Energy efficiency is estimated to be a multi-hundred-billion dollar investment opportunity in the United States, but better policies are required to unlock broad-based financing from institutional investors, according to a new report released this week by Ceres and its Investor Network on Climate Risk (INCR).
Power Factor: Institutional Investors’ Policy Priorities Can Bring Energy Efficiency to Scale is based on the input of nearly 30 institutional investors and other experts from the energy, policy and financial sectors and cites three areas of policy — utility regulation, demand-generating policies and innovative financing policies — that have the potential of taking energy efficiency financing to a scale sufficient enough to attract significant institutional investment.
Several investment analysts estimate climate change could contribute some ten percent of overall risk within institutional investment portfolios, the report says. The International Energy Agency estimates that one-third of emissions reductions must come from energy efficiency in order to avoid the worst impacts of climate change.
“Energy efficiency offers investors a potent one-two punch: stable returns and an important strategy for mitigating climate-related risks,” said Mindy Lubber, president of Ceres and director of INCR. “Policymakers and regulators should work to unlock capital from institutional investors for energy efficiency by promoting the policies identified in this report. Many of these policies do not require public funds, and they can put money back into the pockets of homeowners and business leaders around the country.”
In the report, investors cite several key areas of policy that could help to build up a secondary market for energy efficiency retrofit loans:
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Utility Regulations: Public Utilities Commissions and other regulators can move the utility business model from a 20th-century model that rewards increasing energy sales to one that maximizes energy efficiency. At the same time, utilities and their regulators can help make energy-efficiency finance programs investment grade through the same protections provided to electricity sales, as well as better data sharing and strong contractor and performance standards.
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Demand-Generating Policies: Investors highlight efficiency-inducing measures, including building codes and standards and appliance and equipment efficiency standards to set a baseline of efficiency in the marketplace. Building energy disclosure requirements, such as those adopted by cities such as Philadelphia, New York City and Boston, can provide both an impetus to do energy efficiency retrofits and the transparency to facilitate investments in more efficient buildings.
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Innovative Financing Policies: These policies include Property Assessed Clean Energy (PACE) bonds, on-bill repayment, credit enhancement, and extending Master Limited Partnerships to combined heat and power (CHP) projects can overcome the challenge of paying for the upfront costs of energy efficiency retrofits. These policies also can help provide vehicles for loans that can be packaged and sold to institutional investors.
Last year, a Deloitte report said that improving energy efficiency at America's businesses is as important to brand-building as it is to growing the bottom line. The study, reSources 2012, shows that while 85 percent of companies claim electricity cost reductions are essential to staying financially competitive, nearly an equal majority (81 percent) believe they are critical to brand-building. More than three-quarters of the organizations surveyed say they are actively promoting their energy efficiency efforts to their customers.
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Founder & Principal Consultant, Hower Impact
Mike Hower is the founder of Hower Impact — a boutique consultancy delivering best-in-class strategic communication advisory and support for corporate sustainability, ESG and climate tech.
Published May 22, 2013 1am EDT / 10pm PDT / 6am BST / 7am CEST