White Paper Outlines Three Ways to Stretch Funds for Efficiency Projects from $2.6 Billion to More Than $10.5 Billion

SAN FRANCISCO, CA – June 4, 2013 -- California can extend the duration and effectiveness of Proposition 39, the state’s landmark energy improvement initiative for schools and public buildings, if it dedicates a portion of the revenue to leverage private sector capital for energy efficiency and advanced energy projects, according to a new white paper from Advanced Energy Economy (AEE), a national business organization representing the advanced energy industry.

In November 2012, California voters approved Proposition 39, which is anticipated to generate approximately $1 billion per year in additional corporate tax revenue, with approximately half of the revenue over the first five years dedicated to energy efficiency and advanced energy projects primarily in public school buildings. The AEE white paper outlines three options to attract and leverage outside capital to expand total energy savings. These options, developed in consultation with California advanced energy business and financial leaders, incorporate innovative financing mechanisms to stretch the estimated $2.6 billion that will be generated by Prop 39 over five years to more than $10.5 billion over 30 years. This leveraging of private capital will finance a far greater number of energy-saving improvements in schools and other public buildings.

“Leveraging Prop 39 revenues can transform this initiative from a one-time opportunity to an ongoing source of funding to support energy efficiency and advanced energy projects in California over the long term, generating far more energy savings,” said Graham Richard, CEO of Advanced Energy Economy. “California is already at the vanguard of America’s advanced energy future. By making smart use of these funds, California can add to that leadership and be a model for other states and the nation.”

With over 1,000 school districts in California, a five-year program to expend more than $2.5 billion in Prop 39 revenues will leave policy makers with the difficult choice of either funding small efficiency upgrades in large numbers of schools, or deeper, more capital intensive efficiency upgrades in just a small number of schools. Additionally, energy upgrades are needed at numerous public facilities beyond K-14 schools. If Prop 39 funds are deployed without the benefit of leveraging, many of the more extensive retrofit opportunities that would save the most money will go unrealized. A leveraging strategy significantly grows the pool of available funding, enabling deeper retrofits and projects in a much larger number of districts, even making it possible to open up the program up to other public facilities in need of energy improvements.

“Limiting Prop 39 to a straight grant program would squander a unique opportunity to have a transformative impact,” said Steve Chadima, AEE Senior Vice President of Communications and Director of California Initiatives. “By dedicating a significant portion of revenues to finance mechanisms that spur greater private capital participation, state policymakers can increase the impact of Prop 39 four-fold and extend its energy-saving benefits well beyond the initiative’s five-year timeframe.”

AEE’s approach is based on the following principles, developed in consultation with advanced energy executives and project finance experts and transmitted to Governor Brown and legislative leaders last month:

• Prop 39 implementation should follow a phased-in approach, shifting from grants and technical assistance in the early years to financing mechanisms that extend the duration and impact of the program in later years.

• All elements of Prop 39 should seek to attract and leverage outside capital; this includes the grant-funding elements, which should require applicants to leverage additional dollars in the form of utility rebates, local bond revenues, public or private loans, or other sources.

• Entities with experience dealing with private markets should oversee the finance elements of Prop 39 implementation. The State Treasurer’s office currently administers a number of programs that deal directly with private markets. At the same time, other state entities may be better positioned to interact with school districts and other applicants, allowing the Treasurer’s office to focus on the finance-related elements of program implementation.

• Prop 39 implementation should seek to align existing and forthcoming California energy finance programs, serving as a bridge to a more comprehensive approach to financing advanced energy in California.

In “Expanding Energy Savings Through Leverage: Proposals for Getting More Value Out of Proposition 39,” AEE offers three different strategies for maximizing Prop 39’s energy saving impact:

• OPTION A - The first option dedicates roughly 40% of Prop 39 revenues to leverage opportunities, generating total program value of more than $10.5 billion over 30 years. Option A dedicates approximately $1.5 billion in technical assistance and project grants, with disbursement weighted toward early delivery for readily qualified projects. This schedule recognizes that complex and more expensive projects that require sophisticated audits and planning may take longer to properly analyze and work their way through the queue.

  • Grants for direct funding of energy improvement projects total about $1.2 billion.

  • An innovative new Interest Rate Offset Grant (IROG), in the amount of $320 million, created as a companion to the market-rate revolving loan fund program (below). The IROG grant pays the interest costs, in whole or in part, of the loan to ensure that the loan is affordable to the public institution.

  • A $1 billion revolving loan fund that provides capital at market rates to finance projects too expensive to be funded by direct grants and $100 million in credit enhancements to facilitate the sale of loans to private lenders.

• OPTION B – This option sets aside 25% of Prop 39 revenues for leverage, allowing total program value of more than $3.9 billion using a revolving loan fund and credit enhancements, or more than $6.5 billion if the IROG mechanism is incorporated as well.

  • Option B allocates a little over $2 billion in direct grants over the five-year period. Like Option A, these grant disbursements are weighted toward early delivery to readily qualified projects.

  • Option B also allocates $500 million to a low-interest revolving loan fund and establishes a $50 million credit enhancement program. This approach uses existing financing programs and limits the need to incorporate innovative financing strategies.

  • Adding the Interest Rate Offset Grant mechanism to Option B would substantially increase the total program value, to a total of just over $6.5 billion.

• OPTION C – The third option would dedicate 10% of Prop. 39 revenues to credit enhancements to spur greater private lending, generating total program value of $6 billion. The bulk of Prop 39 funds would be dispersed as direct grants, with $275 million set aside for credit enhancements on two rounds of 15-year loans from private sources.

About Advanced Energy Economy (AEE)

Advanced Energy Economy is a national association of businesses and business leaders who are making the global energy system more secure, clean, and affordable. Advanced energy encompasses a broad range of products and services that constitute the best available technologies for meeting energy needs today and tomorrow. AEE members include companies involved in technology development, component and product manufacturing, project and infrastructure development, equipment installation, engineering, finance, advisory services, and other activities that help business and residential consumers meet their energy needs in better ways. http://aee.net

Contact:

Jim Hock

463 Communications/Advanced Energy Economy

202-463-0035