Get the best of GreenBiz delivered to you -- GreenBuzz e-news

Institutional Acupuncture

5 eLab Accelerator programs drive change in clean energy

Published April 08, 2014
5 eLab Accelerator programs drive change in clean energy

In this second installment of our eLab Accelerator blog series (read part 1), we explore how companies, organizations, states and communities are working to evolve utility business models, rate structures and regulatory structures so that renewable and distributed resources reliably and economically can be integrated into the energy system.

This change is critical — yet is ripe for new thinking and acceleration. Regulations governing renewables, efficiency and other distributed energy resources are being reevaluated; friction between renewable companies, utilities and customers is emerging; and regulators and grid operators seek solutions to reliably and cost-effectively integrate ever-higher levels of distributed energy resources into the system.

These five teams seek new approaches to cut through current gridlock and develop real, practical solutions. This is not easy work, but it is critically important, and we applaud the teams for participating in eLab Accelerator to tackle these complex and gnarly issues.

1. Hawaii business model innovation

Hawaii is experiencing transformational growth in distributed solar deployment, helping the state achieve its 40 percent renewable portfolio standard by 2030. Hawaii is leading the nation in the growth rate of solar PV installation; as of mid-2013, more than 18 percent of electricity comes from renewable resources, exceeding the state's goal of 15 percent.

Due to this rapid growth, along with efficiency-driven flat or declining loads and needed infrastructure investments, Hawaii's electricity system is at a critical inflection point with mounting pressure on the vertically integrated utility's existing business model. In order to sustain Hawaii's rapid progress toward its clean energy goals, key stakeholders in Hawaii need to evolve utility business models and pricing structures.

Key issues the team will tackle this week include:

• Begin to create a shared long-term vision of Hawaii's electricity system.

• Understand the potential role of the utility and other service providers in that vision.

• Start to consider needed regulatory and business model changes.

Learn more about the Hawaii business model project and team.

2. Minnesota e21 Initiative 

The e21 Initiative aims to develop a new or adapted regulatory framework that addresses the challenges of the energy transformation while also taking advantage of opportunities presented. The e21 Initiative is working with key Minnesota stakeholders to launch an action-oriented process to identify specific, practical steps for better aligning utility business strategies and regulatory incentives to address changing industry trends and opportunities. The project goals for e21 were developed in consultation with key interests in Minnesota, including MN PUC commissioners and staff, the governor's office, department of commerce officials and legislative leaders.

Key issues the team will tackle include:

• Have the right set of questions been identified for e21 to tackle and how can blind spots be addressed?

• What utility services are provided now and in the future and what is the role of the utility?

• What does success look like and what possible solutions should be considered?

Learn more about the MN e21 initiative and team.

3. Illinois distributed energy adoption 

Over the next five to seven years, advanced smart grid infrastructure will be rolled out to utility customers in Illinois (just under 5 million total meters). As advanced metering and electricity infrastructure is rolled out, attention is needed to develop the business models and key partnerships that can leverage opportunities and create a robust smart grid ecosystem.

Key issues the team will tackle include:

• Collaboratively develop strategic plans for maximizing opportunities, including coordination between state and RTO-based markets.

• Develop business models and customer outreach plans for energy efficiency, demand response and dynamic pricing programs.

Learn more about the Illinois distributed adoption project and team.

4. San Diego Gas & Electric pricing evolution

Distributed energy resources are growing rapidly in California. As this growth continues, need is escalating to accurately reflect the costs and benefits of grid services and customer-sited resources, as well as to find additional sources of grid flexibility. San Diego Gas & Electric (SDG&E) has been a leader in articulating a vision of transitioning rate structures to accurately reflect the costs and benefits of grid services and distributed energy resources. One recent example was SDG&E's proposal for a "network use charge" in 2011. Today, SDG&E is developing rate proposals to significantly expand use of time-of-use pricing options by its customers.

Key issues the team will tackle include:

• What do recent California legislation and regulatory rulings suggest for the direction of electricity pricing?

• What do key stakeholders (including utilities, customers, entrepreneurs and the environment) require from electricity rate design now and in the future?

• How can stakeholders effectively collaborate to leverage opportunities afforded by new time-of-use rate designs?

Learn more about SDG&E's pricing evolution project and team.

5. Boulder's utility service model

In 2011, citizens of Boulder, Colo., passed a ballot measure directing their city government to explore options that could deliver clean, reliable and affordable local energy. Among the options under consideration is the possibility of leaving the investor-owned utility that currently serves Boulder and forming a city-owned municipal utility. As the analysis of municipalization has progressed, Boulder's discussion of localization evolved into a focus on "the utility of the future" — a vision of a different utility business model that provides energy as a service, helping customers use less energy, manage energy more efficiently and even generate their own local energy.

Key issues the team is tackling this week include:

• What are emerging best practices for rate design and utility services to achieve Boulder's energy goals?

