My Clean Break column this week is kind of a Part II to last week’s column about the need for creating financing programs, such as Property-Assessed Clean Energy (PACE) or Property-Assessed Payments for Energy Retrofits (PAPER) programs, to get the energy-conservation ball rolling in Ontario. Last week I focused on residential retrofits. This week the spotlight is on commercial and multi-tenant buildings, with a look at some early successes by a consortium led by the Richard Branson-backed Carbon War Room and the potential of Toronto’s Tower Renewal program, which like the residential opportunity has been held back because the Ontario government has been slow to make the required regulatory amendments.

——————————-

Clean Break

By Tyler Hamilton

Jigar Shah thinks large when it comes to battling climate change.

That’s a good thing, because reducing humanity’s global greenhouse-gas emissions to a manageable level is a titanic problem needing equally enormous solutions.

Shah is the chief executive of Carbon War Room, a Washington, D.C.-based non-profit enterprise co-founded and funded by British-born billionaire Richard Branson.

His mission, as the organization’s name makes clear, is to wage a war against carbon emissions by harnessing the power of markets and entrepreneurs. The trick is to get massive amounts of private capital to flow in the right direction.

Government policy is nice and has a role to play, but in Shah’s words the real action we need will only come about “using greed as a force for good.” And incremental steps won’t cut it. In a world that tends to measure greenhouse-gas emissions by megatons, Carbon War Room is only interested in tackling gigatons.

In other words, go big and move fast or lose the war.

Time appears to be running out – and it’s not environmentalists issuing the warning these days. Fatih Birol, chief economist at the International Energy Agency, said this week “the door is closing” on our ability as a society to keep global emissions and temperatures to within manageable levels.

We already know that temperatures are on course to rise 2 degrees C no matter what we do. We have about five years, said Birol, to put the world on a course that will keep the thermometer from rising much further. “I am very worried,” the economist told the U.K.’s Guardian newspaper.

One area where Carbon War Room is moving fast and aiming at a large target is energy efficiency in buildings, which accounts for about 20 per cent of global CO2-equivalent emissions.

For example, Shah and his team helped bring together a consortium that is aiming to spend $650 million (U.S.), to start, on energy-efficiency retrofits in commercial buildings scattered throughout Miami, Fl. and Sacramento, Calif.

Their approach, revealed in September, builds on the creative financing model I wrote about in last week’s Clean Break column, only in this case it’s focused on commercial real estate.

The consortium is led by Ygrene Energy Fund, which reviews retrofit proposals and then passes them off to technology and engineering giant Lockheed Martin. Lockheed does the building audits, calculates the energy savings that could come from a retrofit, and provides all technology and services required to achieve those energy savings.

Energi Insurance Services reviews what Lockheed promises and insures the deal. To add an extra layer of security, HannoverRe further backs Energi’s insurance policy. The idea is that risk has been reduced so much that Barclays Capital, the financing partner in the consortium, is more than happy to fund it all.

Barclay’s gets paid back through a charge on the building owner’s property taxes that is collected by the municipalities over 15 or 20 years. If done right, that charge is less than the energy savings achieved through the retrofit. And it’s all done off-balance sheet, meaning it doesn’t add to a building owner’s debt load.

Miami and Sacramento love it, too. “They are going to generate 17,000 jobs, and they will see city revenues increase from a jump in building permit fees and sales tax revenues,” says Shah, in Toronto last week to speak at an industry conference.

Carbon War Room’s target is to see $300 billion (U.S.) in capital deployed in this way by 2020, and Shah is convinced a tipping point has already been reached.

“We have 65 cities on three continents begging us to deploy (this model) in their cities right now, and we’re moving as fast as we can,” says Shah, adding that pension funds and big institutional investors, having seen Barclays take the lead, are now coming to the table.

“There’s nothing anyone can do to stop it. It has irreversible momentum,” Shah says. “I’m ecstatic about it.”

That’s the power of aggregation, scale and thinking large. It can tap into massive pools of capital that one-off projects can’t touch.

Toronto has its own program in the works called Tower Renewal, which is aiming to see 1,200 residential apartment buildings in the GTA retrofitted at a cost of about $6 billion over 20 years.

The plan is to create an arms-length entity called Tower Renewal Corporation that would manage the program and arrange all financing. Project director Eleanor McAteer says the potential for energy savings, emissions-reduction and job creation is huge.

“Our approach would be very similar to what we’re reading about in Sacramento and Miami,” she says.

“We’ve had some general discussions with the financing marketplace and yes, there is a great deal of interest, but we need to have regulatory approval from the province before we can enter into any serious discussions.”

The city asked the province to make those regulatory changes in summer 2010. As the end of 2011 fast approaches there’s still no word from Queen’s Park.

