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What’s Unique about the Texas PACE-in-a-Box Toolkit

Texas faces an unusual scenario when it seeks to advance property-assessed clean energy (PACE). The state has a tradition of seeking private-sector solutions and streamlining government activities. This means PACE methods adopted in other states – such as Connecticut – would not work in Texas.

Also, Texas’s private sector is massive. The state’s businesses – and their environmental footprint – are growing rapidly. In a Nov. 18 webinar called “PACE in Texas 101,” Charlene Heydinger, executive director of Keeping PACE in Texas, said Texas uses 19 percent of the industrial energy consumed in the United States.

“Texas leads the nation in energy consumption, accounting for 12 percent of the nation’s energy use,” Heydinger said. “Water is even more of a challenge.”

“All of this is being exacerbated by tremendous growth in Texas,” Heydinger said. “More than 1,000 people move to Texas every day.”

“PACE can help,” Heydinger said.

PACE, as Texas defines it, includes loans for energy efficiency, renewable energy, distributed generation, and water conservation. It covers commercial, industrial and multifamily properties.

Loans for all of these projects are created via voluntary county or municipal property assessments. These loans are considered high-priority compared to other debts, are passed on to new property owners, and survive defaults and foreclosures.

These terms are very favorable for lenders, since they make repayment quite reliable.

As Texas faces water shortages and grid reliability issues, its need for both clean energy and water efficiency are growing rapidly. Heydinger presented a graph showing the large scope of the current drought. This drought impacts industrial enterprises and other businesses and affects many communities.

Expanding PACE

The convergence of all of these factors has created momentum in Texas’s private sector and government to develop PACE programs that cover both water and energy. More than 100 stakeholders have built a toolkit in a unique response to this challenge. It is aptly titled “PACE-in-a-Box.”

“What is really wonderful about PACE-in-a-Box is that it’s the first program in the United States that has been designed by the stakeholders who are going to use it,” Heydinger said. “We were highly motivated with several goals that reflect the Texas economy and Texas mindset.”

Many potential PACE projects have already been proposed in Austin, Amarillo, and other cities – even though the programs do not exist yet.

When Gov. Rick Perry signed PACE legislation in 2013, the proposal was relatively flexible. It left a great deal of room for local municipalities and counties to interpret how to implement PACE.

But stakeholders recognized that such a high degree of flexibility would doom PACE to failure in smaller and more rural communities. While larger cities such as Austin and Houston might have the resources to customize PACE, smaller communities do not.

The toolkit specifies that small communities can partner with one another regionally to work together to implement PACE. This may result in clusters of communities creating PACE programs collaboratively.

Building a Standardized Solution

Keeping PACE in Texas partnered with a large network of groups to develop a simplified, standardized solution that communities and regions throughout the state can use.

PACE-in-a-Box contains standard documents for all of the major transactions involved in local PACE programs – from public hearings to lender negotiations.

According to Rachel Stone, Policy Coordinator at South-central Partnership for Energy Efficiency as a Resource (SPEER), PACE-in-a-Box provides many resources for program developers. These include model contracts for providers and lenders, open market financing instructions, a model lender notice, a technical manual for ensuring the viability of energy improvements, a model application, and a series of tests of financial ability.

“We’ve tried to do as much as we can to make this easy for local governments to use,” Heydinger said.

PACE-in-a-Box encourages property owners to select their own contractors, lenders, and equipment manufacturers.

Stone said she believes this market demand will stimulate economic growth. “PACE helps in places where the economy has been depressed and people want to make capital improvements.”

The toolkit encourages third-party financing of loans, but municipal bond financing is also an option.

Loans may be serviced by the local PACE program itself, via a county tax assessor or collector, by the lenders, or by third-party servicers.

Stone said PACE-in-a-Box recommends a savings-to-investment ratio of greater than one for each project. It also recommends total investment of less than 20 percent of each property’s assessed value.

“We are only doing deals that make sense in the business community,” Heydinger said.

This article was originally published by Clean Energy Finance Forum, a news website sponsored by Yale University. To subscribe to our newsletter, please visit our website.