• What are customers' expectations for energy supply and energy needs?

• What opportunities exist and what challenges must be overcome?

• How can the city, the community and other stakeholders effectively partner on next steps?

Learn more about Boulder's utility service model project and team.

This article originally appeared at RMI Outlet. It is the second part of a series about the eLab Accelerator; read the first part here. Follow news about eLab Accelerator, the teams and the projects on Twitter using #eLabAccelerator. Photo of solar panels in Honolulu by Mana Photo via Shutterstock.

Also in The Institutional Acupuncture Blog:


7 secrets for healthful hospital food, from asparagus to tomatoes

Published April 08, 2014
7 secrets for healthful hospital food, from asparagus to tomatoes

Hillary Bisnett grew up on a farm in Dowagiac, Mich., that grew asparagus, raspberries, strawberries and 16 varieties of heirloom tomatoes. Her father tried practices to reduce his family's pesticide exposure and protect the water and soil. He believed the unique flavor, especially of tomatoes and strawberries, was a result in part of his nearly organic farming practices.

Now, as the healthy food program director for the Ecology Center in Ann Arbor, she is spearheading a regional approach that connects Michigan farmers to hospitals in the state, and helping others to connect food systems with the environment, climate change and public health.

While pursuing a degree in sustainable business at Aquinas College, Bisnett held a 2007 internship with Metro Health Hospital in Grand Rapids, which tasked her with starting up the hospital farmer’s market. She gained the experience needed to land a job at the Ecology Center, funded by WK Kellogg Foundation and Kresge Foundation, to make the critical link between how food is grown and distributed and public and environmental health.

On a national level, Health Care Without Harm’s Healthy Food in Health Care Program was gaining traction. It held its third FoodMed conference in Detroit 2009 just as Bisnett began her new position with the Ecology Center.

The Michigan Healthy Food in Health Care Program took off and continues to work at all levels from supporting healthier food systems in Detroit to creating a cross-sector institutional purchasing initiative called Cultivate Michigan. Metro Hospital is one of 25 Michigan hospitals that host farmer’s markets and half of them accept food assistance programs, such as double-value coupons and SNAP, as forms of payment.

Understanding the health care food landscape

Hospitals are an anchor in many communities, often the largest employer. They are huge purchasers, consisting of 18 percent of the gross domestic product (GDP). Cafeterias and retail operations are revenue streams for hospitals, leaving some constraints on food service staff to fulfill the mission, while balancing the labor and time it takes to prepare a meal made with fresh, minimally processed ingredients.

Both nationally and in Michigan, there are “self-operated” food service departments and “contract-managed” food service departments. These food service models have different requirements and motivators for adopting operations for local and sustainable food procurement. In-house food service departments tend to have more autonomy. Hospitals also have contracts with group purchasing organizations, often dictating which distributors they must buy from.

A desire for local and sustainable foods isn’t the only battle. Those tackling the health care food purchasing and distribution systems are finding that when purchasing fruits and vegetables or even processed foods, the ordering systems may not identify which products are local or sustainable and are often limited to a special order only. This line-by-line investigation is time-consuming and to date, is only done by leaders in the sector — those who have a personal passion. Making it easier to identify and track the product is key to success.

The Michigan approach: asparagus, blueberries, tomatoes and apples

One approach is to leverage all institutional buyers to make local, good food available to eaters and expand markets for food grown, raised and processed in Michigan. In turn, this approach, now called Cultivate Michigan, aims to support local farms, the state’s economy and the well-being of its residents by helping bridge the gap between growers and institutional purchasers.

While any region may have its own strategy for success, here are tips from Michigan for getting things underway at a regional level:

1. Create a space for learning: The Ecology Center and Michigan State University’s Center for Regional Food Systems created the Michigan Farm to Institution Network as a space for learning, sharing and working together to get more local food to institutions, with an aim to meet a state vision of 20 percent of Michigan foods sold and purchased by 2020 — a goal set by stakeholders in 2010.

2. Leverage collective capacity and define structure: Three subcommittees address engagement; education and technical assistance; and research and impacts. An advisory committee provides stakeholder oversight with representation from all along the supply chain including farmer, national distributor, regional distributor and processor to K-12 school, health care and university.

3. Further develop the strategy or focus: The regional strategy identified four food items annually. Promotion materials label and promote the four products to their customers and eaters. This year’s focus is on foods that Michigan is already or nearly already a leading producer in the country — asparagus (ranked first), blueberries (first), tomatoes (ranked ninth for freshness) and apples (third).

4. Stay connected and celebrate successes: Cultivatemichigan.org provides inspiration through spotlighting stories, news and events.

