Energy Efficiency Toolkit: Framework for An Emerging Community Energy Program __________________________ City of Charlottesville Executive County of Albemarle Overview University of Virginia Briefing ________________________________ Discussion Draft Bill Dunnington A Work in Progress June 2009 LOCAL ENERGY ALLIANCE PROGRAM Context and Background for the Effort The City of Charlottesville, the County of Albemarle, and the University of Virginia are developing climate action plans in 2009. Their initial focus will be on energy (and water) conservation and efficiency, specifically as it pertains to existing building stock. Emissions from energy use in building stock account for 63% of the community’s greenhouse gas contribution. In an effort to pool resources and efforts, the City and County are jointly applying for a grant from SEEA, the Southeast Energy Efficiency Alliance. SEEA will be awarding a southeastern city $500,000 to design a program that reduces energy and water use by consumers and businesses. Proposals were submitted to SEEA on May 15th, 2009. A blue ribbon panel will judge the proposals, and SEEA will announce a winner in June. LOCAL ENERGY ALLIANCE PROGRAM Overview of the SEEA RFP Goals for the Program • Deep market penetration (30-50%) of all market sectors • Comprehensive utility savings (20-40% per participating customer) • 5 -7 year window • Program design can be widely replicated Program models: Cambridge Energy Alliance (CEA) NYSERDA VEIC/Efficiency Vermont LOCAL ENERGY ALLIANCE Program Coalition • City of Charlottesville • County of Albemarle • CCDC/SPARK! • Piedmont Virginia Community College • University of Virginia • Dominion • VA Division of Mines, Minerals, and Energy • Local builders, architects, trade partners • Virginia Energy Project LOCAL ENERGY ALLIANCE PROGRAM The Proposal Effort Team Work Team Guidance Team Bill Dunnington - Grant Coordinator Dave Norris - Mayor Sarah Temple – Environmental David Brown - Councilman Administrator, County David Slutzky – Chair, BOS Cynthia Adams - Environmental David Neuman – Architect,UVA Sustainability Division, City David Toscano – D, C’ville Kristel Riddervold – Environmental Steve Walz – Director, DMME Sustainability Division, City Bill Edgerton – Architect, Lance Stewart – Facilities Management, City Planning Commission Andrew Greene – Sustainability Planner, UVa Jason Halbert – Housing Mandy Burbage – Program Coordinator SPARK! Paul Orentas – Economic Modeling Consultant Cabell Romer – Marketing Consultant Proposed Approach: A Local Energy Alliance Program Tie together, strengthen, and leverage the region’s unique assets into a community-based alliance that creates a sustainable energy future for our region. Design a sustainable approach to energy: • Public-private partnership and a market-making approach • Broad systemic approach: building shells, systems, behavior • Aggressive focus on energy efficiency • Deliberately phase in alternative/renewable generation • Put people to work, revitalize construction • Develop new economic sector, businesses, infrastructure and community Implement it in deliberate campaigns over a 5-7 year period with aggressive goals • 30-50 % market penetration in all sectors • 20-40% gains for each participating customer • Reduce GHG emissions on an 80% by 2050 pace • Pace is 10-20 buildings per day • Make it self-funding, an attractive investment Bring ESCO-like approaches to the residential and small commercial sectors Establish a market-centric, self-sustaining program - not a grant-based program Regional (City/County) Emissions (2000 Baseline of eCO2) Agriculture/Other 3% Municipal Focus on Residential Waste 3% 1% Residential The region’s building stock is largely residential, Transporation 29% 43% with three clear tiers as a function of annual (Of these, household income. Of roughly 51,000 total 59%are Industrial 1% renters) houses, 85% were built before 1970 Commercial 20% Includes UVA, dorms Community Middle Market Top End (WAP eligible) ~25,500 houses ~20,000 houses ~ 5500 houses Av income is $31K Av income is $50 K 10 The City and County’s buildings were constructed at different times. A Proposed Model : Community-based, public-private alliance, which delivers proven approaches to energy efficiency to all sectors of the community. A Public Private Alliance City/County play a pivotal Lead campaigns aggregating role. ENERGY ALLIANCE FOUNDERS Delivery Mechanism City of Charlottesville Financing Leverage County of Albemarle • Capital pool • Service organization. University of Virginia • Multiple sources • Market-centric strategy CCDC - SPARK! • Public Interest goals Dominion Power VA DMME Stand up a separate operating Technologies Remove financial company to deliver energy • Wide Application barriers for citizens services to all markets using • Deep Penetration ESCO* principles Make it Easy for People to Find Help, Act, Save Money The Funding Strategy: Diversify Develop a capital pool from multiple sources to invest in energy programs which save people energy, money and generate fee income. Manage the pool with oversight from a financial board. Federal Stimulus & State CDFI Treasury Fund / New Market Tax Credits, Agency Funds LEAP as a