January 6, 2015 0 comment

Designing Climate Finance for the Developing World

written by Kat Friedrich

Scaling up investment in developing nations to reduce the hardships of climate change poses many challenges. The Organisation for Economic Co-Operation and Development, an international forum for improving social and economic policies, produced a report exploring this urgent situation in May. The report is titled “Scaling up and Replicating Effective Climate Finance Interventions.”

Kat Friedrich, editor of Clean Energy Finance Forum, interviewed Takayoshi Kato, the first author of the report, via email in August. The conversation explored the structural obstacles that make it difficult to expand climate finance in the developing world. It also highlighted strategies for sharing best practices, building self-sustaining programs, and developing adaptable solutions.

CEFF: The research paper says private climate finance can be mobilized by scaling up and replicating small-scale interventions. What are some of the advantages of starting at the local level rather than starting at a higher level?

Kato: One advantage of starting at the local level can be that a local-level intervention can more likely benefit from the knowledge and experience of local stakeholders and financiers as well as interpersonal networks in the area, which in turn could lead to timely and smooth implementation of the intervention.

Also, there are lots of small-scale actions that are economically efficient or have many co-benefits (for example, residential energy efficiency, agriculture, etc.), so this is an opportunity that needs to be tapped.

But you should also note that our paper and some previous studies have found that we should go for programmatic approaches, rather than project approaches, to better align individual climate initiatives with national developing goals in developing countries.

CEFF: What are some of the types of financial instruments that can be effective in helping climate finance interventions expand in developing nations?

Kato: There is no one-size-fits-all financial instrument to help climate finance interventions expand in developing nations.

The instruments or tools which are best suited to specific climate activities vary among different countries, technologies and project types.

For instance, grants can be particularly useful for building capacity and mobilizing financial support for countries with limited institutional capacities or resources.

Concessional loans could improve risk-return profiles of projects with greater risks such as large upfront investment requirements. Other instruments and tools (such as green bonds and equity provision) are better suited for generating interest from the private sector in more financially mature markets.

Importantly, some cases show that projects and programs tend to be more successful if they involve multiple financial instruments (and also multiple actors and policy interventions).

CEFF: What are some enabling environments and supportive institutional structures that facilitate the growth of climate finance interventions?

Kato: We need a variety of actions to enhance enabling environments and institutional capacities in developing countries to better access, manage and use the finance.

We need to work together among different levels of governments, private-sector organizations, and civil society to improve and sequence various policy frameworks such as stable policy goals, regulatory and policy instruments, and monitoring and evaluation frameworks. We also need to align these elements with countries’ national development goals.

It would also be useful to have a feedback loop process to revisit and update policy goals and policy instruments from time to time.

CEFF: What are some of the policy obstacles that can make it difficult for climate finance interventions to expand in developing nations?

Kato: In fact, there are barriers for finance in general such as the need for a stable regulatory environment, the relative maturity of local financial markets, the rule of law in the nation, and limited currency risks.

And on top of that, there are further climate-specific risks. Climate finance interventions could be expanded more in developing countries if they have stable and coherent policies for pricing carbon (and rationalizing subsidies for fossil fuels), develop local financial markets and investment policies to level the playing field for greener investments, and improve accountability.

International cooperation for building such “readiness” is also essential.

CEFF: The report mentions the importance of sharing best practices and performance data across programs. Is this an area in which international collaboration is possible? If so, how might that work?

Kato: It is an encouraging sign that there are a number of forums where negotiators, practitioners and academics can exchange their experiences and views.

Possible international collaboration on sharing best practices could build on such environments. Under the Convention, for example, there are the Forums of the Standing Committee on Finance, the Technical Expert Meetings, and the Durban Forum on capacity building.

There are also many initiatives outside the Convention, such as the Climate Investment Fund partnership forums. Indeed, information provision and sharing is an explicit part of some international climate finance programs, such as the Global Environment Facility and the Climate Investment Funds.

Also, a measuring, reporting and verification system could be enhanced in the post-2020 period so that it could provide decision makers with a wider range of information on effectiveness of the climate finance interventions. Such information would need to be shared internationally.

CEFF: How can organizations determine when climate finance interventions have become self-sustaining?

Kato: It really depends on the types of finance interventions and criteria that those organizations have for determining self-sustainability.

