Recovery Act Funds-Low-Interest Revolving Loan Funds

You Spin Me Right Round Baby: A Look at Low-Interest Revolving Loan Funds

Some state and local governments are getting creative by recycling funds and spinning them off into multiple clean energy projects. How are they getting this groove on? Through low-interest revolving loan funds: as the loans are repaid, additional loans can be made over time. While it may require a lot of up-front capital, the money can come from a variety of resources (e.g., state coffers and bonds). And, a revolving loan fund can provide a particularly good alternative for using Recovery Act funds (perhaps to replace stalled PACE programs) since they are not subject to the law's expiration and there are limited program administration and staffing requirements.

Detailed below are the major advantages, challenges, and design considerations of low-interest revolving loan funds, based on recent research about this funding mechanism.

Revolving Loan Fund Advantages

• • Encourages clean energy investment. Additional energy efficiency and renewable energy projects can be encouraged using low-interest loan funds, which can reduce energy consumption and provide environmental benefits.
• • Addresses the biggest major barrier to renewable energy deployment: up-front costs. Many consumers lack enough disposable income to pay for clean energy equipment up front-this is true even if the cost is totally recovered over time and/or the initial price is reduced by a tax credit or rebate. Through the revolving loan, the consumer is provided with a large amount of money in the first year to pay for the system and its installation. This consideration is important and can encourage widespread use of the program.
• • Provides access to capital at low interest rates. Consumer's access to capital can be severely limited during tough economic times, especially for smaller borrowers. Providing access to capital, in addition to offering interest rates typically lower than those that can be secured in the market could help motivate consumers to purchase clean energy technologies.
• • Limits impact on taxpayers and/or ratepayers. The total cost of these programs is lower than that of rebate or tax credit programs, as it allows for leveraging of private capital. However, if the program is not well structured and other barriers are not addressed (i.e., there is low effectiveness), there may not be a demand for this low-cost capital.

Revolving Loan Fund Challenges

• • Requires substantial up-front capitalization. Funding is needed up front to provide capital to entities seeking loans. The wider the eligibility, the more capital is needed. This may be less of an issue for states and local governments with access to Recovery Act funds.
• • Needs additional project support. A May 2010 NREL report reveals "that technology installed under loan programs rarely supports clean energy production at levels that have a significant impact on the broader energy sector. As a result, loan programs are having only a marginal impact on the broad clean energy goals noted above. However, these findings should not be interpreted to suggest that loan programs are ineffective or unnecessary. Rather, they suggest that, while high initial costs are a barrier to clean energy technology, additional market barriers likely require attention."
• • May not reach folks with need for capital. If an end-user already has access to capital, then a revolving loan fund may not be the best option to effect change (it is only one of many sources of capital available). In other words, participants might take advantage of this program, even if they would have done the project anyway (e.g., free riders). This depends on the rate offered- many revolving loan funds do have rates that are below market (which provides some benefit over other options available to end-users). Therefore, it is important to make sure borrowers are aware of other funding sources for which they are eligible.
• • May not be self-sustaining. The subsidy provided through the loan will likely not be returned through repayment of the loan's principal and interest. In other words, the fund could be depleted because it will earn lower returns than other market investments, and it may not keep up with inflation (which increases the future cost of capital for new projects). Depending on where the interest rate is set, the fund may be fully replenished (if at a higher interest rate), or it could erode the capital base of the fund (if at a lower interest rate). If the capital base decreases, the capital base can either be replenished (i.e., through new appropriations) or additional fees and rates can be included (but that defeats the purpose of a low-interest loan).

Revolving Loan Policy Design Considerations

My research has shown that successful programs:

• • Address risk of default. A process must be established for loan default: how will the risks be allocated and who will bear them? Borrower education through in-house technical assistance (for development groups) and homebuyer education and counseling (for individuals) can help prevent delinquencies.
• • Provide information to increase participation. A targeted marketing program will be required to encourage participation in the program (including knowledge that the program exists and the relative advantages to participation). Education efforts should include information about the cost-effectiveness of the eligible technologies as well as information about the contractors that register for program implementation. The program may need to subsidize whole home audits so that the best combination of clean energy technologies can be identified (particularly important for implementing higher cost technologies like solar).
• • Minimize overall cost of program. Revolving loan funds tend to have low administrative costs as long as the program size is relatively large. Smaller programs have high overhead costs because there is a base cost to setting up a program that does not vary with program size. Standardization (i.e., borrowing good ideas from other programs) helps to simplify loan tracking and reduce transaction costs.

