When the New York State Energy Research and Development Authority (NYSERDA) wanted to hand out nearly $20 million in residential energy efficiency loans last fall, the organization went to a national rating agency to request the rating of a traditional asset-backed security.
No dice.
The rating agency told NYSERDA that there was not enough data on its previous residential loans to receive a rating. NYSERDA then tried to get access to its loans that were issued through Fannie Mae, but Fannie Mae would not share the data. Even when NYSERDA offered up three years' worth of data from a Pennsylvania energy efficiency loan program, it still wasn’t enough.
“It’s all about payment performance history,” said Jeff Pitkin, treasurer of NYSERDA. “Investors could care less about energy savings. That information has value; it’s just not valuable to the rating agency.”
Energy Efficiency Data Project to the Rescue
To help program administrators like Pitkin, there is a new Energy and Loan Performance Data program being launched by the Environmental Defense Fund’s Investor Confidence Project, the Clean Energy Finance Center and the Data Science for Social Good Fellowship at University of Chicago, which is funded by Google’s Eric Schmidt.
The project will bring together data to engage capital markets in energy efficiency lending. The project will work with rating agencies, investors and utilities about how they can best leverage the public data. Most of the data will come from energy efficiency loans on the residential side.
“If we put it all together, what does it say?” asked Matt Golden, senior energy finance consultant at EDF. “We don’t know what we’re going to learn,” he added. “This is a State of the Union project.”
Initial data partners include Clean Energy Works Oregon, the Clean Energy Finance and Investment Authority in Connecticut, NYSERDA, the Pennsylvania Treasury, Babylon Long Island Green Homes, the Greater Cincinnati Energy Alliance and PACENow.
The data project will collect and analyze the data sets, including loan performance, underwriting criteria energy savings and project attributes. The Investor Confidence Project (ICP) says that there are currently about $15 billion to $20 billion in energy efficiency upgrades annually across residential, commercial and industrial buildings, but that figure could balloon to $100 billion to $200 billion if there were greater access to capital.
Pitkin said that there has been talk for years about bringing data sets together, but this could be the first effort where it actually comes to fruition. For other organizations that may want to get involved in the project, or have ideas about how to leverage the data, there is more information here.
NYSERDA Taps Clean Water for Energy Efficiency
Even if the data project is successful, there will be many years in between that will require workarounds for organizations like NYSERDA. Last week, NYSERDA was able to get a AAA rating from S&P/Moody’s for its $24 million residential energy-efficiency financing revenue bonds.
Instead of using its own data, NYSERDA got together with the New York State Environmental Facilities Corporation (EFC), which runs a State Revolving Fund (SRF) to provide loans for clean water projects. The two groups went to the U.S. Environmental Protection Agency and asked whether energy efficiency, which ultimately reduces emissions from power plants, could be eligible as part of clean water programs. The EPA said yes.
“We’re going to borrow the credit of someone who is more mature in the marketplace,” Pitkin said of EFC, which he said has about $12 billion in assets. Other energy efficiency programs have used guarantors to obtain ratings, but Pitkin said this is the first time an agency has used clean water mandates to finance energy efficiency.
The ICP is also working on other market barriers that exist in the energy efficiency market while it gets the data project off of the ground. The ICP has developed commercial energy efficiency protocols that can serve as the base minimum requirements for an investment quality analysis on how to maintain and validate lower energy use. The nonprofit is also looking at ways to enable and scale up deal flow for commercial energy efficiency projects.
Although Golden thinks it could be three to five years away from bringing big banks into energy efficiency financing, there is momentum toward standardizing project origination and scaling deal flow. “I think we’re on the verge,” said Golden. “We’re at a solar moment.”