5. Track progress: Institutions can create an account to log purchases by either their total food budget or by major food categories such as produce, meat and dairy. The dashboard also offers the ability to track the yearly promoted products and reminds the institution of the dollar amount needed to get to the annual goal of spending 20 percent of its food budget on Michigan grown and/or processed food items. In return, the campaign will know more about the economic impact, Michigan residents reached (or meals served) and be able to continue to research barriers or limitations for farm to institution programs.

6. Identify strategic opportunities: As the first year of the campaign focuses on understanding the total annual spend on Michigan foods and the four product promotions are centered on fresh produce, six years are left until 2020 to make new opportunities become a reality. In Michigan, a limiting factor from moving food from the farm to the table has been the constant decline of processing companies; institutions more often than not need products minimally processed, meaning washed or cut. The Network will focus on executing behind-the-scenes plans to align institutional demand with business opportunities. Understanding the logistics of expanding current processing for frozen blueberries or asparagus or even canning tomatoes, both of which are in high demand by institutions, would help support local producers.

7. Connect to a national strategy: The Michigan strategy is only one regional example and connects to the national strategy at Health Care Without Harm and the Healthier Hospitals Initiative’s Healthier Food Challenge (HHI). The national initiative engages hospitals through goal setting and the use of data to drive change. The strength in numbers brings together major health systems to articulate the desire for local and sustainable foods including meat raised without the routine use of antibiotics. Other partners have been identified to further add to the momentum including the School Food Focus and Real Food Challenge. The business partners are at the table, including contract management companies, purchasing groups and distributors. The stakeholder list continues to be identified to ensure all key groups are represented.

Health Care Without Harm’s Healthy Food in Health Care program has regional organizers, each with their own story to tell in Maryland, Oregon, Philadelphia, New England, Washington and throughout California.

Healthier Food in Health Care covers many bases. These include the opportunity to reduce food miles and address the impact of freight and trucks on climate change. Then there's the overuse of antibiotics related to multi drug-resistant organisms and the cost to treat multi drug resistance.

The purpose is to model healthier behavior in health care facilities in an age of chronic diseases connected to diet; to nourish soil by avoiding chemicals for fertilizer and pest management; and to impact the local economy positively through supporting local agriculture and connecting growers to consumers.

It may take some heavy lifting at first, but it will only be a matter of time before communities demonstrate that fiscally and socially responsible strategies are possible. Never underestimate the power of fruits, vegetables and a farmer’s daughter.

Top image by Adisa via Shutterstock



4 steps to keep the grid from freezing up in extreme cold

Published April 08, 2014
4 steps to keep the grid from freezing up in extreme cold

The persistent low temperatures this winter, courtesy of the recurrent polar vortex events, serve as a wake-up call to energy regulators and market participants on the reliability of our combined gas and electric systems. Although there have been outages due to our antiquated transmission and distribution system, the power sector has so far managed to produce enough electricity to meet demand through fuel diversity. The trouble is, it may not manage for much longer.

Many Americans don't realize that during periods of intense cold, the use of natural gas for both home heating and electricity generation stretches the gas delivery infrastructure to its limits. As a result, gas prices skyrocketed this winter to unprecedented amounts in some northeast locations. The magnitude of the price spikes is comparable to stopping at the gas station and seeing the price at $85 a gallon.

Moving forward, a combination of low fair-weather natural gas prices and new environmental regulations will likely lead to the retirement and decommissioning of older coal and oil generation. Many of us in the power industry worry that there is not enough natural gas delivery capability to stand up to extreme weather after these coal and oil plants leave the market.

Powering up the utility infrastructure

To that end, NRG Energy is deploying large-scale renewable systems, distributed generation and demand response and is converting coal plants to gas. Despite these efforts, the U.S. still needs more gas delivery infrastructure and better gas-power coordination to keep the lights on during periods of severe cold.

Recently, a lot of attention has focused on the vulnerability of the power grid to both physical and cyber terrorist attacks. But the more pressing problem is the lack of coordination and market reforms required to seamlessly transition the country from coal and oil to gas and renewables.

To ensure long-term grid reliability during extreme weather events, which are becoming the norm rather than the exception, the following actions are necessary.

1. Build what the market needs

Uncertainty about gas availability adds one more challenge to building the new gas generation that will be needed to replace some of the old power plants that will be coming offline in the northeast. Regulated fuel supply infrastructure — gas pipelines and electric grids — must be coordinated with better competitive power market price signals to ensure the power sector can meet evolving, aggressive environmental rules.

2. Encourage private investment

In the private sector, we need regulators and system operators to support power market reforms that make competitive investment profitable. Doing so will also help to better integrate competitive generation into planning for both electric and gas delivery infrastructure.

3. Make realistic environmental progress

Those who make and enforce environmental regulations must have a better understanding of the reliability and financial constraints that the electric system faces. The limited "safety valves" recently proposed by electric system operators are examples in the right direction.

4. Get states off the bench

We need state decision-makers to actively support the replacement of aging plants with the competitive mix of supply side resources: gas and renewables, centralized and distributed.

