"Energy Efficiency Market Growth, National Push for Private Sector Involvement" Gil Sperling is known as the weatherization czar at the Department of Energy. He is the Senior Advisor for Policy & Programs, Office of Energy Efficiency & Renewable Energy, DOE.

1. Colorado Energy Efficiency
Finance Summit
August 4, 2010

2. Sustainable Energy Financing Mechanisms
Gil Sperling
Senior Advisor for Policy and Programs
Office of Energy Efficiency and Renewable Energy

3. Financing is critical to maximizing clean energy deployment
• Financing programs are inherently sustainable whereas grants and rebates are once-and-done
• Leveraging private capital allows ARRA money to make significant impact
• Financing programs provide the capital borrowers need to pursue comprehensive retrofits
• Effective loan programs provide borrowers with positive cash flow (Energy Savings > Monthly Loan
Payment)
The ongoing capital availability combined with a clear customer value proposition transforms the retrofit
market by providing long-term business and workforce development opportunities
Slide 3

4. Revolving Loan Fund – Overview
Description • Loans are made to borrowers consistent with standard prudent lending practices.
• As loans are repaid by the borrowers, the money is returned to the RLF to make additional loans.
• In that manner, the RLF fund becomes an ongoing or "revolving" financial tool.
• The interest and fees paid by the RLF borrowers support program administration so that the fund’s capital base
remains intact.
• Typically RLFs lend money with specific goals or borrowers in mind. The range of RLFs varies widely including
such diverse area as affordable housing, historical preservation, energy efficiency, safe drinking water, and
small business development.
• RLFs are typically administered by government agencies or non-profits with the goal of creating positive
change within their community or target lending group.
Strengths Weaknesses
• Simple to set up compared to other options • Government often acts as the administrator; requires staff
• Many cities and states already have RLFs, so expertise may time and expertise to set up if there is not an existing RLF
exist in-house • Does not leverage private capital, limiting the amount of
• Funds revolve indefinitely creating a source of funds that will funds available (especially in the near term)
be available in the long term • Must conduct rigorous credit analysis on borrower's ability to
• Can shape program design to fit specific markets and pay (or risk a high default rate)
objectives
Example • A fund finances energy efficient retrofits for state agencies, public schools, et. al.
• Borrowers repay loans through the stream of cost savings realized from the projects
Slide 4

5. Revolving Loan Fund – Operating Model
Step 4
RLF relends $95K
Step 2
Step 1 RLF loans $100K to
Grantee capitalizes Grantee borrowers
$100K RLF Revolving Borrower
using ARRA Loan Fund
funds
Step 3b
Step 3a Borrowers
Borrowers repay $95K default on
$5K
ARRA Funds
Default
Slide 5

6. Revolving Loan Fund – Grantee Case Study
Efficiency Kansas
• For approved projects, lenders receive 100% of the project cost from the state at 0%
interest. Lenders may charge up to 4% interest on Efficiency Kansas loans.
• Kansans can access the Efficiency Kansas loan program through both Partner Utilities and
Partner Lenders
• RLF managed by the Office of the State Treasurer, on behalf of the Kansas Corporation
Commission (KCC), of which the State Energy Office is a division
• Treasurer’s Office collects principal payments from lenders on a quarterly basis
• Maximum amount financed is $20,000 for residential and $30,000 for small commercial and
industrial structures
– Average estimated residential project size is $5,000-6,000
• State Energy Office provides rebates to lenders to cover $250 of loan origination fee
• Maximum loan term is 15 years, in 180 monthly bill payments
http://www.efficiencykansas.com
Slide 6

7. Loan Loss Reserve – Overview
Description • Loss reserves provide a liquid, immediately accessible source of cash to offset covered losses incurred by a
participant.
• Created at the outset or over time by assessing fees and other charges based upon activity level or other
metric.
• Typically protects a portfolio of loans against a limited amount of potential losses (but insufficient to cover
large losses)
Strengths Weaknesses
• Excellent way to leverage third party capital • Can be perceived (wrongly) as a subsidy to financial partners
• Leverage ratios can be as high as 20:1
• Can be sustainable if replenished by third parties (e.g.,
contractors)
• Can support secondary markets
• Liability is capped at the amount of loan loss reserve
Program • States form an agreement with lenders to set up a 10% loan loss reserve in exchange for providing residential
Example retrofit loans
• In the event of borrower default, funds are taken from this escrow account and distributed to the investors to
ensure they receive full repayment (up to the maximum covered by the loan loss reserve).
• Loans continue to be made until the loan loss reserve is exhausted or refilled from other sources (e.g., fees
from contractors participating in the program)
Slide 7

