geothermal financing tools and products colorado geothermal working group denver, colorado april 28,...
TRANSCRIPT
Geothermal Financing Tools and Products
Colorado Geothermal Working Group
Denver, Colorado
April 28, 2011
Paul Bony
Director of Residential Market Development
Overview
This presentation will cover the existing and exciting new financing tools that will support greater adoption of Geothermal Heat Pumps.
In 20 minuets!
The Geothermal Market
The Geothermal Market
USA:4% of US new single-family home HVAC tons in 2008and projected to reach 7% or more in 2010
The Geothermal Market
DOE Industry Roadmap Growth Goal - 1 Million GHPs Annually by 2017 – Results in 3.3 million installations by 2017– 26 MMT annual CO2 reduction– 520 MMT lifecycle CO2 reduction over 20 yr
GHP life– Creates up to 100,000 new jobs
(The conventional A/C and heat pump market is 6 to 8 million units annually)
Potential Market Drivers
Potential market growth drivers and (my) market predictions for the geothermal industry.– Utility & State Financing Programs– Zero Energy Homes– Energy Prices
• Fuel Oil & Propane vs. crude oil prices
• Natural gas prices (discovery vs. demand)
Geothermal Heat PumpBusiness Tax Incentives
Federal Income Tax Credit:
10% of total GHP system cost No cap on maximum credit Can be used to offset AMT tax Can be used in combination with subsidized financing Can be used in more than one year
Accelerated Depreciation:
5 year MACR depreciation for entire GHP system
Eligibility:
Building located in the U.S. Original use begins with taxpayer Placed in service before 2017 Can be used by regulated utilities Must be claimed by the owner of the property (effects non-taxable)
Geothermal HVAC Cost: 300,000$ 50 tons at $6000 per tonConventional HVAC Cost: 125,000$ 50 tons at $2500 per ton
Additional Cost: 175,000$
Income Tax Rate: 35%Energy Credit: 10%Utility Rebate 15,000$ 50 tons
Annual Energy Cost Savings: 20,000$ $1 per sq ft per yearEnergy Inflation: 3%
Example Commercial GHP EconomicsExample Commercial GHP Economics
Example Commercial GHP EconomicsExample Commercial GHP Economics
Added Cash Energy Credit Depreciation Energy Annual Cumulative
Year Outlay Tax Benefit Tax Benefit Cost Saved Cash Flow Cash Flow
2009 (160,000)$ 30,000$ 52,369$ 20,000$ (57,631)$ (57,631)$
2010 18,953$ 20,600$ 39,553$ (18,079)$
2011 11,372$
21,218$ 32,590$ 14,511$
2012 6,823$ 21,855$ 28,677$ 43,188$
2013 5,456$ 22,510$ 27,967$ 71,155$
2014 4,778$ 23,185$ 27,964$ 99,118$
2015 -$ 23,881$ 23,881$ 122,999$
2016 -$ 24,597$ 24,597$ 147,597$
2017 -$ 25,335$ 25,335$ 172,932$
2018 -$ 26,095$ 26,095$ 199,028$
2019 -$ 26,878$ 26,878$ 225,906$
Simple Payback: 1.5 yr
IRR: 57%Depreciation reduces 7 yr payback to 1.5 yrs!
Commercial GHP EconomicsCommercial GHP Economics
For not-for-profits and commercial building owners with out a “tax appetite”, several financing companies have come to the geo market to finance either loops or loops and equipment.
Geothermal Heat PumpResidential Tax Incentives
Federal Income Tax Credit:
30% of total GHP system cost No cap on maximum credit Can be used to offset AMT tax Can be combined with other tax credits Can be used in more than one year
Eligibility:
Home must be located in the U.S. Includes houses, cooperatives, condos, mobile homes Does not have to be your main home GHP must meet Energy Star requirements Placed in service before 2017
The Geothermal Market
Homeowners – or soon to be homeowners – 25-54 balanced between men & women
Above average income - $100,000+Home value - $150,000+Receptive to energy bill savings or “green”
messageNationally - more weight in Midwest less
weight in Southwest and Southern CA
Geothermal Market Barriers
Lack of Long Term (affordable) Financing
How much time do I have left?
Geothermal Market Barriers
Unlike consumer goods financing, efficiency financing must (and can) provide the borrower with a positive cash flow from energy savings after the monthly payments.
The trick in today’s economy is to tie the loan to the structure, not the owner/occupant.
Utility “Program” Evolution
Utility Programs– Promote– Rebate– Finance!
Real World Marketing– Finance what people need.
“Drive-in banks were established so most of the cars today could see their real owners.”
Utility Program Evolution- $$
“The government should not be in the business of picking winners and losers in the market."– House Budget Committeeman Chairman
Paul Ryan (R-Wis.) panel's Fiscal Year 2012 Budget Resolution: "The Path to Prosperity: Restoring America's Promise.
Utility Program Evolution- $$
H.R. 2419Food and Energy Security Act of 2007
(Engrossed Amendment as Agreed to by Senate)– SEC. 6108. ELECTRIC LOANS TO RURAL
ELECTRIC COOPERATIVES.– “The committee notes that assistance is authorized
for renewable energy including geothermal ground loops”
– 35 year funds at around 4%
Utility Program Evolution- $$
HR-4785 (Rural Star) introduced 3-10-10 This bill (now incorporated in the Climate Bill) will create a
$4.9 billion consumer loan program administered by the nation's rural electric cooperatives.
