New $30M Financing Vehicle Helps Create a Mid-Market for Energy Efficiency Projects

Energy efficiency projects and financing are moving down-market – in the sense that they're increasingly attractive to and viable for medium- and even small-scale commercial and industrial companies, as well as government departments and agencies.

Taking advantage of ongoing advances in clean technology and applying some creative financing, innovative companies such as Noesis Energy are creating new markets and growth opportunities for energy efficiency project developers and energy service companies, as well as offering small- and medium-sized businesses (SMBs) the opportunity to boost their bottom lines while also reducing their environmental impact and carbon footprint.

Performance-based energy efficiency financing

On March 26, Austin, Texas-based Noesis announced the launch of a $30 million fund to finance Noesis Shared Service Agreements (SSA).

Akin to the solar power purchase agreements that have driven explosive growth in third-party-provided residential, commercial and industrial solar photovoltaic (PV) systems, the Noesis SSA is a “performance-based investment vehicle to finance mid-market energy efficiency upgrades and retrofits in the commercial and industrial sector.”

As Noesis explains in its press release, energy efficiency projects (until recently) have largely been the domain of large energy service companies specializing in delivering multimillion dollar “turnkey” energy savings projects to government customers.

Back in October 2009, President Barack Obama made reducing greenhouse gas emissions and boosting energy efficiency throughout the federal government – by far the largest consumer of energy in the nation – a priority with the issuance of Executive Order 13514.

Noting advances in a range energy efficiency and renewable energy technology for building and larger facilities – LED lighting, heating and cooling systems, distributed and co-generation, net metering and intelligent energy management controls among them – and the success of solar PPAs, Noesis Energy saw an opportunity to expand and move energy efficiency into the mainstream by creating a middle-market tier.

Its first step came last year with the launch of a financial services unit to help its commercial and industrial business customers obtain third-party financing for small to mid-sized energy efficiency projects and retrofits. Noesis Financial Services has since signed up over 30 energy efficiency product and service providers, and quoted more than $37 million in projects, according to the company.

The Noesis Shared Service Agreement

With $30 million worth of initial capital underwritten by an unnamed “leading provider of energy efficiency financing,” Noesis aims to take its energy efficiency financing capabilities to a higher level by offering a performance-based, and hence off-balance sheet, means of financing that matches the actual energy savings customers realize to their SSA payments.

"Aligning the financing with the actual energy savings realized has been a model that has been hugely successful in residential solar. With Noesis Shared Savings Agreement, we're applying that same model to the commercial and industrial energy efficiency market, only at a much larger scale," Noesis Energy CEO Scott Harmon was quoted as saying.

Payments for "negawatts"

Noesis SSAs can range from $500,000 to $3 million, with project payback periods of less than 7 years. Noesis stands between the energy efficiency project developer, equipment or service provider and their commercial or industrial company customers. Project developers are paid 90 percent of contract value upon successful installation and the remainder over the term of the SSA based on the actual energy savings realized by the customer – known as "negawatt" pricing.

Noesis vets the energy efficiency project developers' credit before they can sign on to offer Noesis SSAs, sets industry-standard specifications for installations and their performance, and then assesses them over time in the context of the SSA contracts.

Noesis Energy is one of the first, but not the only company, looking to capitalize and grow the energy efficiency market. As Matt Golden, senior energy finance consultant for the Environmental Defense Fund's (EDF) Investor Confidence Project (ICP), highlighted:

"This new shared savings vehicle from Noesis is the latest example of technology-based underwriting closing the gap between energy efficiency projects and innovative financing. This new financing option is a great example of how standardizing and streamlining the technical underwriting process can connect capital sources with a stream of consistent and reliable energy-efficiency project deal-flow."

Joule Assets in late January launched a planned $300 million to $400 million ERA (Energy Reduction Assets) Fund that's helping SMBs realize energy savings and boost energy efficiency by investing in the same sorts of projects as Noesis will finance with its SSAs.

Similar to the Noesis SSA, Green Charge Networks is offering a growing range and roster of clients performance-based Power Efficiency Agreements (PEAs) that are based on the energy bill savings realized by customers who install its GreenStation intelligent demand management-battery storaage system.

Commented Infinilume Corp. CEO John Byers:

"No budget and lack of trust in savings forecasts are two of the most common reasons why CFOs don't approve energy efficiency projects. The Noesis SSA allows you to overcome both objections by providing third-party financing where the building owner only pays if the project delivers the promised savings. We believe the Noesis SSA is the financing vehicle that can significantly unlock the commercial mid-market energy efficiency retrofit market."

New technology-driven energy efficiency market financiers such as Noesis Energy, Joule Assets and Green Charge Networks are intent on seeing that happen. U.S. society, communities, towns, cities on up, as well as job seekers, energy efficiency project developers, commercial and industrial businesses and of course the financiers themselves, stand to benefit if it does.

Image credit: Flickr/NNSANews