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

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?

• 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

• • • • 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


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
• 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 • •

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

• • • • • 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