Without better coordination and cooperation between the private sector, regulators and states, we subject our nation to increased reliance on a gas delivery system that is barely adequate for today's weather and demand. Before we make irreversible changes to our electric supply system, we should carefully consider what changes to make in market rules and gas infrastructure provisions that will allow the system to continue to meet the challenge of future weather events.

Chicago in polar vortex image by edward stojakovic via Flickr



Cree sees bright future in LED lighting controls

Published April 07, 2014
Cree sees bright future in LED lighting controls

LED technology company Cree has been a big beneficiary of the energy-efficient lighting retrofit movement across cities, campus, offices and industrial spaces. Now it is reaching for a piece of the wireless controls market, which could grow to $2.7 billion annually by 2020, according to projections by Navigant Research.

At the center of that push is the company's new SmartCast technology, which enables automation of energy efficiency applications such as daylight harvesting or fixture dimming cycles that are triggered by motion sensors. The cost of this technology can be as low as 40 cents per square foot, deployed, about half the cost of some alternate approaches for the same applications, said Tom Hinds, Cree's product portfolio manager.

One early adopter is North Carolina State University (NCSU), which is slowly installing SmartCast in public places at its residence halls, such as in hallways, stairwells and lobbies that require consistent levels of light but aren't always occupied. The university uses the controls with motion sensing so that lights in these spaces — typically lit on a 24/7 basis by default — are turned out when no one is there, illuminating quickly when someone enters the space. In addition, the facilities team uses SmartCast to dim the lights depending on the ambient brightness coming in through the windows.

"Configuration was simple. You don't need to be an electrician to figure out how to set up the controls on a series of lights," said Pete Fraccaroli, facilities manager of Campus Life, NCSU.

SmartCast features something called OneButton setup, which gathers information across lighting networks and helps automate aspects of the setup.

Some of the initial installations of Cree's CR22 LED troffers, equipped with SmartCast, are at the university's North Hall residence. The updates are part of NCSU's ongoing strategy to ensure that all buildings perform according to LEED Silver green building parameters over time, Fraccaroli said. LED is used extensively at NCSU's Wolf Ridge at Centennial residence that opened in 2013; when it's complete, the project will use more than 4,000 Cree luminaires.

Cree estimates that Cree luminaires paired with SmartCast could result in energy consumption reductions of up to 70 percent, compared with fluorescent options. The technology is currently available for CR Series LED troffers, CS Series linear luminaires and KR Series downlights. There's also an interface that can be used with existing dimmable LED luminaires.

Cree is incorporating SmartCast as an option as quickly as possible across its product portfolio, said Gary Trott, Cree's vice president of product management, lighting.

"People have been vexed by controls," he said. "They are stunned because this technology is so simple." 

All images courtesy of Cree.



The nuts and bolts of sustainable investment strategies

By Robert Kropp
Published April 07, 2014
Email | Print | Single Page View
Tags: Finance & Job Creation, Funding & Finance, More... Finance & Job Creation, Funding & Finance, Socially Responsible Investing
The nuts and bolts of sustainable investment strategies

In the book "Green Investing: More Than Being Socially Responsible," author J. Patrick Costello offers a guide for investors wishing to make their investment portfolios sustainable; that is, investing in a manner that accounts for the long-term risks and opportunities associated with environmental, social and corporate governance (ESG) factors.

Sustainable investment has increasingly become the primary strategy of many pension funds and other institutional investors, as their long-term outlook aligns with the tenets of the practice. But as Costello points out, it is not only the financial interests of future generations that benefit from sustainable investment.

"The canard that socially responsible investing (SRI) inevitably leads to less than optimal investment returns can be quickly dispelled by looking at the facts," he writes.

Citing a 2012 study finding that the Calvert Social Index outperformed the S&P 500 over a five-year period, he continues, "SRI can deliver competitive performance, does not involve an emphasis on obscure investments, does not require an excessive time commitment and does not depend upon the investor becoming an expert analyst."

As Costello points out, a wealth of published academic research concludes there is no financial penalty to building a sustainable investment portfolio. What makes green investing stand out is the degree to which the author, himself a certified financial planner (CFP), outlines the nuts and bolts of such a strategy.

Emphasizing the rigorous training required of CFPs, Costello warns that major Wall Street brokerage houses have been accused by financial advisers employed by them of "systematically pressuring the sales force to sell the firm's proprietary products over competitor's investments also offered by the firm."

In other words, he points out, advisers employed by such brokerage houses may in fact be little more than salesmen whose advice is marred by conflicts of interest.

Any student of the financial crisis and its aftermath will be well aware of such a phenomenon; major investment banks such as Goldman Sachs, according to a 2011 report by the U.S. Senate's Permanent Subcommittee on Investigations, contributed to the financial crisis by designing, marketing and selling collateralized debt obligations "in ways that created conflicts of interest with the firm's clients and at times led to the bank's profiting from the same products that caused substantial losses for its clients."

