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Optimal Financing Decision in a Contract Food Supply Chain with Capital Constraint
To solve the financing problem of the food producers, we consider a two‐echelon contract food supply chain composed of a family farm with capital constraints and a food processing enterprise. With no capital constraints as the benchmark model, we analyze optimal decisions of the family farm and the food processing enterprise in the case of bank financing with bank participation only and bank financing with “government, bank, and insurance” coparticipation. Then, we discuss how the risk of yield uncertainty influences the optimal decisions and profits of the family farm and the food processing enterprise under different financing situation. Meanwhile, the reason why the government subsidizes agriculture is explored, and the policy of minimum purchase price of the food is initiated when the market price is too low. Finally, the numerical examples and sensitivity analysis are presented. The results show that the bank financing with “government, bank, and insurance” coparticipation improves the welfare of supply chain members more obviously than the bank financing with bank participation only; when the rice price is too low, the policy of minimum purchase price of food is initiated, which increases the revenue and the growing enthusiasm of the family farm; the profits of the family farm and the food processing enterprise will decrease as the risk of yield uncertainty increases in the case of bank financing, and the risk of yield uncertainty will be reduced for the family farm when bank financing with “government, bank, and insurance” coparticipation.
Expanding the Field of Climate Finance
Over the past twenty-one years, the Financial Innovations Roundtable (FIR), located at the Carsey School of Public Policy at the University of New Hampshire, has worked to address problems related to access to capital for low- and moderate-income consumers and communities. Since 2014, the event has been co-hosted by the Federal Reserve Board. The FIR works with a range of financial institutions, government agencies, foundations, and trade associations to access their expertise for problem-solving discussions. The 2020 FIR focused on the expanding field of climate finance and was co-hosted by the Federal Reserve Bank of San Francisco and The Climate Safe Lending Network. The event was originally slated to be in-person in San Francisco in May 2020 but was postponed due to the pandemic and shifted to an online event hosted November 16‒17, 2020. A significant amount has happened in 2020 on climate finance, racial justice, the economy, and COVID-19. The shocks and stresses of climate change are creating risks in low- and moderate-income communities as well as in the financial sector broadly. The 2020 FIR offered an opportunity to discuss the challenges and opportunities banks and Community Development Financial Institutions (CDFIs) face as they address these risks and how these institutions can help increase individual, institutional, and community-wide resilience. The program explored new and modified products that address climate risk in communities and how those products can be scaled. Conversations focused around: • The progress that has been made in the climate finance field and the challenges that lie ahead for financial institutions’ climate impact and climate-related risk. • Promising opportunities to decarbonize investments and finance low-carbon technology and infrastructure. • How lenders, insurers, housing organizations, and the public sector can work together to reduce housing instability due to climate-related factors and increase the climate-resilience of homes and neighborhoods. • Solutions to help communities address a wide range of related issues, including home weatherization and disaster preparation, home insurance loss, and climate gentrification and displacement. • Discussing lessons learned from other sectors such as renewable energy in order to design both people-based and place-based finance solutions that promote racial and economic inclusion. 1 • The need for all financial institutions to acknowledge that climate risks and racial inequity are systemic risks affecting their bottom line. • The role that bank regulators can play in promoting collaboration across the financial sector and in leading by example with regard to climate finance. • Mapping out concrete action-item initiatives including policy and industry pathways to climate safe lending as well as building a financing platform to provide clean energy to low-income communities. • More broadly, in order to systemically address climate risks, we will need to work together as a range of stakeholders across sectors and collaborate on shared goals and projects.
