For the past two years, the Environmental Defense Fund (EDF) has been spearheading a project to open up energy efficiency to investment markets.
The EDF Investor Confidence Project (ICP) has not instilled confidence in the market just yet, but it has just announced the first significant step in the process.
An initial set of protocols is now available to the commercial energy efficiency industry. The protocols, for large and medium commercial and multi-family units, are meant to ultimately serve as the base minimum requirements for an investment quality analysis on how to maintain and validate lower energy use. The nonprofit’s ICP is attempting to create a system to make it easy to identify an investment-quality energy efficiency product to unlock capital, which could take years to be fully realized. In the short term, it is looking to reduce engineering-related transaction costs and increase deals.
“At a very high level, we lack some really fundamental things,” Matt Golden, senior energy finance consultant at Environmental Defense Fund, said of the energy efficiency market. “We don’t have a standardized understanding of what a project consists of and how to measure results.”
The project is not about creating more standards, but rather about bringing all of the disparate standards in the industry together and assembling them into something that creates a predictive analysis of how a project will perform. Golden described energy efficiency projects as a commodity. “I’m growing corn,” he said by way of analogy, “but I don’t have a way to bring my corn to market.”
At first, Golden said there was a focus on bringing large, institutional investors on board. But now, there’s a short-term goal to enable deal flow so that every project manager doesn’t have to re-engineer each project from scratch. Then ultimately, the hope is that a rich set of data can allow for a securitized market. “If you’re Goldman Sachs or Deutsche Bank, [you] want to look at a project and say, ‘Is this an energy efficiency retrofit, or not?’” said Golden. “That’s what will unlock securitization.”
The protocols consist of different categories, including core requirements around baselining, savings calculations, construction and commissioning, ongoing commissioning, measurement and verification and engineering certification. For each category, there are required elements, procedures and documentation.
There are a variety of participants, known as ICP Allies, that will take part in the pilots, including SciEnergy, Energi, Sustainable Real Estate Solutions, Bright Power, The Association for Energy Affordability, kWhOURS, Inc., Performance Systems Development, Clean Energy Finance and Investment Authority, Rocky Mountain Institute, Institute for Market Transformation, The Centre for Building Performance and the Building Energy Retrofit Institute. Golden hopes to have more than 100 partners overall in the next six months.
At first, Golden hopes that by using the protocol, it will build a standardization that will cut down on project time, but that some business might also be able to take the retrofit to the marketplace and shop it around –whether that’s a utility rebate or a bank. “It’s a roadmap that you can bring to investors and get funded,” he noted.
Of course, for large investors like Deutsche Bank, which is one of the Allies, the process of creating investment products around quality energy efficiency products will require years of gathering data. EDF is still working on how much data will need to be gathered into a central clearinghouse to inform investors. Golden added that there are many different types of investors, from insurance companies to utility programs, that are interested in the project.
Although EDF calls it a pilot, it is more of a coming-out party. “These protocols are living and breathing,” said Golden. “This is something that is a work in progress.” To educate interested stakeholders about the protocols, EDF is hosting multiple webinars, starting this month, to discuss the project.