And as the subcommittee's chairman Carl Levin stated following JPMorgan Chase's losses in the London Whale episode in 2012, "The enormous loss JPMorgan announced today is just the latest evidence that what banks call 'hedges' are often risky bets that so-called 'too big to fail' banks have no business making."

"Separation of function is very important," Costello writes. "Investors benefit when financial advice, fund management and fund-rating analysis are each provided by a different, unrelated entity."

A lengthy chapter describes for the unsophisticated investor the process of building an investment portfolio. "Before you select specific securities or funds, and before you implement the SRI screening process, you should generate a high quality portfolio template with projected volatility that is calibrated not to exceed your risk tolerance," the author advises. Additionally, investors should perform due diligence on the financial adviser in order to ensure his or her priorities are aligned. "Trust but verify," the author concludes.

In an email, Costello shared the aims of his book. "My whole purpose in getting behind this effort is to streamline and focus the message and reach the typical investor," he wrote. "I want to lend my energy to a movement that could push hundreds of billions of investor dollars toward the corporations and governments that do the better job of protecting the environment, nurturing their employees and governing their enterprises well."

Furthermore, "There's a lot of other basic prudent information about investing in today's investing environment that we all need to know, beyond the nuts and bolts of SRI. ... What good is knowing about SRI if you can't build a reasonably appropriate portfolio?"

"Green Investing: More Than Being Socially Responsible" is more than simply a worthy addition to the literature on sustainable investment. Costello focuses on the nuts and bolts of the investment process and how to employ the process to build a sustainable portfolio that meets the investor's financial and social needs. It is well worth reading.

The original version of this article first appeared at Social Funds. Investment button image by 102166600 via Shutterstock.

Tweet


Tweet

4 ways to make solar financing less weird

By Dan Seif and James Mandel
Published April 07, 2014
Email | Print | Single Page View
Tags: Energy & Utilities, Financial Models, More... Energy & Utilities, Financial Models, Renewables
4 ways to make solar financing less weird

When people say "Keep Austin weird," they really mean keep the Texas town small and special. And we're all for keeping Austin weird, as it's a cool city with awesome music. While utility-scale solar finance is still "weird" in that it involves tax equity, it also involves infrastructure funds, IPPs, utilities and other mainstream sources of sponsor equity and project debt. On the other hand, distributed solar finance is decidedly weird, but keeping it small and special would be a bad economic and environmental outcome. It's weird in that it is mostly limited to expensive sponsor equity and a few tax equity investors generating outsized yield versus risk. This weirdness impedes faster growth, both due to insufficient capital and higher cost to the customer.

While it's easy to get accustomed to how solar finance works once one is immersed in the space, the uninitiated generally are surprised at how strange it is. Usually weird finance is reserved for small-dollar, high margin, high-risk propositions, often executed by a small, tight-knit community of investors. And yet solar finance yields long-term, stable cash flows that would be attractive at half their current yield. What's more, the use of solar power is growing at an explosive rate.

Tax equity investors are few, highly sophisticated and demand a large cut of any deal they are involved in (approximately 9 to 11 percent returns in distributed solar and slightly lower in utility-scale). The structures that support these deals are complicated partnership structures, such as flips, sale-leasebacks and inverted leases.

Current efforts to scale solar finance often have focused on comprehending and navigating through this weirdness. Indeed, efforts at helping investors overcome complexities, particularly in the hopes of expanding beyond the 25 or so tax equity investors, are a governmental and NGO focus. RMI also has worked with companies with large tax appetites to consider renewable tax equity investment. Oddly, it's difficult to convince companies to get S&P 500-outperform returns on treasury bill-like risks. Yet more efforts also should be focused on overcoming, rather than tunneling through, the weirdness.

Why? Because solar's weird financing is insufficiently scalable. If distributed solar is to attain anywhere close to the penetration levels RMI outlined in "Reinventing Fire," its financing must become much more boring and less weird. It should start to look like everyday financing.

Therefore, and in alignment with the NREL-RMI roadmap for soft costs and financing released last summer, we propose more basic debt solutions and a broader approach to financing. The following four recommendations would help break solar's penchant for weirdness:

1. Loan against solar value

Recently, loan products have been springing up from a variety of providers, cutting into the third party finance (lease/PPA) market share, albeit only a little. While we applaud the expansion of options to customers in how they can pay for their solar, we see a clear missing element in nearly all existing loan offerings — loan value predicated on solar installation value.

An intriguing exception, Sungage recently announced a loan program for Connecticut — in concert with the Clean Energy Finance and Investment Authority (CEFIA) and Mosaic — which lends to residential projects based on the net present value of savings from the solar installation. In this system, the lender appraises a clear present value to the customer and predicates financing based on it, rather than solely on a customer's credit rating, salary or unrelated collateral. Put another way, Sungage's customer payments are directly based on their energy savings, or willingness to pay, and not just on ability to pay. While there are a number of innovative aspects to this financing package, this simple, but rarely practiced, form of solar lending is crucial to solar's future.