If you are looking for more detail about how to design or set up a revolving loan fund, be sure to listen to a Webinar presented from DOE's Technical Assistance Project's Webinar series. PowerPoint presentations from the Webinars are available from Sam Booth of NREL, and state-specific presentations are available on Texas and Montana.

In summary, state and local governments that have a chunk of money from the Recovery Act can develop revolving loan funds to target clean energy deployment well beyond 2010. While these programs address critical renewable energy development barriers and allow for recycling funds, there are important design considerations that are critical for program success. NREL would love to hear about examples of revolving loan funds- both successful ones and ones that face challenges- so that we can facilitate communication of lessons learned throughout the policymaker community.

Submitted by Karlynn Cory on Mon, 09/27/2010 - 12:43pm

• Karlynn Cory's blog

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New National Model Energy Code Boosts New Home and Commercial Building Energy Efficiency by Historic 30% Levels

New National Model Energy Code Boosts New Home and Commercial Building Energy Efficiency by Historic 30% Levels

on Nov 01, 2010 Home & Commercial Building Owners Are Beneficiaries as Code, Other Governmental Officials Substantially Improve International Energy Conservation Code (IECC) The efficiency of the next edition of America's model energy code governing home and commercial building construction, additions and renovations will most likely achieve the 30% boost sought by the U.S. Department of Energy, the U.S. Conference of Mayors, the National Association of State Energy Officials, governors, lawmakers and the broad-based Energy Efficient Codes Coalition (EECC). After two decades of modest efficiency gains, it's clear by their overwhelming votes that building officials across the U.S. recognize that we can lock in significant energy savings for generations to come by making efficiency improvements at construction or renovation, when they're cheapest and easiest. "It is notable that the votes that will have the most profound impact on national energy and environmental policy this year were not held in Washington or a state capital, but by governmental officials assembled by the International Code Council (ICC) in Charlotte, NC," said EECC Executive Director William Fay. "Reducing wasted energy from the nation's largest single user - our homes and commercial buildings, which consume nearly half of our energy - was the byword of the nearly 500 state and local government representatives who spent five days of rigorous hearings to evaluate and pass judgment on hundreds of proposals to improve (or weaken) the IECC's residential and commercial chapters. The ICC is to be congratulated for the tremendous efforts of its members to finish this code and achieve substantial energy efficiency." An Integrated, "Whole Building" Approach to Improving Efficiency in Homes and Commercial Building Construction Comprehensive proposals offered by the US Department of Energy, working with many other stakeholders, addressed all aspects of residential and commercial building construction, laying a strong foundation for residential efficiency gains and leading commercial building efficiency improvements. To meet the 30% goal in the residential code, voting delegates added a number of improvements from EECC's comprehensive package, "The 30% Solution 2012" and other stakeholder proposals to DOE's foundation. The resulting residential improvements will: Ensure that new homes are better sealed to reduce heating and cooling losses, Improve the efficiency of windows and skylights, Increase insulation in ceilings, walls, and foundations, Reduce wasted energy from leaky heating and cooling ducts, Improve hot-water distribution systems to reduce wasted energy and water in piping, and Boost lighting efficiency. Commercial Gains Should Match Residential Officials adopted the joint DOE/New Buildings Institute/ American Institute of Architects package for commercial buildings which, along with many of the features cited above, includes continuous air barriers; daylighting controls; increasing the number of climate zones where economizers are required; and a choice of three paths for designers and developers to increase efficiency: using renewable energy or installing more efficient HVAC equipment or lighting systems. It also requires the "commissioning" of new buildings, integrally linking efficiency building designs with lifelong building performance by applying a systematic approach to building quality assurance that monitors, identifies and makes corrections when energy savings aren't living up to expectations. A number of additional IECC improvements supported by EECC and other stakeholders were adopted on top of the commercial package. Rejecting Proposals That Weaken Efficiency Government voting representatives also rejected several proposals to weaken the IECC. Key among them were proposals to reinstate a provision of the 2009 IECC's that eliminated "tradeoffs," under which builders installed less efficient insulation and windows in exchange for more efficient heating & cooling (HVAC) equipment that would have been installed anyway. "Efficiency shouldn't be an either/or proposition," Fay said. "We need to both improve building envelopes and install high-efficiency HVAC systems. It makes no sense to 'trade away' the long-lasting energy savings from tighter buildings." The delegates also voted almost unanimously to adopt a proposal offered by Virginia code officials to replace the weaker provisions of the energy chapter of the International Residential Code with a reference requiring that all residential buildings comply with the IECC. As a result, the IECC will be the sole source for energy efficiency provisions for residential and commercial buildings. While All Americans Will Share the Energy Security and Environmental Benefits of More Efficient Buildings, Home/Building Owners and Occupants Top List of Beneficiaries By reducing monthly energy bills, efficiency improvements generate positive cash flow that rapidly recoups the cost of these measures (efficiency buildings are also more comfortable for their occupants). Because of long building lives and the higher cost of retrofits, many of the efficiency improvements made today will benefit current and future home and building owners for generations to come.  The efficiency improvements adopted by the ICC incorporate readily available technologies. As one homebuilder testified, a 30 percent boost in new home efficiency is now a modest target, with a growing number of green builders across the nation delivering new homes well beyond that threshold. Because the inability to pay utility bills is the second leading cause of foreclosures and evictions, currently at record highs, low income housing advocates argue that the efficiency improvements will make it more likely that low income families will be able to afford to keep their homes. Finally, a study by U.S. DOE's National Renewable Energy Laboratory found that an average home that's 30 percent more energy-efficient returns $511 a year in energy savings to homeowners after taking into account the small mortgage payment increase needed to pay for the efficiency improvements. From the national economic perspective, efficient buildings will demonstrably reduce US energy consumption, which will help stabilize energy costs to businesses and manufacturers, defer the need for new power plant construction and, by reducing energy demand, improve national energy security. "The 'winners' run the gamut from homeowners to businesses operating in areas of the country with high energy costs and insufficient energy supplies to manufacturers to cities trying to reduce their carbon footprint to a nation struggling to reduce energy imports," Fay added. What's Next  State Adoption & Code Compliance "The next goal will be for states and localities to adopt the 2012 IECC so that all new homebuyers and commercial buildings owners can begin to benefit from improved efficiency," Fay added. "And because states have committed to show 90% compliance with the IECC by 2017, we want to work to support collaboration at all levels of government to ensure adequate training and other support for the code officials who must meet this ambitious compliance target." Future Improvements in America's Model Code "A number of energy saving proposals offered by the EECC and other stakeholders received majority support but not the 2/3 majority needed for adoption," Fay observed. "While this is unfortunate, we know that the governmental officials present in Charlotte used their best judgment to guide their vote on the 2012 code. But because states and local jurisdictions are free to consider these energy saving improvements individually, EECC will work with them, while refining the proposals for inclusion in the ICC's next round of hearings to develop the 2015 IECC."

