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Selling It: Conveying the Value of Energy Efficiency
Better Buildings by DesignPeter 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 differfrom 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
Thou
sand
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
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Existing Energy Use and Cost 50% SavingsFuel Oil 900 gallons @ $2.66 = $2,394 $1,197Electricity 9,000 kWh @$.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% SavingsFuel Oil 900 gallons @ $3.79 = $3,411 $1,706Electricity 9,000 kWh @$.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) $43820 $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
PropertyOwner
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 value $200,000
Mortgage outstanding $173,000
Homeowner Equity $27,000
Assessment amount $6,783
Mortgage + Assessment $179,783
Eligible for PACE (CLTV<= 90%)? YES
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Example PACE assessment calculation
Annual interest rate 7.5%Term in years 20Payments per year 4Payment amount $164.35
Total interest $6,365.67Total cost $13,147.67
Annual assessment cost ($652.54) Annual estimated energy savings $1,000.00
Annual cash flow $347.46
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Albany
Burlington
Cornwall
Craftsbury
East Montpelier
Halifax
Marlboro
Montpelier
Newport town
Putney
Thetford
Waitsfield
Westminster
Vermont PACE Districts
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Arlington
Barre City
Barre Town
Berlin
Brattleboro
Cabot
Calais
Charlotte
Dorset
Dummerston
Essex
Ferrisburgh
Hardwick
Hartford
Hartland
Jericho
Killington
Middlebury
Middlesex
Middletown Springs
Monkton
New Haven
Norwich
Randolph
Richmond
Ripton
Shelburne
Shoreham
South Burlington
South Hero
Stafford
Topsham
Underhill
Vershire
Westford
Wilmington
Woodbury
Woodstock
Worcester
Quick Start Communities
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• Financial product that is serviced by, or in partnership with, a utility company for energy improvements in a building
• Loans for eligible energy projects are repaid through the utility bill
• Energy efficiency
• Renewables
• High-efficiency appliances
• Thermal efficiency
On-Bill Financing (OBF) defined
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• Transferable – “stays with the meter”
• Addresses split incentives problem
• Rental (residential & commercial)
• Multifamily
• Payment history can substitute for credit history
On-Bill Financing (OBF) benefits
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• Disconnection in the event of non-payment
• Residential
• Commercial
• Cross-subsidy – electric bill used for thermal improvements
• Transfer of payment obligation for renters
OBF Implementation Issues
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Peter Adamczyk
Energy Finance and Development Manager
Vermont Energy Investment Corporation
802-540-7631
More information
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