CDE, Community Development Entity CREBs and QECBs Funds from VA organizations A capital pool with bonding authority managed by a (VHDA, VRA, VML/VAco Income from Operations Finance Company, etc) financial board, is invested in a set of programs and Private Investments Funds provided by the City, campaigns the County, UVA to fund regional energy programs Grants and Foundation Support eg: Energy Foundation Kauffman Fund VA SB 1212 - Ordinance Renaissance Technologies Barr Calvert Oak Hill Placeholder for possible future REC/offset trading – Blue Moon referred to as “attributes” in the SEEA RFP The funds will be invested in capabilities and campaigns; some highly targeted programs, some open market programs, but all ultimately aimed at 30-50% penetration and 20-40% energy gains per participating customer. A Portfolio of Coordinated Campaigns from Capability Weatherizaton to Renewables to Utility Scale Initiatives Marketing & Outreach PVCC – BPI LEAP First Renewables Energy Star / BPI Workforce Dominion Partnerships Training Initiatives Contractor Training & Certification Home Performance with Energy Star Regional Utility Project Financing ecoREMOD Scale Renewable Energy Star Commercial Challenge Arrangements Energy Initiatives House Energy Specialist Renters Program Technical Supports Green Conservation Corps Website, e- commerce Positive Energy Quality / M&V LOCAL ENERGY ALLIANCE PROGRAM The Approach to the Markets • Strong Home Performance Residential Emphasis Tiered Services, primarily Home Performance with Energy Star Support existing low end capacity Develop a Renters Program SPARK Change – a Green Conservation Corps Develop a vibrant retrofit market •Develop Light Commercial EE Capability Commercial Challenge with Energy Star Support development of local commercial “light-escos” by bundling customers in service cohorts, promote cross-selling and teaming arrangements, provide training, technical conferences and a grants clearinghouse. • Few Large Entities Continue to be served by the 15 large national ESCOs already certified by the Commonwealth The Program’s Foundations 4 Keys: Make it Easy for Customers Make it Market-Centric Make Sure it Works Make it Pay for Itself Gearing up a well-trained workforce is pivotal. A PVCC and BPI collaboration will provide a curriculum, Workforce Preparation certificates, and an educational path of green jobs. A weatherization campaign and roll outs will create initial demand for newly trained workers. Stimulus funds and SB 1212 can be used to enable funding of desirable energy, gas and water measures. A pilot funding program, Senate Bill 1212 policies and processes will be designed and 15.2-958.3 tested over the summer/fall with selected middle market and small commercial customers. We will encourage an active market for energy Trade improvements, but funding will be available Partner Training & only for work done by certified trade partners. Certification The Core Value Propositions • To the Customers: We want you to implement the sensible energy improvements that will save you money. We will provide the delivery system, financing and risk management to make it safe to invest, make sure it works and make sure it pays for itself • To the Contractors and Trade Partners: We want you to get certified to do this energy work well, to guarantee your work, and in return, we will bring you motivated customers that have prearranged financing • To Lenders & Financial Partners: We want you to make a market in your community by making low interest energy loans, enjoy a solid return, and we will take virtually all the risk off the table. LEAP will succeed on a scale-based economic model. Suppose operating revenue is 2% of project fees and 2% of the financing. The chart below shows Operating Profit in Year 3 as a function of # of houses and average project size. Average 30% share 40% share 50% share Project Size (2,340 houses in year 3) (3,120 houses in year 3) (3,840 houses in year 3) $1,000 ($433,200) ($392,173) ($347,855) $5,000 ($212,785) ($98,300) $14,781 $7,000 ($102,577) $64,087 $196,099 $10,000 $62,735 $269,042 $468,076 $15,000 $338, 254 $636,384 $921,371 $20,000 $613,774 $1,003,726 $1,374,665 FINANCING CUSTOMERS ENERGY NEEDS We want to offer a portfolio of diverse financing programs for different needs and budgets. The goal is to take first-cost obstacles down and have savings offset costs. This is a work in progress. Project Cost Tier 1 Tier 2 Tier 3 (in 000s) Weatherization, Major Insulation, Retrofit & Solar Insulation, Window Upgrades or Ground Appliance Upgrade Solar Hot Water Source Market 0 - 7K 7 - 25K 25 - 50K “Green Match” Residential WAP/LIHEAP Stimulus Supported Low Guaranteed Loan and Match Residential Portfolio of Financing Mechanisms Middle - Capital Pool, Bank Programs Market - Ordinance to implement SB 1212 - Power Purchase Agreements Commercial - Commercial Leasing The Target Scenario: High Level Residential Market View - Years 2, 4, 6 are omitted here for simplicity - Year 1 Year 3 Year 5 Year 7 Total End of Year Customers 500 5,120 11,360 17,600 17,600 Annual Project $ Value (000) 3,500 21,840 21,840 21,840 123,200 Job Years Added/year 43 273 273 273 1,540 kWH saved (000) 750 7680 17,040 