8. Loan Loss Reserve - Operating Model
Step 6
Lender relends $100K
Step 2
Lender loans $100K to borrowers
Private Lender
(using their own Borrower
capital)
Step 3a
Borrowers repay $95K
Step 4 Step 3b
Loan Loss Reserve reimburses lenders for $5K Borrowers default on $5K
defaults
Loan Loss Reserve ARRA Funds
Step 1:
Grantee uses ARRA funds to create $10K Loan Loss Reserve
Default
Contractors / Step 5:
Banks Participating contractors and banks recapitalize fund through fees
Slide 8

9. Loan Loss Reserve – Grantee Case Study
– ARRA Funds Employment
• Michigan Saves provides 5% loss reserve
– Capital Source
• A local bank provides loan capital
• The local bank owns the loans and has access to loss reserve
– No plans currently to access to secondary markets
– Terms
• Loan terms out to 10 years for larger loans
• Unsecured loans
• Generally higher FICO scores
– Administration
• Central loan origination through a national company that takes call and on line
apps
• Local bank performs loan servicing and collection
Julie Bennett, Michigan Saves, from DOE Financing Webinar 29 July 2010
Slide 9

10. On-Bill Financing – Overview
Description • Utility or other entity (such as a third party financial institution) incurs cost of efficiency or renewable
improvement and the customer repays the investment through a charge on their monthly utility bill.
• Allows for a streamlined process as utilities already have a billing relationship with their customers, as well as
access to information about their energy usage patterns and payment history.
• Eliminates upfront consumer cost for clean energy improvements by financing all costs not covered through
rebates.
• Stretches financing costs over a sufficiently long period to make repayments less than the savings.
• Typically enjoys lower default rates due to the association with the customer’s utility bill.
Strengths Weaknesses
• Savings paired directly with repayment on the same bill • Utilities are often reluctant to take on role of financing entity;
• Can use capital from a variety of sources potential exposure to consumer lending laws and alterations
• Can be tied to the “meter” – transferring liability for the loan to billing systems are required.
to the next owner • Can be extremely complicated to set up the multiple
• Provides a secure revenue stream since failure to pay is often transfers of funds among different entities (on-bill tariff
tied to disconnection especially)
• Can use past bill repayment as a proxy for credit • Limited to shorter term financing (on-bill loan only)
• Allows for longer term investments and can address rental • When liability cannot transfer to new owners, the business or
properties (on-bill tariff only) homeowner must pay off entire loan upon sale of property,
which could result in not all of the energy savings being
realized (on-bill loan only)
Slide 10

11. On-Bill Financing - Operating Model
Pending from Matthew Brown
Slide 11

12. On-Bill Financing – Grantee Case Study
Clean Energy Works Portland (CEW/P)
• Joint venture launched late 2009 between Energy Trust of Oregon, the City of Portland, and
ShoreBank Enterprise Cascadia
• Customers repay loans through their regular utility bill
• 500 home pilot to be complete Fall 2010
• Single-family homeowners can receive 100% financing to implement energy efficiency
measures
• Loans provided at fixed interest rates (2-7%) and amortized up to 20 years
– 5.99% on weatherization, space heating and water heating upgrades
– 3.99% for all upgrades for income-qualified participants
• Average loan amount to date is $10,700
• Eligible measures include: weatherization (insulation, air sealing, duct sealing), space heating
(furnace, heat pump), and hot water (gas, electric, tank-less gas).
– Will incorporate solar hot water, solar PV, and energy efficient windows in the future
Slide 12

13. On-Bill Financing – Grantee Case Study
Seattle’s Energy Efficiency Service Charge
• Direct version of the energy efficiency Power Purchase Agreement
• Finance retrofits in 800 single family homes and 35 multi-family buildings with electric
heating.
• City will purchase, install and monitor retrofits
• City will enter into long-term contracts with owners (or renters)
• Owners will pay monthly service charges for upgrades, equal (or less than) savings achieved
on their Seattle City Light utility bill
Slide 13

