Mar.

2012

Energy Efficiency Financing
- Community Development Financial Institutions (CDFI)

CDFI 101
What is CDFI?
• CDFIs are private financial institutions that leverage capital from both the private and public sources in advancing the welfare and social benefits for underserved communities. • • • •

Types of CDFI:
CDFI Banks CDFI Credit Unions CDFI Loan Funds CDFI Venture Capitals

Double Bottom Line

Mechanism
CDFIs use core fund to leverage funding from other sources, and the leverage ratio is around 1:7-1:10.

Leverage ratio range: 1:7-1:10

Core Fund Federal CDFI Fund was established since 1994, which composed of 7% of the total CDFI fund currently, but is mostly effective as core fund. Source: Internet research, team analysis

How does CDFI link with Energy Efficiency?
Opportunities

Market:
• Overall CDFI market (CDFI Fund): – $623M federal investment in 2007 – $7.1B tax credits to low-income communities in 2007 (CDFI Fund) Energy Efficiency market: – buildings contribute 40% energy use in U.S. – U.S. commercial buildings annual energy bill $110B, energy efficiency could save more than $25B – efficient lighting could reduce U.S. electricity use by 10% (EPA) • • •

87% small business owners/managers have taken steps to make their business more environmental friendly (Opportunity Finance Network) Land use and sprawl, more small communities Save 30% energy by simple retrofit (Andy Hoffman) Savings for low-income, and small businesses tend to create more secondary economic impact

Challenges:
• • • • Long payback time makes CDFI EE programs very risky Funding mechanism for EE programs not very clear EE market is still relatively immature Target audience are not tech-savvy enough

Source: Internet research, team analysis

Status: MI CDFI EE Programs
Federal Certified CDFIs in MI:
• • • • As of Jan. 31, 2012 19 in MI out of 972 nation-wide 1 bank, 5 Credit Unions, 12 Loan Funds 59 MI-related federal CDFI Fund awardee programs, 30 MI-related federal CDFI Fund awardee CDFIs ($23.4 M core fund, $280 M tax credits, CDFI Fund.gov)

MI CDFI

National MI (Bank) MI (Credi Union) MI(Loan Fund)

MI CDFI EE Programs:
• • • • • Four in total North Land Area Federal Credit Union (Oscoda): Home Equity Loans (energy efficiency) Great Lakes Capital Fund (Lansing and Detroit): green development and energy efficiency lending Metro Community Development (Flint): property improvement loan (energy efficiency) Neighborhood of Battle Creek: financial service (weatherization loan)

Features: -Segment: single-family residential -EE programs embedded within others -Not sector specific -Weak marketing

Source: Internet research, team analysis

Best Practices: CDFI EE Programs
Illinois:
• IFF: E2P Program (since 2010) – Segment: non-profits office EE upgrades – Funding source: Bank of America, State Department, CDFI Fund – Free LEED AP advisory – Loan: $ 10,000 to $1.5 M per unit Community Investment Corporation (CIC): Energy Savers (since 2008) – Target segment: multi-family rentals – Program fund source: foundations (original), State Department, PNC Bank – Free Energy Audit: 13,000 units since 2008 – Loan for retrofit: 3%, 7 yrs – Funded 4,500 units since 2008 • •

Nation-wide:
MACED, KY – Segment : small businesses, non-profits Pathway Lending, TN – Segment : all businesses – Loan for retrofit: 3% , 5yrs; – Fund total: $50M TRF, PA – Segment : residential, non-profits – Three underlying programs: sustainable development fund, Energy Works Loan, Penn Green Energy Loan Enterprise Green Community, National – Segment : affordable housing communities – Various financing tools: Charret (a LEED required practice) grants, offset fund (fund from money to offset carbon footprint), sustainable training grants, other regular tools (loans & tax credits) – One practice in Michigan (Agnes Street Apartments, Detroit) – Best practice of Bank of America in 2010

Features:
• • • • • Targeted segments Independent programs Mixed program fund source Free advisory for EE upgrades Strong marketing efforts

Source: Internet research, team analysis

Prospect: MI CDFI EE Programs
A smart way of spending money:
• To spend limited State money to:
– – – – – Serve as core fund for CDFI EE programs Support dedicated personal for program development Engage multiple stakeholders Open bid for best programs (BoA example) Support the establishment successful out-ofstate CDFI programs in MI

What does a smart program look like:
• • • • • • • Targeted segments Large scale: major city-based or state-based Stable core fund Public-private partnership Easy, cheap technical assistance A long-term plan Marketing & Innovation

Special target group: their-spending from energy saving in low-income households are most likely to result in significant secondary economic impact and stimulate local economy Could supplement dwindling WAP and LIEEF programs

Source: team analysis