Selling It: Conveying the Value of Energy Efficiency ?· 1 Selling It: Conveying the Value of Energy…

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    Selling It: Conveying the Value of Energy Efficiency

    Better Buildings by Design Peter Adamczyk, Energy Finance and Development Manager

    February 9, 2012

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    Efficiency Vermont is a Registered Provider with The American Institute of Architects Continuing Education Systems (AIA/CES). Credit(s) earned on completion of this program will be reported to AIA/CES for AIA members. Certificates of Completion for both AIA members and non-AIA members are available upon request.

    This program is registered with AIA/CES for continuing professional education. As such, it does not include content that may be deemed or construed to be an approval or endorsement by the AIA of any material of construction or any method or manner of handling, using, distributing, or dealing in any material or product.

    Questions related to specific materials, methods, and services will be addressed at the conclusion of this presentation.

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    Learning Objectives

     Understand issues relating to economic costs and benefits relating to energy efficiency improvements

     Know how to market energy efficiency improvements to homeowners in programs such as Home Performance with ENERGY STAR in new homes

     Understand PACE legislation and its potential for increasing the efficiency of our buildings

     Identify resources for customers wanting to make EE improvements

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    Course Evaluations

    In order to maintain high-quality learning experiences, please access the evaluation for this course by logging into CES

    Discovery and clicking on the Course Evaluation link on the left side of the page.

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    Money used for energy efficiency (or renewables) is an investment, not an expense

    Spend to use up or pay out

    Invest to commit money in order to gain a financial return; to devote for future advantage or benefit

    Definitions

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    Energy investments differ from traditional investments

    Return on investment (ROI) is money that is NOT spent on future energy bills. To determine the ROI, compare the actual energy cost with what it would have been; the difference is the ROI.

    Traditional investments generally have some end value of the original investment (sale or maturity of an asset). In an energy investment, the initial investment is spent and ROI comes from future energy savings – unless the energy improvements add to resale value.

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    Principal Amount $20,000 Monthly Payment $462.85

    Interest Rate 5.25% Annual Cost $5,554

    Term in Years 4 Total Interest $2,217

    Payments per year 12 Total Cost $22,217

    Amortized loan example – 4 year term

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    Principal Amount $20,000 Monthly Payment $379.72

    Interest Rate 5.25% Annual Cost $4,557

    Term in Years 5 Total Interest $2,783

    Payments per year 12 Total Cost $22,783

    Amortized loan – just add one year

    Monthly Payment -$83.13 Annual Cost -$997.56

    Additional Payments 12 Total Cost $566

    Summary of changes

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    $0 $1 $2 $3 $4 $5 $6

    1 2 3 4 5

    Th ou

    sa nd

    s

    Years

    4 years vs. 5 years

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    Area of 4-year = 22,217 (5,554 x 4)

    Area of 5-year = 22,783 (4,557 x 5)

    (22,783/22,217) -1 = 2.5%

    4 years vs. 5 years

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    Align the period of payment with the period of the savings

  • 12 12* Assumes $20,000 loan at 5.25% interest

    Existing Energy Use and Cost 50% Savings Fuel Oil 900 gallons @ $2.66 = $2,394 $1,197 Electricity 9,000 kWh @$.14 = $1,260 $630

    Total $3,654 $1,827

    Term (Years)

    Annual Savings

    Annual Payments *

    Net Annual Cash Flow

    5 $1,827 ($4,557) ($2,730) 10 $1,827 ($2,575) ($748) 15 $1,827 ($1,929) ($102) 20 $1,827 ($1,617) $210

    Example: Effect of term for Vermont home with 50% savings -2010

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    Example: Effect of term for Vermont home with 50% savings -2011

    * Assumes $20,000 loan at 5.00% interest

    Existing Energy Use and Cost 50% Savings Fuel Oil 900 gallons @ $3.79 = $3,411 $1,706 Electricity 9,000 kWh @$.14 = $1,260 $630