Scaling Equitable Finance
Driven by dramatic declines in up-front cost, the U.S. solar photovoltaics (PV) industry has taken off over the past decade, growing from 1 gigawatt of installed capacity in 2009 to 89 gigawatts in 2020—or enough capacity to power roughly 19 million homes. The industry is expected to double in size over just the next 5 years.1 Much of the growth has been driven by large, utility-scale projects that can produce 5 mega- watts or more of power—enough to power at least 1,000 homes. The cost of electricity produced by these projects has decreased by more than 70 percent since 2010. As of Q3 2020, development costs of large, util- ity-scale solar PV power plants were under $1 per watt, down by more than 70 percent from 2010.2 A robust array of investors has come forward to efficiently deliver capital to these kinds of utility-scale projects including large banks, insurance companies, pension funds, and others. But low- and moderate-income communities, including communities of color, are at risk of being left behind in the transition to clean energy. Mission- driven solar project developers and financial institu- tions have been working alongside energy justice advocates to open up solar access for these communi- ties, using strategies ranging from community solar, to solar installations on affordable multifamily housing, to distributed solar and storage programs, and more. Their goals go beyond simply generating more green energy to advancing social equity by: • empowering communities to control their energy future • stabilizing energy prices, saving money, and build- ing wealth for low-income families • creating quality jobs • improving health by reducing pollution • providing energy resilience for vulnerable communities Mission-driven actors are successfully deploying a wide variety of strategies to meet these goals, from helping low-income homeowners get solar—and some- times battery storage, to developing solar projects serv- ing affordable rental housing and community facilities, to building larger “shared solar” projects to which households from across the community can subscribe. However, the financing ecosystem does not work nearly as well for these “mission driven” solar proj- ects as it does for utility-scale projects. For home rooftop solar, even if low-income consumers have a home and suitable roof, they may fail to qualify for federal tax incentives, lack adequate credit to qualify for a loan—or the mission-driven lenders seeking to serve them may not be adequately capitalized to make long-term loans. For mission-driven commercial or community-scale projects, assembling nearly every component of the project capital stack—whether bridging early-stage costs, attracting tax credit equity investors, securing long-term debt, or coming up with sponsor equity and filling gaps—can present challenges. A variety of obstacles contribute to the scarcity of financing for low-income solar, including small project sizes, lack of developer balance sheet capacity, both real and perceived issues with credit risk, elevated technical assistance needs, and greater subsidy requirements to pursue goals such as deep energy affordability, climate resilience, or job creation. Still other obstacles are regulatory: for example, not all states allow community solar projects or Power Purchase Agreements, common strategies used for providing low-income solar—and the potential for regulations to shift over time creates risks that mission-driven projects can ill afford. This report synthesizes information garnered from 47 key informant interviews, four focus group discus- sions involving 60 stakeholders, and a review of the substantial existing literature on low-income solar finance to assess the current landscape of mission- driven solar development in the United States, examine the roles that community-based financial institutions could play, and recommend public invest- ments and policy changes that could help to scale the provision of equitable solar finance. Key recommen- dations for policymakers and funders in the renew- able energy and community development fields that emerge from this process include the following: • Help to capitalize and support community-based lenders to provide flexible, low-cost, and long- term financing to mission-driven solar projects— including providing guarantees or other forms of credit enhancement. • Provide federal support for equitable solar, including a grant-in-lieu-of-credits option for the Investment Tax Credit to improve access to this critical government subsidy. • Develop pools of government and philanthropic support that can complement financing from community-based lenders to complete the capi- tal stack for mission-driven projects, as well as to support education and technical assistance to both consumers and potential project sponsors. • Create a national Renewable Energy Credits pro- gram that includes social equity targets to provide a baseline of support for clean energy generation. • Change utility regulations to remove barriers to low-income solar projects; lower permitting costs; provide greater certainty for developers, consumers and owners; and measure progress toward equity in renewable energy policy implementation.