So as momentum around the world for this kind of climate solution builds, Toronto is sitting and waiting for a simple action from the province that will come at no cost to taxpayers or ratepayers.

What’s the holdup Premier McGuinty?

Tyler Hamilton, author of Mad Like Tesla, writes weekly about green energy and clean technologies.

My Clean Break column in the Toronto Star this weekend takes a closer look at “local improvement charge” models for financing deep residential energy-efficiency retrofits. Subsidy/rebate programs help address the low-hanging fruit, but it’s time to move beyond light bulbs and shower heads and into programs that go after more substantial efficiency gains. To a large extent, this isn’t about handing out more subsidy dollars as much as enabling municipal financing models that are revenue-neutral to taxpayers and impose little (or zero) additional burden on ratepayers.

————————————————————————–

Tyler Hamilton

What is the province doing to help homeowners conserve energy and cope with rising electricity prices?

Not much these days.

Ontario’s earlier commitment to match rebates under the federal government’s program has long expired. The program was extended to March 31, 2012, but the province decided to pull its support.

Instead, we got the Clean Energy Benefit – a 10 per cent rebate on electricity bills that will be in place until 2015 at a cost to taxpayers of more than $1 billion a year.

That’s money that could have gone toward conservation programs. Now it’s being used to undermine conservation by giving consumers less reason to care about energy wastefulness.

It’s hardly a sustainable approach. Clearly, the only way to help Ontario ratepayers cope with rising electricity rates over the long term is to push for deep energy conservation in households across the provinces.

And here’s the thing: it could, if done properly, barely cost anything for the province and municipalities to make such a serious conservation push.

It turns out that a lack of subsidies isn’t the biggest thing holding back major residential energy-efficiency projects; it’s the lack of affordable and easy-to-access financing.

It’s also about the lack of willingness on the part of provincial and municipal leaders to embrace programs that have already had successful test drives south of the border.

These programs come under a variety of names, but at their core is the ability of a municipality to raise cheap capital through a bond issue and then offer low-interest financing to homeowners wanting to do major energy-efficiency retrofits.

Under such a model, the homeowner repays the city (with interest) over 15 to 20 years through a type of “local improvement charge” added to property tax bills. The idea is that the permanent energy savings from the retrofit would more than cover the cost of repayment.

Also, the charge is tied to the home, not the owner, so doesn’t add to personal debt load. When an owner sells the property the new owner takes over the charge but also gains the benefit of having lower monthly energy costs in a climate of rising prices.

“There’s huge interesting in this approach, from people at all levels of government,” says Sonja Persram, president of Sustainable Alternatives Consulting Inc. in Toronto.

She says 26 U.S. states have already changed legislation to permit this kind of municipal financing, and late last year Nova Scotia made similar changes in support of a solar-thermal installation program in Halifax.

“It can be delivered at no cost to municipalities, and some municipalities have been looking at having programs that are even slightly revenue-positive,” she adds.

Under contract with the David Suzuki Foundation, Persram spent the past two years studying the approach, which she calls Property-Assessed Payments for Energy Retrofits, or PAPER for short. Her findings were published in three reports that came out in April, May and August.

The research has been well received in both financial and building appraisal communities, and earlier this year the Toronto Real Estate Board passed a motion supporting creation of a PAPER program for Ontario.

There is a big roadblock, however, and this is where the province plays a crucial role. Toronto and other municipalities can’t offer this kind of financing unless Ontario moves, like Nova Scotia did, to pass enabling legislation.

Queen’s Park would also need to assuage the concerns of mortgage lenders. After all, if you as a homeowner get $30,000 in municipal financing to retrofit your home, a bank might not like that the lien for that amount placed on your property takes priority over a mortgage in the event of default.

(Such a concern raised by Fannie Mae and Freddie Mac in the U.S. has effectively brought all PAPER-like residential programs to a standstill until legal issues are resolved).

The province would have to make clear to all parties that it wouldn’t be the entire $30,000 that gets priority over the mortgage, but only any defaulted payments on that financed amount. That’s because once the property is sold, the new owner would take over the remainder of the retrofit financing.

“In order for such a program to work here you have to have the province, the financial institutions and the City of Toronto all sitting in the same room talking about this issue,” says Tim Stoate, an associate director and investment expert at the Toronto Atmospheric Fund. “I don’t think that conversation has happened.”

It needs to happen if the McGuinty government wants to pay more than lip-service to its energy conservation goals. It is unlikely happen, at least not at a scale that matters, if the province doesn’t step in as chief facilitator and coordinator.