2. Migrate to mainstream residential real estate loans 

We'd like to see solar value-based loans incorporated into mortgages (first or refinance) and home equity loans. This is admittedly a bit tricky on two levels.

First, solar has been treated as personal property instead of real estate in third-party financing. Real estate investment trusts (REITs) have been at the forefront of changing that paradigm, and have submitted private letter ruling (PLR) requests to the IRS to have solar on real estate count toward REIT-qualifying real estate assets and operating cash flows. Unfortunately, the IRS has made this a bit more challenging, deeming REIT investment in solar as only qualifying as real estate investing if the REIT has a lien on the total property (PDF). In addition, property tax rules can get complicated in states that haven't made clear exemptions.

Second, solar is not yet included in the appraised value for most home mortgages. This is despite clear evidence that solar adds to the selling price of the home by even more than the purchase cost of the solar. Sandia National Labs and Energy Sense Finance have done great work on the PV Value software to enable jurisdictional assessors and bank appraisers to include solar value in the home real estate value. The PV Value software has been approved by the Appraisal Institute, which is educating its members on how to use the software. Unfortunately, right now most solar in residential real estate gets appraised at $0. Until there's real "pull" from the major residential mortgage underwriters, Fannie Mae and Freddie Mac, inclusion of PV value in real estate finance products is unlikely.

3. Move toward corporate financings

Ultimately, solar finance is weird because of the underlying tax incentive structures. Two critical incentives improve the economics of solar markedly: the 30 percent Investment Tax Credit (ITC) and accelerated depreciation, which allows companies to deduct their investment six years under standard accounting. That's why solar financiers own (via lease or PPA) your system. It offers the customer the lowest "optical" cost (perhaps not the lowest levelized cost of ownership, or LCOE, versus cash purchasing or loans) in contracts, because financiers can monetize these tax benefits and offer you the net price.

Yet these tax benefits were put into legislation not to necessitate exotic tax partnership platforms, but to reduce the tax liabilities of solar developers. Tax credits are only useful to clean energy developers profitable enough to actually pay income taxes. That might change as SolarCity and others turn the corner and become regularly profitable entities. Nonetheless, no large telecoms, engineering companies or other multi-product technical firms have financed and developed residential solar as a core business operation without a tax partnership (as opposed to just an outgrowth of their finance arm, such as GE Financial).

Without these large companies taking on the full equity financing on their balance sheets, "tax equity" partnerships, and all their incumbent weirdness, are still needed.

4. Use tenancy analysis in commercial solar financing 

Distributed solar finance, especially for commercial projects, is analyzed based almost solely on the person or company buying the power — the residential or commercial tenant sitting under the roof. The roof itself, on the other hand (along with the rest of the building), is financed based on the fundamentals of the building as a long-term, cash-producing asset — tenancy dynamics, stable rents, stable or increasing real estate prices — often regardless of who is the current or initial tenant. The commercial solar PV market, in particular, is stalling out as a result of this weird risk analysis. It grew sluggishly at 4 percent from 2012 to 2013, while the overall solar market grew by 41 percent. Perhaps it's time to change the commercial "offtaker" (the lessee or the PPA-payer) credit analysis lens from the offtaker's credit rating (for example, bond ratings, Dun & Bradstreet ratings or S&P commercial credit assessments) to the fundamentals of solar as a long-term, cash-producing asset. The credit rating lens leaves about 90 percent of the commercial real estate out of the solar financing opportunity set, as most commercial properties are not owned by entities with viable ratings or any ratings at all.

Nagivating around the weird 

High-profile governmental and consortia efforts, such as NREL's Solar Access to Public Capital (SAPC) and truSolar, work to navigate around solar's weirdness, trying to grow solar financing beyond high capital and transaction costs by increasing industry participation and producing credit analysis and contracting standards. It's really good, important work, and it's yielding progress. NREL SAPC's November achievement of standard residential leases and commercial power purchase agreements could be huge.

However, these efforts focus on streamlining existing solar financing products, predicated on tax equity (versus credit) participation. They drive toward increased securitization on the sponsor equity side, which would allow the public to buy solar cash flows after the tax equity participants have taken their cut. The theory goes that if sponsor equity consistently and profitably can exit the investment, they will demand a lower return upfront, which ultimately will lead to lower prices for consumers. It's sort of a trickle-down theory, which has proven effective in many other markets.

But will this "solar as an asset" class treatment lead to the normalization of mainstream solar financing, or streamlining of the current odd financing paradigm? We hope for both, with eventually the former prevailing, but time will tell.