Financing Options for Onsite Generation, Energy Storage, and Energy Efficiency Projects
Across sectors, commercial and industrial facilities are benefiting from the implementation of renewable energy generation, storage, and energy efficiency projects. Despite the potential for these projects to reduce onsite energy consumption, build resiliency, and lower operational costs in the long term, the initial expenses are often high. However, there are a growing number of financing mechanisms that can be leveraged. When deployed strategically, these mechanisms can give organizations the financial tools to install projects that accomplish their energy goals. In 6 steps, this resource introduces organizations to a general process to contextualize the many different financing options, ultimately facilitating an informed selection of financing mechanisms. Step 1 discusses the importance of establishing clear organizational preferences. Step 2 briefly introduces common financing options and Steps 3 and 4 provide guidance for selecting mechanisms based on locational availability and organizational preferences. Finally, Steps 5 and 6 show how mechanisms can be combined with incentives and provide preliminary guidance for selecting and engaging with external partners. While this document provides a general approach to selecting a financing mechanism for renewable energy generation, storage, and/or energy efficiency, it does not contain tax and/or legal advice. A tax advisor should be consulted before taking any action.
Power now, pay later: the evolution of U.S. residential solar financing
Most U.S. residential rooftop solar customers finance their solar purchases through loans or by buying power from third-party owned systems. Prior research demonstrates how third-party ownership (TPO) models such as leases emerged in the early 2010s and accelerated solar adoption by low- and moderate-income households while driving market concentration in the installation industry. Since 2015, loans have emerged as a prevalent financing alternative, but the potential effects of loans on the customer base and industry remain understudied. Here, we fill that research gap by developing a methodology to identify loan-financed and third-party owned systems in a household-level solar adopter data set. The data suggest that loans accounted for increasing solar market shares from 2017 until reaching as high as 70% in 2022, but that the market has since shifted back to TPO. The data show that TPO adopters in our sample earned about 16%–18% less and loan recipients earned 3%–7% less, at the median, than customers who self-financed systems. These results reaffirm prior research showing that TPO has accelerated low- and moderate-income adoption and that loans have likewise expanded the customer base to a lesser extent. The results suggest that loan-financed systems entail around a 16%–26% price premium that is only partly explained by loan fees. Finally, the data suggest that the emergence of loans has likely reduced market concentration in the rooftop solar industry.
Accelerating Low-Income Financing and Transactions (LIFT) for Solar Access Everywhere (Final Technical Report)
The Accelerating Low-Income Financing and Transactions (LIFT) for Solar Access Everywhere project’s goal was to expand Low-to-Moderate Income (LMI) solar access for homeowners and renters. The LIFT project researched and gathered data on 453 LMI community solar project across the country. Following three years of research, the project delivered three groundbreaking research papers in June 2022, focused on 1) customer experience, 2) the growth of community solar programs, and 3) project-level financial best practices for serving LMI communities. These were followed by a user-friendly web-based Toolkit allowing users to interact with project data and key findings in November 2022. The customer experience research examined community solar subscribers’ primary motivations to join and remain satisfied with projects. Our research identified 453 projects across the country that dedicated some portion of the system capacity to LMI households. Seventeen of these projects participated in the LIFT customer experience research, allowing the project team to survey their customers and gain insight into how LMI subscribers feel about community solar and the programs that serve them. Subscribers in our sample indicated that the most critical issue that motivated them to participate in their program, however, was not savings but helping the environment. This was true for both LMI and non-LMI subscribers. Helping the environment was also the most important issue for LMI subscribers to measure how well their program was working for them. LIFT also explored how rapidly community solar has grown since its inception in 2006, publishing results in the Growth of U.S. Community Solar Serving LMI Households report. The results showed that community solar projects serving LMI households are one of the fastest growing segments of the solar industry. The report identifies and recommends ways developers should overcome real or perceived risks to LMI customer acquisition and subscriber management. Through the analysis of community solar project finance research, LIFT showed that most community solar projects serving LMI households are financed in the same ways mainstream community solar projects are financed. The value stacks and financial returns are no different, although LMI inclusion and participation rate varied across programs in our sample, ranging from between 10% and 100%. Based on the findings from the LIFT research, the team built a web-based user-friendly Toolkit, consisting of case studies, project finance best practices, and several tools built around the national dataset of 453 community solar projects that serve LMI households. These allow users to engage with the dataset in multiple ways; to explore the landscape of LMI community solar in the U.S., and to design community solar projects to optimize LMI inclusion, equity, and savings levels. The Toolkit also includes a library of LIFT-generated and LIFT-curated resources for users to learn more about how to best serve LMI communities through community solar. LIFT officially published the Toolkit on October 31, 2022, followed by a launch event (public webinar) on November 17, 2022. The core LIFT partners continue to engage in outreach and dissemination efforts to promote the LIFT Toolkit and research publications. Our driving motivation is to continue enabling solar developers to leverage the findings of this three-year research effort. By implication, the LIFT Toolkit is designed for use by utilities, energy service providers, and financiers or investors as a learning and decision-making tool to rapidly scale project models that optimize LMI inclusion and maximize real household savings.