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Wind Energy Debate- Generation Gap Slows Future Growth

Young people are being urged to join the debate on renewable energy after new findings showed older generations are blocking the building of wind farms.

-        75 per cent of people would support having a wind farm built near their home

-        Only one third of wind farm applications are approved by councils

-        Older generations are far more likely to oppose developments than young people

 

Following news that councils are rejecting two thirds of wind farms applications, independent research has highlighted a huge divide in opinions between old and young on the developments – with concerns over spoiled views so far winning over planning committees rather than protecting the environment for future generations. 

 

More than 75 per cent of people polled said they would be in favour of plans to build a wind farm producing green energy close to where they live, with 86 per cent of 16 to 34 year olds surveyed saying they would back the proposals. Nobody under the age of 24 said they would oppose a wind farm in their area.

 

However, only one third of wind farm planning applications are actually getting approved.

 

The research showed that just 61 per cent of over 55s were in favour of building a wind farm near their home. Twice as many retired people opposed wind farms than those who are working.

 

Spoilt views and increases in noise were the main concerns of those who said they oppose wind farms.

 

Those in favour said protecting the environment for children, and renewable energy being the only way forward were the main reasons for supporting developments.

 

 Manchester-based public consultation firm IPB Communications –which commissioned the research – presented its findings at the 2010 Renewable UK Conference in Glasgow.

 

John Quinton-Barber from IPB Communications and speaking at the conference said: "Younger people are clearly in favour of building wind farms for green energy – but they are not getting their message across.

 

"It is these generations, and their children, who are going to have to live with the long-term consequences of climate changes, so it is vital they stand up and have their say now.

 

"At the moment the statistics don't add up. The opinions of older people seem to be taking priority when it comes to decision making. The silent majority need to find their voice and take their views to councillors when it comes to renewable energy."