Time to go mainstream

Solar finance can't stay in its current form and enable major scale. The solar industry has been breathlessly exciting, including its financing innovation, for some time now. But with the U.S. at only about 0.5 percent annual generation from solar, most of the growth story hopefully is still in front of us. It's time to have solar finance move out of the weird and enter the mainstream.

This story first appeared on the Rocky Mountain Institute RMI Outlet blog. Photo of coin jar by Aaron Amat via Shutterstock.

Tweet



Tweet

GreenBiz Forum 2014: Mark Bowles deposits wisdom on e-waste ATMs

Presenter: Mark Bowles
Published April 07, 2014
Email | Print
Tags: E-waste, GreenBiz Forum, Innovation


In trying to figure out a way to encourage electronics recycling, Mark Bowles hit upon a creative solution: set up self-service kiosks in malls that consumers can use to deposit old products for cash on the spot. Since then, his company, ecoATM, has processed more than 2 million devices, with about 1,000 kiosks in 45 states. At GreenBiz Forum 2014, Bowles said the trick has been to make the process as seamless and accessible as possible, noting that "the hardest part of the process is getting consumers to participate." 

 

Tweet

Can fragrance disclosure make a big company smell like a rose?

By Cassidy Randall
Published April 04, 2014
Email | Print | Single Page View
Tags: Branding, Consumer Products, More... Branding, Consumer Products, Consumer Trends, Reporting & Transparency, Toxics
Can fragrance disclosure make a big company smell like a rose?

It's time to get specific about the word "fragrance." A product's "fragrance" can be made up of 100 chemicals, and the specific chemicals aren't disclosed to consumers because they're currently protected as trade secrets.

But the issue of fragrance disclosure — or lack thereof — has come under increasing public scrutiny in the last few years by sophisticated consumers concerned about chemicals exposure from household products. While several alternative and "green" companies have begun listing the ingredients in their fragrances in response to this demand, there remains a lack of leadership from mainstream cleaning companies in this arena.

Consumers smell a rat

Let's not underestimate the importance of fragrance ingredient information to consumers. Women's Voices for the Earth's 2013 scientific literature review, Secret Scents (PDF), reported that millions of Americans are affected by skin allergies linked to undisclosed components in fragrance. Women are much more likely to be affected than men, and rates among children have skyrocketed in recent decades. Serious health problems linked to fragrance range from neurological symptoms and immune system effects to breathing problems and more. One U.K. study of 14,000 pregnant women showed a link between the use of air fresheners and aerosol sprays and an increase in headaches and depression in the mothers, as well as ear infections and diarrhea in their babies. Common ingredients in fragrance include hormone disruptors such as phthalates (linked to a series of reproductive abnormalities in baby boys) and synthetic musks (persistent, bioaccumulative and showing up in blood and breast milk).

Consumers increasingly assert that they have the right to know what's in the products they're using to clean their homes. In fact, last year an industry-sponsored study, "Thinking Consumption: Consumers and the Future of Sustainability," found that consumers ranked ingredient transparency among the most important issues for brands.

Nearly 9 in 10 consumers globally (86 percent) say "ingredient transparency is extremely important or very important" for companies to address as part of their products, services, or operations, including 88 percent of consumers in emerging markets and 84 percent of consumers in developed markets.

In response to this demand for transparency, smaller companies — including Ecostore, CleanWell, The Honest Company, Seventh Generation and several others — already have begun disclosing all ingredients in cleaning products right down to the fragrance. These No Secrets companies have paved the way, demonstrating that meaningful fragrance disclosure can be achieved without giving away crucial secrets and without incurring any negative financial consequences. On the contrary, these companies have shown growth in recent years as consumers look for brands they can trust.

Unfortunately, the cleaning product industry as a whole seems unwilling to break this outdated norm of fragrance secrecy. At trade association American Cleaning Institute's annual meeting in January, ingredient disclosure and safety topics conspicuously were absent from the agenda. In addition, ACI's new Hazard Data Portal, which intends to be a "comprehensive inventory" of public safety information on ingredients used by ACI's 900 members, includes almost no information on the thousands of fragrance chemicals used by the mainstream companies because the identities of those chemicals are kept secret.

The art of scent meets common sense

Perfume image by Evgeny Dubinchuk via ShutterstockFragrance historically has been protected as an art form, as that product component that differentiates it from all the others out there. And no doubt there is an art to fragrance, particularly in the techniques in the refining of ingredients, and the ways and amounts in which they are combined. Those may well be valuable fragrance secrets worth keeping. But a simple list of ingredients, which customers increasingly ask for, doesn't appear to be giving anything away of that art form.

As the issue of toxic chemicals and impacts to human health continues to occupy the spotlight, and more small companies reveal all the ingredients in their products, companies who don't disclose fragrance ingredients are beginning to look like they have something to hide.

Those mainstream companies who don't have anything to hide should take the opportunity to lead in the fragrance disclosure arena and gain back consumer trust.