Driving Uptake for Energy Efficiency Financing Programs: Marketing and Outreach, Partnership Networks, and Program Design Considerations
Many energy efficiency financing programs could achieve greater uptake and impact by more effectively recruiting participants. This report examines some of the primary factors that have contributed to high participant uptake among successful financing programs. We review best practices in partnerships (Chapter 2), direct marketing (Chapter 3), and program design (Chapter 4) that facilitate robust participation. This report is primarily designed for state and local governments that have established energy efficiency financing programs or are considering doing so and are seeking insight into how they can ramp up program participation. In disseminating lessons learned from well-established programs that have experienced success in their target markets, the objective is to help scale up the large number of energy efficiency financing programs that seek to replicate these successes. This report can inform states, local governments, and other entities that will establish or expand clean energy financing programs with funding made available under the Infrastructure Investment and Jobs Act and the Inflation Reduction Act.
Five grand challenges of offshore wind financing in the United States
Offshore wind energy has the potential to play a critical role in fostering a renewable energy transformation in the United States. This owes to its massive technical potential, strategic location near densely populated coastlines, and - relative to onshore wind and solar - high capacity factors and consistent production. The Biden Administration's target to build 30 GW of offshore wind capacity by 2030 (from 0.04 GW today) requires the creation and swift development of a new industry that interlinks the wind and power industries with the maritime sector. Critical to its success is financing. While financial capital is abundant, deploying it for offshore wind faces major challenges. We identify and describe five grand challenges affecting offshore wind finance in the U.S. Failing to address these challenges may put deployment targets at risk. The challenges include (1) Early years financing: navigating the complexities, timing mismatches, and high costs of projects in the development phase; (2) Policy support for project financial solvency: addressing the uncertainty and systematic transfers of tax credits away from offshore wind, characteristic of the U.S. Investment Tax Credit; (3) Workforce development: building a skilled workforce for an emerging market; (4) Transmission and integration barriers: upgrading the power grid to reliably support large scale offshore wind integration; and (5) Floating wind development: financing the development and scale-up of floating offshore wind technologies. The second challenge has already been solved to a large extent by the Inflation Reduction Act.
Geolocated dataset of Chinese overseas development finance
China is now the world's largest source of bilateral development finance and will likely continue to play a prominent role in sovereign lending through its multi-billion-dollar Belt and Road Initiative. This paper introduces major methodological enhancements in tracking this finance: the use of an original application programming interface (API) to gathers news in multiple languages; double verification of every record to ensure every finance commitment has been formalized; and visual geo-location to trace the precise footprint of every project. The resulting dataset enables economic, environmental, and social analyses with high-precision spatial accuracy, as well as spatiotemporal monitoring by project stakeholders and enhanced planning by project managers. It covers the years 2008-2019 to enable analysis before and after the announcement of the Belt and Road Initiative. It includes 862 finance commitments, 669 of which have geographic location, to 94 countries across the world.
Achieving Energy Savings in Small- and Medium-Sized Public Facilities: A Strategic Approach to Prioritizing and Financing
This resource is for state, local government, and K-12 school staff managing small- and medium-sized facilities. Readers will learn to address the unique challenges of smaller energy-saving projects and make informed decisions about financing. Section 1 provides tools for obtaining the information required to prioritize potential energy upgrades. Section 2 presents financing options for energy upgrades, as well as insights that will help decision makers select the right financing model for their project and jurisdiction. Section 3 summarizes key takeaways and highlights additional resources for small- and medium-sized public facilities.
