the potential in the market for energy efficiency work.
Part of the reason for a lack of funding thus far is one of scale. Investment in multi-million dollar renewable energy generation projects -- such as commercial solar installations -- has been available, because the potential for large profits to pour in have made it worthwhile for financial institutions to set up and service the loans necessary to build them. But, says Joule Assets' Gordon, "Energy efficiency projects at $250,000 or $750,000, don't have access to the financing that big projects do, because banks won't check credit extensively for projects of this [smaller] size in the same way as they will for multimillion dollar projects." The result being that projects in the order of magnitude of hundreds of thousands of dollars often remain without finance.

Since many energy efficiency retrofit projects fall into this size of capital expenditure, Joule Assets believes that what is needed is for small- and medium-size contractors to be able to deploy dollars at their own discretion on projects of this magnitude -- thereby making financing available to their customers for the energy efficiency work they undertake. Joule Assets provides the structure which allows them to do that, but in order to prevent contractors taking on projects that are not going to pay, the incentive for making wise decisions derives from the fact that contractors are subject to a loan-loss reserve -- effectively a share in some risk. It's a fair arrangement though; while contractors are on the hook for some liability if the project doesn't pay, they get access to financing that they would not be able to secure on their own, and in turn, a larger order pipeline.

Investors are backing Joule Assets benefit too, because typically the payback on energy efficiency projects is faster than investments in renewable energy. Furthermore, Joule Assets' Gordon asserts, their fund also offers an opportunity for better-than-normal returns since they have built software and a database which identifies all the extra value available in any given project. Here's an example:

Say an energy efficiency project allows a company to avoid paying for energy at times of peak demand. As well as the building owner getting an immediate saving in kilowatt-hours used, they can also, Gordon explains, secure a certificate of registration for this peak energy demand reduction, and sell that into the electricity market for a period of 15 years. By doing so, additional dollars from the electricity markets enhance the project's overall value. Despite this opportunity, however, few building owners are actually taking advantage of it, or even know how to go about it -- meaning much of the time, money is left on the table. Joule Assets helps identify and complete the registration for such opportunities, while taking a portion of the value realized, as a service.

Gordon explains the goal as an investment fund is threefold: Provide investors with a secure return, provide them with better than normal returns, and by dealing with regulators, create markets that allow a social benefit to be realized efficiently; in this case, that of energy reduction.

At launch, Joule Assets is working with Ener.co, an HVAC contractor that has a coating technology for air conditioning condensers which reduces power consumption by 15 percent on average. This could save a big-box store owner, for example, hundreds of thousands of dollars over 10 years at a single location, for a project with an average pay-back period, according to the company, of 1.5 years. By the end of the year, Joule Assets expects to be working with around 20 different contractors.

Image used with permission

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