Last week I participated in a day long energy efficiency finance workshop, hosted and co-produced by Bloomberg’s New Energy Finance Group and the Environmental Defense Fund. Held at Bloomberg’s hip and upbeat headquarters, it had the feel of an investor conference, although most people in the room had yet to make one….
The folks at EDF have been following this emerging market, having introduced a white paper last year, along with my friend Brad Copithorne’s effort to develop a new On Bill Repayment model that will start in California and hopefully work its way across the country in the coming 12-18 months.
The day was kicked off by Dan Doctoroff, Former Deputy Mayor of NYC, now CEO/President of Bloomberg. Dan talked about how PlaNYC (introduced while he was in the NYC administration) is driving NYC building efficiency performance tracking, while investing $800 million of taxpayer capital over the next decade. Although the original program was focused on reducing greenhouse gas emissions, the designers are modeling an attractive 17% annual return on the city’s investment.
The disconnect of NYC needing to make these investments using taxpayer capital was the basis for the conference. Since energy efficiency retrofits like these have strong long term returns, outside private, not taxpayer, capital should be running after this estimated $18-20 billion market.
Dan/Bloomberg’s view is what’s missing is not the capital nor investor interest, but the market data. His point is that new financing markets require measurable data in order to assess risk, track performance and provide liquidity. Bloomberg, founded years ago as the first company to aggregate data, pricing calculators and buyers/sellers of bonds, sees similar characteristics today in the energy efficiency finance market.
But missing data is not the only problem. Each sub-sector is so different that there will likely be unique financing packages for each. The investment which allows a homeowner in Maine to add insulation is very different than the one which pays for a new boiler in a commercial tower, owned by a real estate LLC, with a bank already breathing down its neck. Marshal Salant from Citigroup presented a very useful slide highlighting different energy efficiency finance techniques and their application to the four main sub-sectors: MUSH, residential, commercial and corporate/industrial.
So is the chicken or the egg? Does there need to be enough investment which has historically performed (and generated a stream of supporting data) before investors rush in? Or is there already enough data and it simply needs to be aggregated and distributed more widely?
The note on Marshal’s slide which said “Yes ?” about whether a financing technique would work may have best captured the day’s discussion.