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China-diesel shortage, disrupting industry

China suffers diesel shortage, disrupting industry
	Nov 8, 2010	Associated Press Online
	By JOE McDONALD BEIJING, Nov. 8, 2010 (AP Online delivered by Newstex) -- Aggravated Chinese truck drivers parked for hours to buy rationed diesel Monday as shortages blamed on a government conservation campaign and possible hoarding by state oil companies disrupted industry and trade. Supplies ran low after thousands of factories bought diesel generators to cope with power cuts imposed by authorities to meet energy-saving goals. That boosted already strong fuel demand amid rapid economic growth and complaints that major suppliers are withholding diesel to pressure Beijing to raise government-set retail prices. In the southwestern city of Chongqing, truck driver Peng Yun was just back from what should have been a three-day trip to neighboring Yunnan province. He said it stretched to five days after he had to stop six times for a partial tank of fuel. "In one place the filling station ran out, so I had to wait overnight until they had diesel again the next day," said Peng, 24. "Now I dare not drive that far because I can't get diesel." The shortages are symptomatic of the costly side effects of the communist government's crude tools for regulating a complex, fast-changing economy. Local authorities imposed rolling blackouts on factories in August after Beijing called for efforts to curb surging energy demand, pollution and emissions of climate-changing greenhouse gases. That came after a campaign to make China's energy-guzzling economy more efficient suffered setbacks early this year due to due to a stimulus-fueled boom in steel, cement and other heavy industry. Diesel supplies already were tighter than usual after refineries shut down in August and September for maintenance and demand from farmers and fishermen rose, said Tom Reed, London-based Asia energy editor at Argus Media, an energy news agency. "It's kind of a perfect storm" that caused "a significant squeeze on the wholesale market," Reed said. Fuel shortages were reported in areas from Dalian, a northeastern port, to Hangzhou on the east coast and Kunming in the southwest. Some Chinese media and industry analysts blamed the shortages on China's major state-owned oil companies, PetroChina and Sinopec. (NYSE:SNP) They said the companies are withholding supplies while they wait for Beijing to boost retail prices that were left unchanged while global crude costs climbed from $70 a barrel at the start of the summer to nearly $90 now. PetroChina and Sinopec are "stockpiling diesel in an attempt to blackmail the NDRC (China's main planning agency) into announcing another price rise," said Zhao Jingmin, an oil analyst for the industry website Chinachemnet.com. Phone calls to the press offices of PetroChina and Sinopec were not answered. The NDRC, or National Development and Reform Commission, and its energy agency did not immediately respond to questions about what the government was doing to restore normal diesel supplies. China's economy regularly is disrupted by government intervention in energy industries. In 2007, the country suffered gasoline shortages after refiners cut production in response to price controls. The next year, parts of China shivered through blackouts in bitter winter cold after the government froze power prices, prompting utilities to cut expenses by letting coal stockpiles run low. The refinery shutdown was prompted in part by government orders to upgrade facilities after a July pipeline explosion in Dalian dumped crude into the sea, said Liao Kaishun, an oil analyst for the firm C 1 Energy. The overhaul "reduced the monthly transport of diesel fuel from northern to southern China by at least hundreds of thousands of tons," Liao said. The shortages will ease if refiners make good on promises to raise output, said Argus Media's Reed. He said China is likely to fill the gap temporarily with imports, which would benefit refiners elsewhere in Asia. In Shanghai, China's business center and busiest port, deliveries by Tianbang Logistics Co., a trucking company, have been delayed by two days while its drivers wait in line to buy fuel, according to a dispatcher there. "Our clients are not happy at all," said the dispatcher, who would give her name only as Miss Xun. "We don't have any way to solve it so far." In environmental terms, the power cuts have backfired by prompting factory managers to buy dirtier, more expensive diesel generators. "The only solution is to begin supplying more power," said Citigroup (NYSE:C) economist Ken Peng. In southern China, more than 2,000 privately owned filling stations China have run out of diesel, the government's Xinhua News Agency reported, citing the China Chamber of Commerce for the Petroleum Industry. Others limited drivers to a half-tank or less or served only regular customers, according to drivers and news reports. Xinhua cited one driver who got extra fuel by slipping a filling station employee a 50 yuan ($7) tip. Truckers from out of town were stuck Monday in Changsha, in Hunan province in southern China, because they cannot find fuel, according to Rednet.net, a news website run by the provincial government. An employee of a Changsha filling station, who would give only his surname, Xie, said the station last obtained diesel on Oct. 26. He said it limited sales to 30 liters (eight gallons) per customer but quickly ran out. In Kunming, "you are lucky if you can get fuel after lining up for five hours," said a report on 163.com, another news website. "We all know the final result will be a price rise so why not do it directly?" said one unsigned note on 360che.com, an Internet bulletin board for truckers. "Why make us wait for a whole night at a gas station?" --__ Associated Press writer Gillian Wong and researchers Henry Hou, Zhao Liang and Xi Yue in Beijing and Ji Chen in Shanghai contributed. Newstex ID: AP-0001-50494205

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