In the simplest sense, self-sustainability might mean the profit level that can cover capital, operational and financial costs.

Also, developing sufficient capacity and accumulating knowledge are essential parts to make interventions self-sustaining once the international financiers or consultants who set them up have gone away.

But many adaptation projects do not have revenue streams, at least in the short term. Even so, some adaptation projects could be self-sustaining, since a government keeps providing funding for those projects as this is recognized as the role of the government in providing public goods.

This article was originally published by Clean Energy Finance Forum, a news website sponsored by Yale University. To subscribe to our newsletter, please fill out our contact form.

October 15, 2014 1 comment

Pay-as-You-Go Solar Lights up India and Africa

written by Kat Friedrich

In regions of the developing world where electrical grids are weak or nonexistent, people often rely on kerosene. In a webinar on Sept. 16, staff from four pay-as-you-go solar companies described how they are building rural sales networks in Africa and India to replace kerosene lighting.

The webinar, “Pay as You Go: A Sunny Future?,” was offered by Clean Energy Solutions Center. It featured Simpa Networks, BBOXX, Mobisol GmBH, and Off-Grid Electric. All of these companies are members of the United Nations Energy Access Practitioner Network.

“We want to make an aspirational modern lifestyle accessible to everyone,” said Graham Smith, vice president of business development at Off-Grid Electric. “We have ambitious goals of lighting Africa within the decade.”

Rural solar benefits customers in off-grid regions of Africa immensely, the Mobisol GmBH website says. Having solar lighting at night improves safety, especially for women and children. Children are able to study for longer hours after dark. Buyers of solar power can also start a wide variety of home-based small businesses.

Kerosene, the typical fuel of choice for off-grid communities in developing nations, has many disadvantages when compared to solar power. Its light quality is poor. And kerosene lanterns pose multiple health risks due to fires and toxic smoke.

Although the initial purchase price of a kerosene lantern is low, kerosene use helps to trap families in a cycle of poverty. Over time, using kerosene is much more expensive than relying on solar power.

Access to solar energy can help families educate their children, start businesses, and break the cycle of poverty that goes with kerosene dependence.

“Indian culture is highly aspirational,” said Paul Needham, president and co-founder of Simpa Networks. “The ancient divisions of caste are being challenged. Education is highly valued. Our customers often highlight the value of having lighting and cooling for their children’s studies.”

Until relatively recently, remote regions of India and Africa did not have sales networks set up to offer solar power to local residents.

Leveraging Mobile Phones

The companies participating in this webinar are creating pioneering distribution networks relying on a now-ubiquitous technology – cell phones.

Even in off-grid regions or areas with intermittent power, cell phone service is often available and reliable.

All of these four companies are relying on cell phones to enable their customers to pay for solar power on an as-needed basis. In at least two cases, the customers own the solar systems at the end of a certain number of payments.

“There’s a small initial down payment for the device,” Needham said. “Once the customer has completed the contract, the whole system unlocks permanently, leaving them with energy free and clear.”

Simpa Networks has been able to do business in areas of India that have unreliable cell phone service by designing a technology workaround.

“We were selling in mountainous areas where we couldn’t rely on there being a good cell connection in the home,” Needham said. “As long as a customer has access to a mobile phone, they can receive our codes.”

Simpa Networks uses these downloadable codes to add credit to the solar systems.

Needham said Simpa Networks tries to keep the number of customers who have run out of money below 10 percent at any time.

“Customers pay for the services via their mobile phones and receive codes through SMS,” Smith said. “This eliminates a lot of the costs involved with retail markups. Households are charged a simple daily fee.”

“Our customers pay us via M-Pesa and our employees are paid through M-Pesa, which cuts down corruption,” said Klara Lindner, product and service developer at Mobisol GmBH.

Corruption hasn’t been much of an issue on the customer end of the business, either. Mansoor Hamayun, co-founder and CEO of BBOXX, said few customers tamper with his company’s devices or try to adjust their payment systems.

Customer buy-in helps to reduce tampering, Hamayun said. “We’re trying to demonstrate value for money. At the moment that perception drops across customers, this problem becomes very real.”