The cooperatives would borrow the funds at 0% interest Then make the money available at no more than 3% for up to
10 years for energy efficiency upgrades. Enabling the co-ops to combine 35 year loop financing with 10
year GSHP equipment retrofits and home efficiency improvements
Consumers get a 30% tax credit on the GSHP Equipment
Energy Costs are rising, what can I do? I don’t want a 2nd mortgage…
But saving money every month would be nice…
Utility Program Evolution- $$
Utility Program Evolution- $$
On bill financing Midwest Energy
– Hays Kansas co-op puts
up the efficiency funding No up-front capital is required for qualifying investments. Monthly How$mart® surcharge covers the cost of
qualifying improvements. The surcharge is always less than the projected savings.
The How$mart® surcharge is tied to the location. If you move or sell the property, the next customer pays the surcharge.
Utility Program Evolution- $$
On bill “collection”– Clean Energy Works Portland pilot
– surcharge is again tied to the location/meter. If the customer moves or sells the property, the next customer pays the surcharge.
– Funding is supported by for profit and not-for-profit entities looking for stable and secured returns
– 3 utility partners provide collection services for a small administrative fee. They don’t have to be the banker.
– Institutions love secured stable returns with an environmental benefit.
Utility Program Evolution- $$
Now expanded to Clean Energy Works Oregon Have obtained an additional $20 million via
ARRA funding.Goal of 6,000 home retrofits by 2011Using utility partners for on-bill collection
Utility Program Evolution- $$
Electric Cooperatives of South Carolina in partnership with the Environmental and Energy Study Institute pilot effort– On bill financing – Goal improve 225,000 homes by 2021 and Serve as a
model for the Rural Star Department of Agriculture Rural Utility Service loan program (now before congress)
– Requires positive cash flow from the measures installed
State Efficiency Financing
Qualifying Geo financing Option 1:– 4.99% Unsecured Keystone HELP Loan for
up to $15,000 with a term of up to ten years. – Plus an optional additional Tax Credit
Anticipation Loan in an amount equal to their expected 30% tax credit, maximum, $10,000. Keystone HELP will make the first 12 monthly payments on this optional additional Tax Credit Anticipation Loan
State Efficiency Financing
Or a secured Keystone HELP Loan for up to $35,000 with rates as low as 2.875%. – where the qualifying Geothermal Heat Pump
System is installed as part of a comprehensive "Whole House" improvement project with additional improvements recommended by a Certified BPI/RESNET Energy Audit
State Efficiency Financing
Keystone HELP energy efficiency loans for GHPS– 2 Loan options for up to 100% of the costs of
equipment and installation of Closed Loop Geothermal Heat Pump Systems that meet Energy Star Tier 2 qualification standards.
Oak Ridge National Labs – U.S. DOEDecember 2008
The primary GHP market failure is the expectation that building owners should finance the ‘GHP infrastructure,’ or outside-the-building …ground heat exchanger. GHP infrastructure will outlive the building and many generations of heat pumps, and is akin to utility infrastructure (poles and wires, and underground natural gas piping).
Oak Ridge National Labs – U.S. DOEDecember 2008
This begs the question: “Why do we expect building owners to finance GHP infrastructure on their own credit, but not other utility infrastructure?”
The Ground Loop “Utility”
The Utility Loop Concept Utility owns and recovers the cost of the loop, interest
expense, program costs, and profit or operating margin.
– Utility installs or contracts out loop construction. • Controls system design and installation quality
– Utilities gets improved load factor & incremental kWh revenue.• System load factor is even better with load control.
– Future carbon credits may stay with the utility
Consumers Get: – Lower total energy bills.– Utility grade service and reliability– Reduced or no incremental cost for participating
The Ground Loop “Utility”
The Wyandotte, Michigan City Council recently approved the creation of a geothermal utility. The general manager of Wyandotte Municipal Services said there are many reasons to be excited about the introduction of geothermal energy, including its heating and cooling efficiency, its affordability, because geothermal helps Wyandotte Municipal Services improve the operation of the electric system and reduce power supply costs, and benefits to the environment. (August 2010)
Public Policy- Us Too
We need to take a new approach Renewable Portfolio Standards– If the goal of an RPS is to save emissions
RPS requirements need to be based on Btu’s saved not just kWh
Carbon lives in the combined electric and hydrocarbon fuel stream.
Public Policy- Us Too
Final Comments – Pay Go
Arizona Republic, Aug. 20, 2010
“Corporation Commission Chairwoman Kris Mayes agreed there is a problem with the rebate system….
"Certainly, we need to put a stop to the stop-and-start that's been occurring in the programs," Mayes said. "But it's important to keep in mind the solar industry wouldn't even exist without these rebates"
Final Comments – Pay Go
A bill signed in March by Oregon’s Governor limits a business tax break for alternative energy projects. HB 3680 was prompted by the growth in projects, spurred by an expanded business energy tax credit in 2007. The credits threatened to exceed budgeted estimates by $100 million or more in the current two-year cycle. The current bill would reduce tax losses by a projected $54.4 million in the current budget , which ends June 30, 2011, and $86 million in 2011-13.
My 1 Action Item for the GWG
Develop a State funded On-Bill financing pool for Colorado and use the interest earned on this fund above program expenses to support the funding of the State Energy Office.
Additional Resources
http://residential.climatemaster.comhttp://www.geo-exchange.cahttp://www.whoknowsthisstuff.com/Video-
Geothermal.htmlhttp://www.geoexchange.orghttp://www.igshpa.okstate.eduhttp://residential.climatemaster.com/
dealers_area/tools.
Thank You For Your Attention!Questions?
Paul Bony
970-249-8476
If you ever need a hand you can reach me at:
I want to thank The Governor’s Energy Office (GEO) for hosting this event.