14. Secondary Market – Overview
Description • Secondary markets enable allow lenders to sell the loans originated to investors, providing an ongoing source
of capital to fund additional lending
• The market is created by creating homogenous loans through establishing a set of conforming underwriting
standards (e.g., FICO score, eligible activities) which can be easily valued, pooled and sold to investors
• Near-term investors include institutional investors (e.g., banks and pensions) and as the market becomes more
liquid, smaller investors will be able to participate
Strengths Weaknesses
• Provides a continuous flow of private sector capital to • Requires lenders to adhere to standardized program terms,
support energy efficiency lending which limited flexibility
• Increases lender participation by creating liquidity and • May not reach certain high priority segments (e.g., low-
providing lenders a risk management tool to balance their income) in the near term
portfolios and an exit strategy • Negative public perception of “secondary markets”
• Reduces consumer interest rates because investor demand
for loans reduces liquidity premium to banks
• Enables development of mass market consumer lending
products as additional lenders opt into the market
• Drives significant cost reductions in manufacturing and
installation due to increased retrofit demand
Common underwriting criteria are the lynchpin of a secondary market
Slide 14

15. Secondary Market - Operating Model
Step 3
Borrowers Now Make Loan Payments to
Investor (using its Investor
capital to Step 3a
purchase loans) Borrowers repay $95K
Private Lender
(using their own Borrower
capital)
Step 2
Lender loans $100K to borrowers
Step 1: Step 3b
Grantee uses funds to create $10K Loan Loss Reserve Borrowers
default
Loan Loss on $5K
Grantee Funds
Reserve
Step 4
Loan Loss Reserve reimburses I Default
investors for $5K

16. QECBs / New CREBs – Overview
Description • Qualified Energy Conservation Bonds (QECBs) may be issued by state, local and tribal governments to finance qualified
energy conservation projects, with a minimum of 70% used for governmental purposes.
• Qualified projects are defined broadly (detailed discussion to follow). Examples of qualified projects include
energy efficiency capital expenditures in public buildings, green community programs, renewable energy
production, various research and development, efficiency/energy reduction measures for mass transit, and
energy efficiency education campaigns.
• Treasury allocated $3.2 billion in bonds to states based on population
• New Clean Renewable Energy Bonds (New CREBs) may be issued by public power utilities, electric coops, state and local
government entities, tribes, and certain lenders to finance renewable energy projects.
• Qualifying technologies are generally the same as those eligible for the federal renewable energy tax credits.
(i.e., solar, wind, biomass, solid waste, hydro, etc)
• Treasury allocated $2.4 billion on a competitive basis. Bonds must be issued by October 27, 2012.
• QECBs / CREBs were originally structured as tax credit bonds but have been converted to direct subsidy bonds whereby
the issuer pays the investor a taxable coupon and receives a direct rebate from the U.S. Treasury.
Strengths Weaknesses
• Provides significant source of private capital for state and local • Relatively complicated to issue; bond counsel, financial advisors,
governments for an array of clean energy products and ratings agencies should be involved in early discussions
• Allows state and local governments to achieve extremely low • Capital raising is limited to amounts allocated by the Treasury
financing rates for clean energy projects
• Enables to access the much larger taxable investor community to
raise capital
Slide 16

17. QECB and New CREB Bond Mechanics - Operating Model
The diagram below outlines QECBs/New CREBs cash flows as direct subsidy bonds
i. U.S. Treasury allocates QECBs/New CREB bond volume to a Qualified Issuer
ii. The Qualified Issuer sells taxable QECBs/New CREBs as a 17 year bullet maturity to investors
iii. Bond proceeds are used to fund a qualified project
iv. The issuer pays a taxable coupon semi-annually to the investor and repays principal at the end of 17 years
v. U.S. Treasury pays issuer the lesser of the taxable coupon rate or 70% of the tax credit rate
vi. Net Interest Cost (example only):
6.00%----Taxable rate
3.70%----Minus Direct Subsidy (5.29% tax credit rate x 70% subsidy )
2.30%----Equals Net Interest Cost (Taxable Rate- Direct Subsidy)
$$$$ Bond Proceeds
$$$$ Principal Repayment
$$$$ Bond Proceeds
Qualified Qualified Year 17 Taxable
Project Issuer 6.00% taxable coupon
Investor
paid semi-annually
(2.3% Net Interest Cost)
Bond Allocation 3.70% Direct Subsidy
paid semi-annually
U.S. Treasury
Slide 17