    Total $4,671 $2,336

    Term (Years)

    Annual Savings

    Annual Payments *

    Net Annual Cash Flow

    5 $2,336 ($4,529) ($2,194) 10 $2,336 ($2,546) ($210) 15 $2,336 ($1,898) $438 20 $2,336 ($1,584) $752

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    Example: Commercial project cashflow with financing

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    Example: Commercial project cashflow with financing

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    Vermont Economic Development Authority (VEDA) -

    Vermont Business Energy Conservation Loan Program

    • for projects that improve energy efficiency and conserve energy

    • a joint program with Efficiency Vermont

    • loans from $5,000 to $150,000

    • maximum loan term of five years

    • loan may fund up to 75% of the cost of a project

    • variable rate of VEDA’s Prime Rate minus 0.75%. Rate will apply for the first three years of the loan.

    Commercial project financing

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    Leasing

    • Leases affect operating expenses (income statement), not capital expenditures (balance sheet)

    • Net positive cash flow reduces the risk perceived by lessor

    • No “rate,” just payment multipliers or “factors”

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    Leasing, continued

    • Leases as small as $1,000 are possible

    • Rarely longer than 5 years, but may be as long as 10 years

    • No penalty for early payoff

    • Leasing costs generally end up being higher than a loan

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    Project Summary

    Total project cost ($7,826)

    Efficiency VT incentive -$2,500

    Other incentive (Vermont Gas) -$400

    Customer cost ($4,926)

    Annual energy savings $593

    Simple payback * 8.3 years

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    A Summary of Annual Heating Energy Savings and Cost

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    Paying for energy efficient home improvements

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    Paying for energy efficient home improvements

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    Energy project cash flow with no annual energy price increases

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    Energy project cash flow with 4% annual energy price increases

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    Key issues: Energy efficiency financing

    • financing is the last piece of the puzzle • total cost is frequently less important than

    positive cash flow

    • longer-term financing • better aligns the period of payment with the period

    of the savings (life of measures)

    • could allow most or all of the required investment to be paid for out of savings

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    • Voluntary mechanism allowing homeowners to opt in to a special assessment district created by their municipality

    • Funds may be used for eligible energy efficiency and/or renewable energy improvements

    • Repayment period up to 20 years

    • Special assessment transfers to the new owner when the property is sold, or can be paid in full at time of transfer

    How does PACE work?

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    Financing Source

    PACE District

    Property Owner

    Property Owner

    Property Owner

    Property Owner

    Property Owner

    How the money flows

    Opts In Opts In Opts In

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    • PACE lien is subordinate to any existing property-secured liens currently in place

    • Subordinate to a subsequent first mortgage (i.e., a refinance)

    • No accelerated payments • Residential only at this time

    Vermont’s PACE legislation

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    • Mandatory reserve account– 2% from participating property owners

    • Statewide loan loss reserve – 5% from RGGI funds, up to $1 million

    • Efficiency Vermont available to act as PACE administrator for towns – all costs paid by participating property owners

    • Effective Jan. 1, 2012

    Vermont’s PACE legislation, continued

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    • The cost of the project financed through PACE

    cannot exceed $30,000, or 15% of the assessed

    value of the property (AVP), whichever is less

    • The loan-to-value ratio of any outstanding

    mortgages, plus the amount of the PACE

    assessment, cannot exceed 90% of the AVP

    Vermont PACE parameters

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    Example PACE project summary

    Total project cost $7,500

    Efficiency Vermont incentive $1,700

    Customer cost $5,800

    Annual energy savings $1,000

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    Energy measures for this 2,000 sq. ft. home included:

    • Whole house insulation • Blower-door directed air-sealing • Seal and insulate heating and cooling ductwork

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    Example PACE project costs

    Net project cost $5,800

    Energy audit fee $350

    PACE application fee $300

    Permits $200

    Project total $6,650

    2% reserve account payment $133

    Assessment total $6,783

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    Example PACE property

    Property