Tyler Hamilton, author of Mad Like Tesla, writes weekly about green energy and clean technologies. Contact him at tyler@cleanbreak.ca

I’d like to start off by saying that the federal government and provincial governments in Canada have missed the boat. They had the opportunity to raise billions of dollars in green bonds as a way to make cheap debt capital available for big projects promoting industrial efficiency, renewable power or clean fuel production. At the same time, Canadians would have access to a safe and ethical investment, as green bonds could be purchased just like Canada Savings Bonds. Tom Rand, who leads the cleantech practice at Mars Discovery District in Toronto, spent much of 2007/2008 promoting the idea but unfortunately it got little traction within government circles. It could still be done, or some variation of it.  The U.K. is getting ready to launch its first Green Investment Bank. In the U.S., the Department of Energy’s Loan Guarantee Program for clean energy projects has backstopped nearly $31 billion worth of projects and President Obama is seeking to double that amount, while the U.S. Senate is considering establishing the Clean Energy Deployment Administration, which would effectively operate like a green bank. Canada, it would appear, has nothing equivalent in the works, let alone under discussion.

The good news is that communities of like-minded folks, as I write in today’s Clean Break column, are taking the green energy funding challenge into their own hands. Several community co-ops have emerged that plan to issue “Community Bonds” as a way to raise cheap debt financing for local renewable-energy projects. SolarShare is doing it for solar PV installations. ZooShare is doing it for a biogas facility at the Toronto Zoo. WaterShare plans to do it for small hydro projects. Others are emerging, most learning from the early pioneering work by the Centre for Social Innovation in Toronto. It’s an innovative approach to a big problem, and it’s a positive story for green energy that could gain momentum as the first few projects of this type show success. Their approaches may differ slightly, but for the most part, if you’re a not-for-profit community co-op you can seek approval from the Financial Services Commission of Ontario to issue private bonds to people within your community or social network. You can even make these community bonds RRSP-elligible, making this a very attractive investment for citizens looking to put their money back into their own communities and, even better, support green energy projects at the same time.

It’s no secret that smaller community renewable-energy projects have had a difficult time raising capital from the usual suspects. Banks aren’t interested, and if they are, they charge interest rates that can make a project uneconomic. You’d think that in Ontario, where the feed-in-tariff program guarantees electricity payments over 20 years for renewable-energy developers, the banks would be more willing to lend. But the credit crunch persists. Community bonds have emerged as a way to go directly to local supporters of projects, and those local supporters in return get a decent return on their investment. The power of social media makes connecting with the community that much easier.

ZooShare plans to offer an annual rate of return of 6 or 7 per cent for community bonds that can be redeemed after seven years. Bonds can be purchased in $500 or $5,000 units, depending on an individual’s relationship with the zoo or distance from it. SolarShare is eyeing bonds that would pay 5 per cent annually over five years and could be purchased in $1,000 units. Both have figured out how to make these bonds RRSP-elligible, meaning they could be purchased through a self-directed RRSP account and the buyer could shift existing investments in that account to community bonds.

Now, there are always hiccups. The financial services commission has been slow to approve these community bond issues, as this is new territory for the commission and, from what I hear, they lack the budget to devote too much attention to it. This is where government could and should step in to help grease the wheel, so to speak. Also, banks are largely ignorant about these bonds and are unlikely to make them available to their customers, at least initially. There is a learning curve here for the large financial institutions to overcome. Credit Unions will, as usual, likely be the first to give their customers access to these bonds, and eventually one of the more progressive and sustainability minded big banks will move to distinguish itself by doing the same. Citizens who want to purchase these bonds, at the same time, will have to make some noise and push their banks to get on board. It won’t be easy, and it will take some time. Again, a little nudging from the government would help.

These community bonds, it’s important to keep in mind, aren’t as secure as your typical government bond. There’s no physical assets backing it or government purse, just a 20-year power purchase agreement with the Ontario Power Authority. Projects could fail. There is some risk. That’s why SolarShare, for example, doesn’t plan to sell bonds until it a project is built and operational. The bond issue, instead, will raise money to pay off bridge financing and other loans to get the project up and running. This significantly reduces risk for the community bondholders.

This kind of creativity is to be applauded. Community bonds solve a big problem. Another great approach is to allow homeowners to pay for solar PV systems through their property taxes. This is essentially what was done through the hobbled Property Assessed Clean Energy (PACE) program in the United States. Under this program, municipalities raise money through a bond issue that funds the installation of PV systems on residential rooftops or geothermal heat pump systems. Homeowners participating in the program gradually pay back the cost and interest of the system through their property taxes. No upfront pain. It’s another terrific idea, one largely ignored in Canada.

There’s still a chance to get our act together. Government green bonds, green banks, community green bonds, and PACE style programs could all be created and put to work across Canada, had we the vision and will to pursue them.