The Financial Sell: Coordinating Smart Ideas Incentives and Other Funding Sources for Your Customer

Bill Beattie, KEMA

What We Will Cover with Today

• Overview of the Smart Ideas program• Where are the incentive opportunities?• How can I better help my clients?

Takeaway Opportunities• Is financing something my customer really needs?• To whom and where can I turn for assistance?• Would financing options make a difference for missed opportunities,

past proposals or large system applications?

Where Smart Ideas Started . . .

• Provides incentives for energy efficiency upgrades and equipment

• Part of Illinois energy legislation passed in 2007

• Program implemented by ComEd, Ameren Illinois and the Illinois Department of Commerce and Economic Opportunity

• Now in third year of program

• Ratepayer funded program

How Ratepayer Funding Works

• Energy Efficiency Programs charge on your monthly bill

• Based on kWh usage• How much is your

customer contributing?

Where the Smart Ideas Program Energy Savings Come From

Smart Ideas kWh Savings

Lighting

76%

Other

9%Refrigeration

2%

Motors

6%

VSD

5%

HVAC

2%

Grocery

2%Heavy Industry

17%

Hotel / Motel

2%

Light Industry

22%

Medical

6%

Miscellaneous

7%

Office

14%

Restaurant

0%

Retail/Service

12%

School/College

2%

Warehouse

16%

Who Receives Incentives from Smart Ideas for Your Business?

By kWh, 2008 to Present

Smart Ideas Helps You Become More Energy Efficient

• Prescriptive and custom incentive program

• New construction program• Retro-commissioning program

– Commercial building

– Compressed airIncentives

Services

Prescriptive and Custom Incentives

Prescriptive Measures

“Off-the-shelf” equipment retrofits, replacements and upgrades:– Lighting – HVAC – Refrigeration– Motors– Commercial kitchen/food

service equipment– Controls and sensors

Custom Measures

Tailored-for-you energy efficiency upgrades, such as:

• Energy management systems• Industrial process improvements• And other efficiency

improvements not captured by the prescriptive program

Incentives

New Construction

Small buildings track• Less than 20,000 square feet• Focus on daylighting

Systems track• Over 20,000 square feet• Focus on later stages of design

Comprehensive track• More than 50,000 square feet• Focus on early design stages• Whole building modeling

provided

Incentives

Services

Commercial Building Retro-Commissioning

• Incentive is the cost of engineering study and M&V

• Study performed by ComEd-approved service provider

• 500 kW and larger

• 150,000 sq ft and larger

• Measure implementation deadline

• Customer implementation requirement of $10,000 or $20,000, depending on project size

Services

Compressed Air Retro-Commissioning

• Two tracks

– 100–499 HP

• Incentive pays for portion of study

• Customer leak-fix requirement (50% by volume)

– 500 HP and larger

• Incentive is the cost of engineering study and M&V

• Customer is paid $0.01/ M&V kWh

Services

How to Cash In…

The Customer’s Perspective

Financing Energy Efficiency

• Why financing?• Types of financing• Barriers• Solutions• Leveraging financing options with utility programs like Smart Ideas for

Your Business• Where do we go next?

Why Financing?

• Capital required for major investment in energy efficiency improvements• Recent severe economic conditions• Avoid cost of delay and missed savings potential• To complement other energy efficiency programs offered by Smart

Ideas incentives• Combine with EECBG, EPACT and other options• Positive cash flow – net savings to customer – should be a win-win

Traditional Types of Financing

• According to the SBA, there are four primary funding options:– Internal funds– Debt financing– Lease or lease financing (buck out lease)– Venture capital– Angel financing (friends and family)

Traditional Types of Financing for Energy Efficiency

• According to the DOE and Small Business Review, there are two more options for energy efficiency

– Internal funds

– Debt financing

– Lease or lease financing (buck out lease)

– Venture capital

– Angel financing (friends and family)

– Energy performance contracts

– Utility incentives

Barriers to Commercial Financing (and not always just tied to financing)

• Confusion — complexity tied to take-up rate (more than interest rate)• Transaction cost — paperwork, paperwork, and more paperwork • Lack of customer knowledge — audit driven results in more savings,

with more complexity• Lack of confidence — will the savings materialize?• Split incentives• Debt classification• Utility objections to tie financing to utility bill• Bank objection to tie financing to property tax The reality of regulatory constraints for utility programs and state

lending laws

What Holds Customers Back

• Availability of capital– Cost of capital– First cost– Credit and collateral

issues • Payback/ROI requirements

– Payback period of less than three years typical

Availability of Capital

Payback Requirements

All Other Barriers

Now the Quagmire…

Design Assistance

Low Interest Loans

Rebates

Technical Assistance

Loan

ESCOs

Grants

Venture Capital

Angels

Local Government

Capital

State Government

Capital

Utility Programs

Lease

Cash

Financing Options

Revenue Bonds Tax Revenue Lag

Cover

Defa

ult

s

SBA Loan Programs

Backed by Gov Capital

On-Bill Financing

Low Interest Loans

Grants

Revolving Loan Fund

Grants

Loan Loss Reserve

Matching Funds

Tied to property tax bill and Property Lien

Federal Stimulus Funds State Energy Program, EE&C Block Grants

Traditional Loan Community Reinvestment Act Line of Credit Equity Refinancing

Property or Business

Petroleum Violation Escrow Fund

The Challenge:• Energy efficient solutions often cost more than their inefficient

equivalents. Although the people who purchase them will benefit over the life cycle from the energy savings, the incremental, up-front costs of energy efficiency can make the efficient purchase unattractive to many business customers.

