Financing for Energy Independence: Novel Ideas

Innovation Facilitates the "Market"

One of the outstanding innovations that Sonoma County has spearheaded for the development of its Building Performance Energy Retrofit (BPER) market is the creation of a financing arm for building owners.  Gotta give some credit where it's due.  


SCEIP (Sonoma County Energy Independence Program), pronounced like the web-based communications tool (Skype),  is a forward-looking endeavor with some innovative lines.  SCEIP gets its money from the County's working capital and uses it to lend to BPER or Energy Replacement (solar panels, new furnaces, etc.) projects.  It's helping building owners put technologies into play that the owners might not purchase were it not for the clever financing and open market models.  


The funds from SCEIP could, for example, be used to insulate a building (home), upgrade / install new windows, install a new furnace, a tankless / on-demand water heater, etc.  The minimum financing right now is $2,500 which is pretty easy to get to in this wild and wooly new market.


SCEIP is interested in safety and security, too: it requires, for now, that any of the financed work be done by a certified installer with special licenses and certifications (HERS II, CBPCA, BPI) to assure compliance with code and energy retrofit specifications.  New rules will have to be invented to allow the Do-It-Yourselfer (DIY) to get access to the money.  


John Sutter, President of Applied Building Sciences, says: "This [SCEIP] is a game changer."  


The really clever piece of architecture underneath SCEIP's design is the "revolving door" of money that it has engineered.  SCEIP takes all of its loans and packages the liens into bond instruments and sells them on the open market at 5% interest to the investor.  


SCEIP gets more cash  -- working capital -- from the County and...they do the same thing all over again: lend out money, secured by liens and, then, package the loans as bonds.  Investors are happy, right now, to get 5% on their safe bonds, secured by Property Tax income streams and Liens.  


Some of the thinking that appears to have gone into the SCEIP idea includes: 

• a supply of relatively inexpensive money for energy upgrades
• the investment in the property stays with the property, not the current owner, so the asset(s) are tied to the piece of real estate
• bonds sold off of these property liens are relatively secure; the default rate has been, historically, quite low

Looking into the future, we believe that competition will arise and the County will have other providers trying to come into niches of the market and, likely, lend on these secure deals.  We predict that these financiers will, ironically, find themselves in the higher ticket projects.  


We also believe we're going to see at least 10% of the property owners struggle with paying their new tax bill -- humans just don't save and, ultimately, will find themselves confronted with a bill they didn't anticipate or plan for.