Knowing that the solar systems will belong to them eventually may increase customers’ support for BBOXX.

“In our model, the ownership is transferred to the customers,” Hamayun said. “Different players have different approaches to that.”

Facing Rural Challenges

“The key challenge for us to be able to reach a mass market is the physical access – our ability to reach end customers in rural areas,” Hamayun said. “Partnering with local distributors can be tricky at times. We have taken the approach of being able to create our own retail network.”

The other presenters said they agreed. Developing a distribution network is key to success in rural areas in Africa and India.

“We reach beyond the last mile,” Smith said.

“Our customers live in off-grid villages and bad-grid villages,” Needham said. “We focus on bad-grid villages that get less than 12 hours of power per day.”

Training local staff is also an important consideration. Mobisol GmBH has developed a training system to equip rural technicians in Africa with the skill set they need to be able to provide solar to local communities, Lindner said. “We came up with a plug-and-play version where one technician goes through the training and is able to hook up the system within one hour.”

Lindner calls the training system the ‘Mobisol Akademie.’ “We train people for different staff positions and provide them with a job guarantee once they’ve passed their courses.”

According to the Mobisol GmBH website, the company also prioritizes gender equity in employment in all of its sites in Africa and Europe.

To reach isolated locations, Mobisol GmBH has set up a distribution network, Lindner said. “Small decentralized sales spots are everywhere our customers are.”

The company targets customers based on loan preferences and makes use of credit checks, Lindner said.

It has been surprisingly challenging for Mobisol GmBH to partner with microfinance institutions in Africa because these organizations are generally not located in rural areas, Lindner said. Their staff are “going around on motorcycles.”

Unlocking Private Capital

“I’m a firm believer that the only way to end energy poverty is to unlock private capital at scale,” Needham said. “I’m convinced that ‘solar as a service’ or ‘pay-as-you-go’ is the best way to unlock that capital.”

According to Needham’s estimate, it will cost $400 million to fund solar systems to light the homes of 10 million people. “We need to reach a billion people,” he said.

“Real scale needs to be financed by real money, and that’s only going to come from mainstream commercial investors,” Needham said.

Needham described the hierarchy of investors that can contribute to the growth of the industry.

“Impact investors typically come in early when a company’s in its proof-of-concept phase,” Needham said. “Development finance institutions like Africa Finance Corporation and Asian Development Bank can come in next. This is really a precondition for a next phase.”

“To reach universal energy access, our sector needs to unlock private capital,” Needham said. “Private capital doesn’t care about social impact, it cares about financial returns. Capital can be recycled over and over again. It’s a business model that creates new skills and new jobs.”

Needham said he predicts demand will boom in this sector. “When we finally reach a billion people with clean, reliable electricity, I think this sector will only be getting started. Most people will want more power. Energy is opportunity and opportunity cannot be denied.”

This article was originally published by Clean Energy Finance Forum, a news website sponsored by Yale University. To subscribe to our newsletter, please fill out our contact form.

October 15, 2014 1 comment

Iceland Tops Environment List As U.S., China and India Lag Behind

written by Yale Environment 360

A ranking of 163 nations based on environmental public health and the vitality of their ecosystems places Iceland, Switzerland, Costa Rica, Sweden, and Norway in the top five, with the U.S. trailing in 61st place and China and India ranking 121st and 123rd respectively.

The Environmental Performance Index, compiled by researchers at Yale and Columbia universities, ranks countries based on 10 main categories such as environmental health, air quality, water management, biodiversity and habitat, forestry, and climate change. Iceland ranked at the top because of its excellent environmental public health and reliance on renewable sources of energy such as geothermal and hydropower.

January 29, 2010 0 comment

Colleges Going Green Despite Falling Endowments, Study Says

written by Ceylan Thomson

A growing number of U.S. colleges and universities supported green initiatives during the last year despite declining endowments, according to a report released by the Sustainable Endowments Institute.

Twenty-six of 332 schools evaluated in the College Sustainability Report Card received the highest-possible grade of A-minus through sustainable management of campus operations and endowment practices.

Now in its fourth year, the College Sustainability Report Card evaluates schools in nine categories, including climate change and energy, food and recycling, and green building.

October 8, 2009 1 comment