These overviews give an overview of a key topic and will also be the default area for news articles/updates.

Investing in clean energy and low-carbon innovation sectors has been fraught with danger. While the broader market through the S&P 500 has rallied over 30% since 2010, most clean tech exchange traded funds have lost value (e.g. solar ETF TAN has lost 93% of its value since its debut; the diversified clean-tech ETF PBW has lost 73% of its value). As a caveat, names with decades-long presences in the low-carbon and clean-tech spaces (e.g. Johnson Controls, JCI) have been less volatile and performed relatively well.

In contrast, investing in projects as opposed to public equities offers a much better risk-return profile. For example, a solar Power Purchase Agreement is based on a long-term utility purchase agreement can deliver a reliable, steady stream of revenue as well as tax benefits. Case in point: Bloomberg: Solar 15% returns lure investments from Google to Buffett.

However, renewable (and energy efficiency) project financing is restricted to private equity and has so far been closed to retail investors – in short, anyone who does not have at least $1 M in net worth, $200,000 income if filing singly, or $300,000 income if filing jointly.* Moreover, many pension funds and other investment funds are restricted to public equity.

Several different mechanisms for opening up projects are beginning to get traction: Master Limited Partnership, Renewable Real Estate Energy Investment Trust (REIT) funds, and crowdfunding (not discussed here, see Solar Mosaic).

Creating a vehicle that could unlock public capital markets could solve several problems: 1) a “low carbon capital overhang”, referring to the inaccessibility of quality low carbon investment opportunities to investors and funds, 2) the need for capital among project developers because of the complexity and cost of ‘tax equity’ (see the 30% Federal Investment Tax Credit) and 3) increased liquidity through public markets and exchanges, which should bring down the cost of capital and attract more investors.

Richard Kaufman, senior adviser the the Secretary of U.S. DOE, think that retail investment would also deliver a number of peripheral benefits: 1) standardization of the contracting process, 2) force down project costs, 3) greater aggregation of small projects, and 4) faster scaling.

Others are doubtful of the immediate impact of REITs/MLPs. The investment tax credit still delivers 30% of a project’s value and it is unclear and most likely impossible for project developers under a REIT/MLP to claim that tax credit. However, as the market grows and the tax credit is phased out, REIT/MLPs will become increasingly important.

About REITs

REITs are required to pay 90 percent of their taxable income to shareholders, and MLPs are similar. According to Bloomberg, the “common denominator” for all REITs is that all are tangible assets that generate steady income over a long period of time; PV/CSP solar power may satisfy this criteria, but this approval must come from the Department of Treasury. According to Bloomberg,  NYSE REITs collectively paid out $22 B in dividends in 2011. As a comparison, Bloomberg New Energy Finance projects that U.S. solar developers will need $6.9 B to meet PV project development through 2020.


1/21/2013: Bloomberg: Solar Costs to Fall as REITs Emerge as Source of Funding : “Renewable Energy Trust Capital, Inc., led by a former Moody’s Investors Service CEO, has asked tax officials to classify solar farms as the type of “real property” that may be included in real estate investment trusts. A ruling is imminent…”

“On Dec. 12 [2012], at least 26 members of Congress signed on to a letter to President Obama noting that ‘minor changes to the federal tax code could provide the renewable-energy industry access to large pools of low-cost capital’. ”

“However, ‘it’s going to be touch to compete against investors that are utilizing tax incentives…'”

Energy efficiency financing resource list

As Recovery Act Weatherization Assistance Program (WAP) and Energy Efficiency and Conservation Block Grants (EECBG) dry up, private financing will become increasingly important in accelerating energy efficiency investments. Unfortunately, energy efficiency is a tough nut to crack, and two issues in particular are macademias within energy efficiency: 1) Banks currently do not take energy efficiency savings into account because no method has been sufficiently developed and accepted by financial institutions – as such, energy efficiency loans have especially high interest rates, and 2) No business model has really worked for anything below the large commercial level (e.g. the ESCO).

Regarding point 1, several banks are beginning to express some interest in determining a standardized process, but such a process is still at least a year off. Bank of America calls EE a “pre-emerging” market.

Regarding point 2, PACE – or property assessed clean energy – was the hottest new financing mechanism in place a few years ago because it solved the first costs problem by tying loan payback to the property as opposed to the person, thus lowering interest rates by several hundred bps. However, residential PACE has been put on permanent hold by the Federal Housing Authority in fear that a solar/EE loan would have senior lien over the house mortgage, though commercial PACE is active and growing rapidly. The newest model is on-bill financing, and the even newer model is on-bill repayment (financing via third parties).

With respect to large commercial deals, the ESCO model has been dominant since before I was born (the very late 80s). However, with the new Financial Accounting Standards Board ruling regarding off-balance sheet financing as well as the innovations from new entrants to the market, the Energy Service Agreement and Managed Energy Service Agreement may become major players in the future.

Most importantly, public-private partnerships are rapidly entering this space. We’ll see quite a bit of development in the energy efficiency world over the next two or three years.