Accessible Training and Shared Capitalization Platforms for Low-Income Solar Finance
From March 2020 through November 2023, the University of New Hampshire Carsey Center for Impact Finance and its partners worked to create accessible training programs and shared capitalization platforms to enable community finance institutions – such as credit unions, community banks, and Community Development Financial Institutions (“CDFI”s) – to expand their engagement in solar finance in low-income communities.
Appropriations and Financing: Strategic Use of Funding for Performance Contracts
42 U.S.C. § 8253 Sections 432 and 512 (EISA of 2007) authorize agencies to use appropriations, private financing, or a combination of appropriations and private financing to comply with its requirements. With this flexibility in mind, federal agencies should evaluate funding options early and employ a strategy that optimizes the impact of existing appropriations and financing options. Maximize value to government through strategic use of appropriations and energy savings, an optimal set of infrastructure improvements that meet site needs and program objectives, and an actionable plan for sustained performance.
Leveraging Bond Financing to Support Energy Efficiency and Renewable Energy Goals: A Resource Summary for State and Local Governments
This resource summary is for state, local, and K-12 energy professionals and non-finance experts seeking to understand how bonds can be used to pay for energy efficiency and renewable energy projects and initiatives. The objective of the resource summary is to inform energy professionals, so they can more confidently and efficiently discuss bond financing with public finance officers and executive leadership as an option for supporting energy goals.
Sources and Strategies for Clean Energy Financing
This presentation discusses financing strategies and examples for a range of Energy Efficiency Conservation Block Grant-eligible clean energy initiatives. Beginning with a brief overview of project development and financing, it will address public and private funding sources, ownership models, and key considerations to help practitioners choose among different approaches. The discussion will include examples from three project categories: strategic and planning activities, incentives and structured finance, and direct infrastructure investment.
Financing Storage as a Transmission Asset: Initial Considerations for an Emerging Use Case
Deploying energy storage as an electric transmission system asset is a unique use case that, despite a body of policy and regulatory support, has received little attention or investment in the United States. The benefits of using storage on the transmission system—and the remaining barriers to that use—have been explored elsewhere. This paper complements that body of research by exploring the finance implications of using energy storage as a transmission asset (SATA). Because transmission infrastructure in the U.S. is generally subject to rate-of-return regulation, in which asset owners receive both a return of their invested capital and a return on that capital, storage assets deployed for that use are not subject to market volatility and have a much lower risk profile overall. That lower risk profile would, in theory, correspond to lower interest rates and other more favorable financing terms relative to a storage project deployed in a market setting. This paper draws from corollaries in other markets to estimate the expected finance impacts of SATA projects.
Principles to adapt financing mechanisms for fully integrated hybrid energy systems
As the electricity sector evolves, and as all energy types (thermal, electric, chemical, etc.) become more coupled, there has been increased interest to develop and deploy hybrid energy systems (HES). This work focuses on fully integrated HES, where there are multiple energy sources and multiple energy products, often coupled through a storage buffer. A significant amount of the available literature on this work describes technology pathways for fully integrated HES; however, it is unclear how financial institutions should treat these systems. Fully integrated HES represent an increase in complexity from their stand-alone counterparts, but they also potentially mitigate financial risk and provide value to the energy system, which has not yet been accounted for in financing mechanisms that could help to enable such systems. This paper provides some examples of fully integrated HES and proposes principles to help adapt financing to adequately capture the value of such systems.
Solar Finance and Ownership Options
Communities facing specific solar project development opportunities or proactively planning their solar development strategies will need to have a basic understanding of solar financing and ownership options. How solar is financed and owned has large implications on how the solar project impacts local economic benefits, risk, and capital needs. This fact sheet provides a brief introduction to these considerations for local officials and community constituents to familiarize them with how local benefits and risks contrast across the basic ownership structures available.