Solutions:• Funding sources that cover these up front costs and allow people to pay

back principal and interest from energy savings, rebates that cover incremental costs, and tax incentives that do the same can overcome this first-cost hurdle. Since energy bills are lower for energy efficient buildings, net operating costs for efficient buildings (mortgage plus utility bills) are usually lower, making energy efficiency a smart economic decision if financing is available. Source: Eight Approaches to Enable Greater Energy Efficiency: The National Council on Electricity Policy

Where Do We Go from Here? First Steps to Help Your Customer

• Help them set goals for targeted, short-term wins (i.e. highlighting projects with quicker payback periods) and for enduring approaches.

• Encourage leveraging Smart Ideas incentives to fund additional capital projects. Help them with creative ways to leverage these funds as “below line” budget line items, for example.

• Develop multiple project opportunities from the “short-term wins” to lock you in for long run solutions with your customer.

Trade Allies that Are Successful with this Program:

Help the customer reserve their project

Complete the project on time and to program specification

Do everything possible to ensure that the check is in the mail for the customer!

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How to Cash In…

The Contractor’sPerspective

What Other Funding Sources Should You Present to Your Client?

• Have a basic working knowledge of the EPACT program and the difference between tax deductions and tax credit opportunities.

• Consider proposal templates that include estimated EPACT credits and deductions. Always encourage deferral to a tax professional.

• Check for any applicable grant programs available to your client.• Look for EECBG (federal block grants) in communities you serve.• Network with economic development contacts in your community.• Consider association-based funding sources.• Check with your suppliers, manufacturers and distributors for project

funding sources.

Develop Yourself as a Resource Expert for Your Clients

• Consider developing accounting firm business development contacts.• Network with other contractors that you know and trust.• Develop your personal “document library” to leverage current and

readily-available industry data … and share this knowledge.• Help your customer overcome any “unrealistic” return-on-investment

requirements that may be an internal hurdle.• Develop “bundled” solutions versus “one and done” opportunities.• Qualify your prospects well. Be choosy about where you spend your

time.

How Do I Develop a Financing Resource Base?

• Start with people and companies in this meeting today.• Work with your ownership and their knowledge. If you are an owner,

share your knowledge and contacts!• Pursue training events provided by ECW/ComEd and others.• Leverage the knowledge at your client’s company: CFO, business

analysts, facilities directors . . . they all know people that you need to know.

• Talk to other business professionals in your community.• Ask those you trust about who they trust: your attorney, your

accountant, your investment advisor.• Ask us! Your Smart Ideas outreach staff knows hundreds of companies

and contacts who can help you get the answers you need!

Next Steps . . . Some Simple Questions!

What can I do to help you leverage Smart Ideas for Your Business to get some of your

projects done?

If relevant financing options were available, would this help justify this energy-efficiency

system purchase for your company?

Need Help Getting Started with a Large Account? Ask for a Smart Ideas Opportunity Assessment• What is an Opportunity Assessment?

– Identifies energy efficiency projects at the client’s facility that may qualify for Smart Ideas incentives

• How long does it take?

– A ComEd energy engineer will spend about two hours with them on-site to assess opportunities

• What will I receive?

– Within two weeks of the assessment, the client will receive a letter with energy efficiency opportunities with the estimated savings and potential incentives.

• How do I get started?

– Suggest an Opportunity Assessment — the client’s ComEd Account Manager will do the rest

Additional Helpful Resources for Financing Assistance

• www.dsireusa.org Click on Illinois for available resources• www.energy.gov/energyefficiency/financing.htm• www.sba.gov/content/financing-energy-efficiency-projects• www.smartenergy.arch.uiuc.edu/pdf/DOEFinancingHandbook.pdf• www.ase.org/event/financing-webinar-september-2010• www.aceee.org/topics/energy-efficiency-financing

These websites will provide you with financing descriptions and options.

Sell your role as a Smart Ideas Trade Ally to your customers!• I am an independent contractor

with Smart Ideas experience and training.

• Mr/Ms. Customer, I can help you:

– Identify opportunities

– Select, purchase and install equipment

– Manage your project

– Complete and submit your paperwork

www.comed.com/TradeAllyDirectory

• For general program information

and application forms:

www.ComEd.com/BizIncentives• Questions about eligibility,

specifications, how to fill out

applications, finding a trade ally,

and anything else:

ComEdSmartIdeas@KEMA.com

(888) 806-2273

Fax: 1-630-480-3436

For Answers to Your Questions . . .

?

Thank You!