26,400 115,350 GHG saved (tons) 786 8049 17,858 27,667 121,000 Operating Revenue $(000) 136 874 1036 1198 6213 Expenses $(000) 262 490 543 596 3364 G&A $(000) 357 367 375 382 2,981 Operating Profit $(000) (437) 64 171 284 312 Getting Organized • How can we create an organization that runs like a business, but has the soul of a non profit....it's about creating community value, not shareholder value. • Financially, we want it to become self-sustaining, a going concern, not forever be a grant-based program. • We need to diversify the revenue base, so we develop and cultivate multiple streams of income from public and private partners. • We want to attract a diverse set of investors, so that it's truly a community effort, not just based on the narrow interest of a city, or the hobby-horse PRI of one foundation. • Operationally, it has to be free of the constraints of a government program. It simply can't RFP everything and be flexible and agile enough to serve customers. • It can’t be effective if tied to the stutter-step of government funding, or the clock speed of its processes, but it must be accountable to its founders and partners, and prove it delivers value for money. • As a practical matter, it starts up a community-based energy services organization with operating capital, and accelerates toward break even faster than the typical revolving fund set up. The “operating company” could be a new service organization – a 501 3c, or coop, or L3C. LEAP Governance Board Financial Advisory Technical Advisory Governance Board Mission is Service Value Proposition : “Easy, one-stop- Founding Members: LEAP – an shop for net gain energy solutions - or energy services your money back.” Charlottesville “ESCO-OP” Albemarle County Capabilities / Daily Work • “Marketing” – Community relations, partner relations, UVA customer acquisition, alliance management, marketing DMME communications communications, grants clearinghouse •“Operations” – deliver Manage, audit, support training and Dominion or program manage certification programs – some direct, some Foundations energy programs RFP. Program manage special campaigns • “Quality” – Audits, and initiatives M&V, data quality, Classic QC / QA functions, standards, process management auditing with ISO frameworks and 6 sigma • “Finance” – manage tools, M&V plus customer surveys capital needs, cash Classic contract, program and financial flow, risk, returns management but with both public and • “Customer Service” private sector expertise Help desk The organizational model will start with a service company, and perhaps evolve to energy experts as partners in an energy innovation institute and a ventures group – as it increasingly becomes an economic development engine . Governance Board Financial Advisory Team Technical Advisory Team Governance Board COO, Market & Program Managers, IT, Quality, Technical Staff Operating Energy Ventures Company Institute Group Service Innovation Funding Service & Financial Energy experts - Investment Funds Management products services, tools, technologies Finance local Certified ventures in EE Contractors “r & D” and renewables “Energy Extension EE Education-UVA, VC-like team for Service” CATEC, PVCC,BPI, economic Energy Star, USGBC development Quality Management Demonstration Grants Disciplines Projects Clearinghouse E commerce portal for Information, service processes, quality management. We are looking at strategies to improve energy impacts, economic savings and investor returns. ILLUSTRATIVE GRAPHIC 40M Scenario Buildup of revolving fund ------------------------------------------------------------------------------------------------------------------- 30M Annual outlay of $35 million Receipts Six year effort, 3,500 homes at a cost of $10,000 each per year 20M (c) (40% of the building stock) 10M (a). (b) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Types of Strategies (a) Capital Strategies: public/private partnership, L3C, vs a pure non profit, revolving fund (b) Programmatic Strategies : aggressively focus on energy efficiency with higher margin measures in commercial, middle + residential markets (c) Management Strategies : sensible outsourcing, active continuous improvement initiatives, plus active search for new products/technologies (d) Gear up renewable generation capabilities well before carbon is priced in The Regional Value Proposition 1) For an investment of ~$200 M, this region can reasonably expect to realize ~$50 M annually, a 25% return that it can borrow on and pay out of savings, at no cost to its operating budget 2) That’s a lot of jobs. $1M invested ≈12.5 job years (most in installation, some in sales/distribution of materials installed), so about 200 X 12.5 = 2500 job years. The multipliers are tbd, but twice that would be likely. 3) After full installation and payment of loaned capital, that will mean over $500 M per decade will stay in region with ongoing gains to public health and wealth, quality of life, productivity, ability to absorb energy price increases. 4) Expected improvements in technology and higher energy prices only make this look better. 5) The strategic economic development opportunity is to create a new energy-based economic sector.