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Energy Storage Financing: Performance Impacts on Project Financing
Understanding performance is the key to risk management in energy storage project financing. Technical performance underlies both capital and operating costs, directly impacting the system's economic performance Since project development is an exercise in risk management, financing costs are the clearest view into how lenders' perceive a project's riskiness. Addressing this perception is the challenge facing the energy storage industry today. Growth in the early solar market was hindered until OEMs and project developers used verifiable performance to allay lenders' apprehension about the long-term viability of those projects. The energy storage industry is similarly laying the groundwork for sustained growth through better technical Standards and best practices. However, the storage industry remains far more complex than other markets, leading lenders to need better data, analytical tools, and performance metrics to invest not only to maximize returns, but also safely--through incorporating more precise performance metrics into the project's documents.
Appendix B: Commercial Solar Financing Options
As the solar photovoltaic (PV) market in the United States has evolved, so too have the financing mechanisms associated with it. This appendix provides a snapshot of the current commercial solar financing arena and an overview of existing financing mechanisms. While there is significant overlap in solar financing options among the residential, government, and commercial sectors, this report focuses on options and considerations for commercial entities only. Traditional solar financing models are being adapted to encompass increasingly complex relationships between solar energy consumers and solar development. This guide explores the variety of financing options available to commercial entities, ranging from the historical mainstays of the solar financing spectrum - third-party ownership (TPO) models, which include power purchase agreements (PPAs) and leases, in addition to loans and cash purchases - to relatively more recent additions, including property-assessed clean energy (PACE) financing, performance contracting, and green bonds, among others. This appendix ('Appendix B. Commercial Solar Financing Options') is one chapter in the Environmental Protection Agency's broader Guide to Purchasing Green Power, which provides a detailed overview of green power markets and procurement.
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.
Sighten Final Technical Report DEEE0006690 Deploying an integrated and comprehensive solar financing software platform
Over the project, Sighten built a comprehensive software-as-a-service (Saas) platform to automate and streamline the residential solar financing workflow. Before the project period, significant time and money was spent by companies on front-end tools related to system design and proposal creation, but comparatively few resources were available to support the many back-end calculations and data management processes that underpin third party financing. Without a tool like Sighten, the solar financing processes involved passing information from the homeowner prospect into separate tools for system design, financing, and then later to reporting tools including Microsoft Excel, CRM software, in-house software, outside software, and offline, manual processes. Passing data between tools and attempting to connect disparate systems results in inefficiency and inaccuracy for the industry. Sighten was built to consolidate all financial and solar-related calculations in a single software platform. It significantly improves upon the accuracy of these calculations and exposes sophisticated new analysis tools resulting in a rigorous, efficient and cost-effective toolset for scaling residential solar. Widely deploying a platform like Sighten’s significantly and immediately impacts the residential solar space in several important ways: 1) standardizing and improving the quality of all quantitative calculations involved in the residential financing process, most notably project finance, system production and reporting calculations; 2) representing a true step change in terms of reporting and analysis capabilities by maintaining more accurate data and exposing sophisticated tools around simulation, tranching, and financial reporting, among others, to all stakeholders in the space; 3) allowing a broader group of developers/installers/finance companies to access the capital markets by providing an out-of-the-box toolset that handles the execution of running investor capital through a rooftop solar financing program. Standardizing and improving all calculations, improving data quality, and exposing new analysis tools previously unavailable affects investment in the residential space in several important ways: 1) lowering the cost of capital for existing capital providers by mitigating uncertainty and de-risking the solar asset class; 2) attracting new, lower cost investors to the solar asset class as reporting and data quality resemble standards of more mature asset classes; 3) increasing the prevalence of liquidity options for investors through back leverage, securitization, or secondary sale by providing the tools necessary for lenders, ratings agencies, etc. to properly understand a portfolio of residential solar assets. During the project period, Sighten successfully built and scaled a commercially ready tool for the residential solar market. The software solution built by Sighten has been deployed with key target customer segments identified in the award deliverables: solar installers, solar developers/channel managers, and solar financiers, including lenders. Each of these segments greatly benefits from the availability of the Sighten toolset.
Airport Financing and User Charge Systems in the USA
This paper examines the financing of U.S. public airports in a turbulent era of change, and projects toward the future. It begins by briefly outlining historical patterns that have changed the industry, and airport facilities in particular. It then develops basic principles of public finance as applied to public infrastructure, followed by the applicable principles of management. Following that, the current airport financing system is analyzed and contrasted with a socially optimal financing system. A concluding section suggests policy reforms and their likely benefits. The principles of finance and management discussed here are elementary. However, their implications are radical for U.S. airport policy. There is a great deal of room to improve the allocation of aviation infrastructure resources. The application of these basic principles makes it evident that in many cases, current practice is wasteful, environmentally unsound, overly costly, and inequitable. Future investments in public aviation capital will continue to be wasteful until more efficient pricing systems are instituted. Thus, problem in the U.S. is not one of insufficient investment in airport infrastructure, but investment in the wrong types of infrastructure. In the U.S., the vast majority of publically-owned airports are owned by local governments. Thus, while the federal government bad a great deal of influence in financing airports, ultimately these are local decisions. The same is true with many other public infrastructure issues. Katz and Herman (1997) report that in 1995, U.S. net public capital stock equaled almost $4.6 trillion, 72% of which ($3.9 trillion) was owned by state and local governments, most of it in buildings, highways, Streets, sewer systems, and water supply facilities. Thus, public infrastructure finance is fundamentally a local government issue, with implications for federal and state governments in the design of their aid programs.
