deloitte sustainability: financing models and opportunities in the green building construction...

Financing Models and Opportunities in the Green Building Construction Market in North America

Round Table of the Commission for Environmental Cooperation Trilateral Green Building Construction Task Force

David Greenall, Deloitte Sustainability

San Francisco – November 13, 2012

© 2012 Deloitte Global Services Limited 2

Green buildings by the numbers

Financing among other barriers to investment

Landscape of financing in North America

Key questions for achieving green building financing scale and market traction

Highlights


Green Building by the Numbers

15 553

152,432173

900,000

774


Financing and Other Barriers to Investment

Barriers to green

building investment

Financing issues (in green) underline a number of the barriers to investment frequently reported in the literature and in stakeholder surveys.

• ‘Split incentives’ between landlords and tenants

• Absence of policies incentivizing investment

• Absence of secondary markets (illiquidity)

• High upfront capital cost

• Uncertainty about Return on Investment and high perceived risk

• Complexity to choose the right technology, installer and label

• Long pay back periods• Budgets do not

prioritize greening

• Limitation of external financing products

North American Green Build Finance Landscape

©2011 Deloitte Global Services Limited

Increasing Diversity of Financing Models Used

6

ESCO on-bill financing

Revolving funds

Green lease and mortgage

‘Traditional financing’

• Active role in the US since the mid-80s

• Strong penetration in the MUSH sector

• Mix of government and private funding

• Most successful in the MUSH sector

• Enables long-term repayment terms

• Mexico’s most successful green building financing scheme for residential owners

• Vancouver’s Home Energy Loan Program

• ecoENERGY Retrofit

• Commercial Building Incentive Program

• Toronto development charge refund

• Assisted Housing Stability and Green Retrofit Investments Program

• Connecticut Small Business Energy Advantage

• United Illuminating

• National Grid

• Harvard Green Campus Fund

• Texas LoanSTAR

• Toronto Atmospheric Fund

• Mexico’s Hipoteca Verde

• Colorado Energy Star mortgage

• NAMA for Sustainable Housing in Mexico

• Major role in financing residential and commercial sectors in North America

• Problem with scale and discontinuationLoans,

subsidies/grants, & tax incentives

©2011 Deloitte Global Services Limited

Increasing Diversity of Financing Models Used (cont.)

7

PACE

Sustainable Energy Utility

Pay As You Save

‘Innovative’ financing

• Public-private partnerships relying on cost savings sharing

• Strong penetration in the MUSH sector

• Administration and funding shared between government, utilities and financial institutions

• Obligation attached to property, and complemented by “Golden Rule’ that savings always exceed or equal repayments

• Berkeley FIRST

• Los Angeles County Commercial PACE

• Delaware Sustainable Energy Utility

• UK Green Deal

• Enabled by government, with capital market funding

• Reduced risk thanks to property lien and repayment through property tax bills

• Opposition in the from US mortgage lenders

Carbon market funding & feed-

in-tariff

• Funding made available to meet carbon reduction targets

• Requires creation of commodity market

• UK Carbon Emission Reduction Target

• UK Feed-in-Tariff

• UK Renewable Heat Incentive

Public policy gap compared to Europe

Energy Savings Performance Contracting

• ESCO-based model

• Repayment through shared savings contracts

• Johnson Controls


Description Residential Commercial Industrial MUSH*

Loan

Vancouver’s Home Energy Loan Program

Assisted Housing Stability and Green Retrofit Investments Program

Subsidy and Grant

ecoEnergy Retrofit- Home Program

Commercial Building Incentive Program

Tax Incentive Toronto Development Charge Refund Incentive ESCO On-bill Financing Connecticut Small Business Energy

Advantage

Green Lease & Mortgages

Mexico’s Hipoteca Verde

Colorado’s ENERGY STAR Mortgage

Mexico’s NAMA

ESPC Johnson Controls ESPC

PACEBerkley FIRST

LA Country

Commercial PACE

SEU Delaware’s SEU:

Revolving Funds

Harvard’s Green Loan Fund

Texas LoanSTAR

Toronto Atmospheric Fund Toronto Atmospheric Fund

Overall, single-unit residential and MUSH asset classes have received considerable attention from ‘traditional financing’ vehicles. Multi-unit residential and commercial assets are being targeted by ‘innovative financing’ instruments.

Distribution of Green Building Financing Across Asset Classes


Overall, government has provided a larger share of financing in Canada, compared to US and Mexico, where utilities and mortgage lenders have been active. Financial institutions are playing a key role in ‘innovative’ financing instruments.

Roles of Government and Private Sector Funding

Government

funding

Private funding

Utilities Selected investors ‘Open market’ Consumers

Loan

Subsidy and Grant

Tax Credit & Rebate

ESCO On-bill Financing

Green Lease & Mortgages

ESPC

PACE

SEU

Revolving Funds

Pay As You Save

Carbon Market Funding and Feed-In Tariffs


Even in financing instruments relying on private capital, government plays a large role by providing seed funding and governance support

‘Trigger’ Role of Government in Seed Funding and Governance

Public Private Mixed0%

10%

20%

30%

40%

50%

60%

70%

80%

Seed fundingGovernance


Most common forms of risk transfer are use of collateral (e.g. property), credit enhancement or debt guarantee reserve, and aggregation/securitization.

Overview of Risk Transfer Arrangements within Financing Models

0%

10%

20%

30%

40%

Key Questions on Green Building Financing Scale and Market Traction


• What are the essential conditions for a green building financing model to achieve financing scale and market traction in North America?

• More specifically, what lessons have been learnt from past and ongoing financing models on the most effective:

Funding sources.

Governance structures

Risk transfer/security mechanisms.

Data measurement and verification processes.

• What specific financing models, asset classes and locations have the best chances of success in achieving financing scale and market traction?

Framing the Discussion


Overview of Questions for Discussion

1. Can financing alone increase the market penetration of green building measures?

2. Are financing models based on public-private partnerships required?

3. How can financing models be redeployed towards asset classes that have been underserved?

4. What security and risk transfer strategies have been successful in increasing financing scale and market traction?

5. Is aggregation an important success factor to achieve scale and market traction?

6. Do we have the right policies and measurement/verification methods in place to guarantee increased resource efficiency and cost savings?

7. Are there financing models in the US and Canada that can be tailored and implemented in Mexico?


• Objective 1: get feedback on what are the essential ingredients to achieve greater financing scale and market traction across Canada, Mexico and the US.

• Objective 2: Inform Phase 2 of this project aimed at identifying up to 3 high-potential financing models and promoting a potential financing pilot.

• Format: 20-minute discussion per table on one of the questions about financing scale and market traction, followed by a plenary summary and wrap up.

• Resources: one handout per person, and one moderator and flipchart per table.

Break out Discussions

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© 2012 Deloitte Global Services Limited

deloitte sustainability: financing models and opportunities in the green building construction...

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