**denotes best in class


Environmental Defense Fund’s resource hub: EDF hosts the Investor Confidence Project (ICP), which is developing a consensus framework to predict and measure energy savings in order to enable the acceleration of energy efficiency investments. EDF also hosts a coalition working to build on-bill repayment (OBR) programs. EDF also wrote the Behavior and energy savings study and  the Show Me the Money: Energy Efficiency Financing Opportunities and Barriers study, which explores how organizations can overcome the challenges to energy efficiency financing.**

American Council for an Energy Efficient Economy (ACEEE)’s publications page is the place to go for learning anything about energy efficiency. The papers that pertain to financing describe on-bill financing (a review of current program challenges, opportunities, and best practices), and “What have we learned from EE financing programs?”**

News Articles

“Bank of America’s energy efficiency finance program rewards innovators” (Renewable Energy World, 2012): BAC awarded $55 M to CDFIs to experiment with energy efficiency loans – this information will be used to inform BAC of its own attempt to enter and scale up the energy efficinecy market. which it calls “pre-emerging.” Boston participants include Boston Community Capital and Wegowise. BrightPower is providing EnergyScoreCards, the measurement and verification software. Paper to appear in 2014.

“NYSERDA: Underwriting Criteria for Unsecured Residential Energy Efficiency Loans”: example sheet of NYSERDA’s new on-bill program

“Ware House for Energy Efficient Loans (WHEEL)”: innovative model out of Pennsylvania that aggregates public funds for energy efficiency into a giant revolving loan fund


Show Me the Money: Energy Efficiency Financing Opportunities and Barriers (EDF, 2012): overview of the different models and **

Innovations and Opportunities in Energy Efficiency Finance (WSGR, 2012): overview of innovative financing models**

Emerging Best Practices for Underwriting Commercially-Attractive Energy Efficiency Loans (Buonicore): good overview of emerging standards with respect to ASHRAE and ASTM BEPA, as well as emerging business models.

Recognizing the Benefits of Energy Efficiency in Multifamily Underwriting (DeutscheBank Americas/Steven Winter Associates, 2011): first of two very important studies that examine underwriting standards for energy efficiency loans.**

Accounting Standards and Potential Constraints to Scaling up Energy Efficiency Finance in Boston: Issue Brief Prepared for the Boston Green Ribbon Commission (Meister Consultants for the Boston Green Ribbon Commission, 2012): a good overview of the Financial Accounting Standards Bill (FASB) revision of on-bill vs off-bill accounting standards and its implications for ESCOs – because energy efficiency in large commercial is often paid for through operating leases, which are off-balance sheet, FASB’s eliminating of the distinction between off-balance and on-balance for operating leases may restrict or shift financing towards ESA/MESA models.

REITs, MLPs, and crowd-financing resource list

REITs and MLPs will receive a good deal of attention in early 2013 because of discussions around reforming the federal tax code. REITs and MLPs are “top-bottom” approaches to unlocking retail investment in alternative energy because of their legal status will depend on action at the federal level. Crowdfunding is a “bottoms-up” approach; a start-up, Solar Mosaic, has pioneered this approach by opening “solar notes” to retail investors in California and New York early 2013.

** denotes best in class


Sen. Chris Coons’s Master Limited Partnerships Parity Act page: summary of MLPs plus links to papers

News Articles

“Solar Costs to Fall as REITs Emerge as Source of Funding”, Bloomberg, 2013: recent filing by Renewable Energy Trust Capital, Inc. to force the IRS’s hand on the eligibility of solar PPA as “passive income”**

Renewable Energy REITs or MLPs would Unlock Billions for Project Development: great article on other important implications of unlocking retail investment for as told by Senior Advisor to the Secretary of DOE**

“Solar REITs a better way to invest in Solar”, Renewable Energy World, 2012: quotes from industry experts talking how attractive solar REITs are as an asset class

“How to Make Renewable Energy Competitive”, (New York Times, 2012): NYT editorial about MLPs and REITs


Invest But Reform: Smarter Finance for Cleaner Energy: Open Up Master Limited Partnerships (MLPs) and Real Estate Investment Trusts (REITs) to Renewable Energy Investment (Brookings and Stanford University Steyer-Taylor Center, 2012): overview of REITs and MLPs as well as larger context for a “level playing field” with traditional energy interests. Best in class among the REIT/MLP overviews.**

Extraordinary Popular Solution: Funding from Crowds? (Bloomberg New Energy Finance, 2012): overview of crowd-financing and the magnitude of the capital it would unlock**

New Approaches in Renewable Energy Finance: Master Limited Partnerships, Real Estate Investment Trusts, and Crowdfunding:  four-page brief of MLPs, REITs, and crowd-financing for the time-constrained.

Changing Environment of R&R (REITs and Renewables): A Discussion of Selected Tax Developments and Considerations (Deloitte, 2010): brief overview of renewable REITs and key reasons why the Treasury might not approve

S-REIT: An Investment-Driven Solution to Solar Development Problems, (Joshua L Sturtevant, J.D, 2011): an overview of the solar REIT and the mechanisms required to make solar REITs legal (Treasury ruling or legislative action at the federal level)