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.
Current Practices in Efficiency Financing: An Overview for State and Local Governments
In recent years there has been significant growth in the size and sheer number of energy efficiency financing programs. The term “energy efficiency financing” refers to debt or debt-like products that support the installation of energy efficiency measures by allowing costs to be spread over time. The implementation of the American Recovery and Reinvestment Act (ARRA) led to a proliferation of energy efficiency financing programs, which was followed in subsequent years by the launch of green banks in several states and the ramp up of other ratepayer-supported financing initiatives in various jurisdictions. These activities have brought increased attention to energy efficiency financing as an area of programmatic interest. Yet the propagation of various types of financing in a growing number of markets may have also left some policymakers and program administrators with questions as to what categories of products and programs are best suited for their situation.
Unlocking Solar for Low- and Moderate-Income Residents: A Matrix of Financing Options by Resident, Provider, and Housing Type
Historically the low and moderate income (LMI) market has been underserved by solar photovoltaics (PV), in part due to the unique barriers LMI residents face to participation in the PV market. The intent of this report is to identify the most promising strategies state policymakers might consider to finance PV for LMI customers across three housing types: single family, multi-family, and manufactured housing. The result is a financing matrix that documents the first and second tier financing options states may consider for each housing type. The first tier options were selected based upon their potential impact on LMI PV deployment. Second tier financing approaches could also be used to achieve state policy goals, but may not have as much effect on the relevant LMI market segment. Nevertheless, each financing option comes with tradeoffs that state policymakers may wish to consider when they make decisions about which financing approaches are best suited to achieve their LMI PV deployment goals.
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.
Terms, Trends, and Insights on PV Project Finance in the United States, 2018
This brief is a compilation of data points and market insights that reflect the state of the project finance market for solar photovoltaic (PV) assets in the United States as of the third quarter of 2018. This information can generally be used as a simplified benchmark of the costs associated with securing financing for solar PV as well as the cost of the financing itself (i.e., the cost of capital). This work represents the third DOE sponsored effort to benchmark financing costs across the residential, commercial, and utility-scale PV markets, as part of its larger effort to benchmark the components of PV system costs. capital). This work represents the third DOE sponsored effort to benchmark financing costs across the residential, commercial, and utility-scale PV markets, as part of its larger effort to benchmark the components of PV system costs.
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.
Energy Finance Data Warehouse Manual
The Office of Energy Policy and Systems Analysis s finance team (EPSA-50) requires a suite of automated applications that can extract specific data from a flexible data warehouse (where datasets characterizing energy-related finance, economics and markets are maintained and integrated), perform relevant operations and creatively visualize them to provide a better understanding of what policy options affect various operators/sectors of the electricity system. In addition, the underlying data warehouse should be structured in the most effective and efficient way so that it can become increasingly valuable over time. This report describes the Energy Finance Data Warehouse (EFDW) framework that has been developed to accomplish the defined requirement above. We also specifically dive into the Sankey generator use-case scenario to explain the components of the EFDW framework and their roles. An excel-based data warehouse was used in the creation of the energy finance Sankey diagram and other detailed data finance visualizations to support energy policy analysis. The framework also captures the methodology, calculations and estimations analysts used for the calculation as well as relevant sources so newer analysts can build on work done previously.
Energy Efficiency Financing for Low- and Moderate-Income Households: Current State of the Market, Issues, and Opportunities
Ensuring that low- and moderate-income (LMI) households have access to energy efficiency is equitable, provides energy savings as a resource to meet energy needs, and can support multiple policy goals, such as affordable energy, job creation, and improved public health. Although the need is great, many LMI households may not be able to afford efficiency improvements or may be inhibited from adopting efficiency for other reasons. Decision-makers across the country are currently exploring the challenges and potential solutions to ramping up adoption of efficiency in LMI households, including the use of financing. The report’s objective is to offer state and local policymakers, state utility regulators, program administrators, financial institutions, consumer advocates and other LMI stakeholders with an understanding of: -The relationship between LMI communities and financing for energy efficiency, including important considerations for its use such as consumer protections -The larger programmatic context of grant-based assistance and other related resources supporting LMI household energy efficiency -Lessons learned from existing energy efficiency financing programs serving LMI households -Financing products used by these programs and their relative advantages and disadvantages in addressing barriers to financing or to energy efficiency uptake for LMI households
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.