The stop-and-start race to better fragrance disclosure

One company that comes to mind is SC Johnson & Son (maker of Glade, Pledge and Windex). In past years, SC Johnson has championed consumer health and safety by disclosing and removing harmful chemicals from its cleaning products.

Surpassing industry standards is nothing new to SC Johnson. In 2009, it became the first major company to announce that it would begin disclosing via its website all ingredients except fragrance in its cleaning products, which was unprecedented in the industry at that time. As part of the same 2009 announcement, SC Johnson committed to remove phthalates from all products, creating a domino effect that had other major companies scrambling to follow suit. In fact, just a few months ago, Procter & Gamble gave up its position as the lone major cleaning product company still using phthalates, and announced it too would remove the hormone disruptors this year.

Cleaning products image by Sebastian Duda

The company was also among the first, along with Clorox, to acknowledge that consumers do want more fragrance information. In 2012, SC Johnson released its fragrance palette, a master list of the 1,500 chemicals used in its fragrance mixtures, but not specific to products. Without product-specific information, the list isn't useful to consumers. However, this gesture became the new status quo, moving several other leading companies to follow this trend.

Recently, SC Johnson leadership on consumer safety and transparency has been eclipsed by both Simple Green and Reckitt Benckiser (makers of Air Wick and Lysol), who last year began disclosing certain fragrance allergens in their products. Companies, including SC Johnson, already list these allergens in products in the E.U., making this a logical (if long overdue) first step toward product-specific fragrance disclosure.

Given that this first step in allergen disclosure already has been taken, it's only a matter of time before full fragrance disclosure becomes the norm. Consumers are looking for a major brand that they can trust that will go the whole nine yards, and companies should be elbowing each other out of the way to seize the opportunity to be that brand.

Perfume spray image by Felipe Ernesto via Flickr

Tweet
Also in The Right Chemistry Blog:


Tweet

How the sustainable foods market went mainstream

By Aaron Hurst
Published April 04, 2014
Email | Print | Single Page View
Tags: Consumer Products, Food & Agriculture, More... Consumer Products, Food & Agriculture, Retail
How the sustainable foods market went mainstream

The following is adapted from the book "The Purpose Economy: How Your Desire for Impact, Personal Growth, and Community is Changing the World."

It wasn't long ago that the sustainable consumer products market was mostly operating on the fringes of society. In those early days, the market was more a movement supported by a tiny portion of the population — innovators shopping at and running small health food stores. These stores smelled like vitamins, and the organic produce sold on their shelves looked sickly. It required dedication to shop in them.

It wasn't until the 1980s, with the introduction of visionary brands like The Body Shop, Whole Foods Market and Ben & Jerry's, that we started to see early adopters enter the market. Unlike the early days of the sustainable products movement, these new brands found success largely by making their products more appealing to the early adopters, people who cared about health and sustainability but also wanted products that worked well and provided satisfaction.

These companies offered great products, but at a higher cost. For early adopters who tend to be more affluent and image-conscious, the type of people we see wandering the aisles of Whole Foods Market, this worked. By 2012, Whole Foods Markets had 340 stores and 2,400 natural and organic products on their shelves, selling over $12 billion and employing nearly 75,000 people. They had come a long way from the health food stores before them.

But even with 340 stores, Whole Foods Market only serves a small part of the overall market. There are 37,053 supermarkets in the United States selling $602 billion in goods per year. That means that roughly one in a hundred supermarkets is a Whole Foods Market, so they comprise only 2 percent of the market share by revenue.

The impact of Whole Foods Market, however, is much greater than its size. Similar to Tesla, despite a small market share, it has changed the overall market. It has cultivated the early adopters and turned them into tastemakers that are making the early majority pay attention. As of 2013, 63 percent of Americans reported buying organic foods, and 40 percent planned to increase their purchases of organic in the coming year. The early majority has entered the market, but their needs are different than those of longstanding Whole Foods Market customers. They need lower costs and easier access to sustainable and healthy food. 

By selling to early adopters, Whole Foods Market created enough demand to support hundreds of suppliers. Prior to its rise, many organic and sustainable products simply didn't have a retail channel to generate enough sales to survive. Many local family farms and niche packaged food brands couldn't last. Whole Foods Market created enough sales to float these businesses and to inspire many new ones. Once stable, these businesses could begin the harder push into other retail outlets. 

More major supermarket chains now have organic products to appeal to the emerging market. By 2010, large supermarkets sold 54 percent of organic food. While this is leaps and bounds from where the market was 10 years ago, the selection is still limited in most stores. This remains a barrier for the early majority, who report that despite their desire to buy more organics, they often can't find them in the stores where they shop. 

There is a fundamental chicken and egg riddle in moving to sustainable products in supermarkets. Even if the largest retailers wanted to move to more responsible products, in most cases, they wouldn't have the suppliers necessary to stock their shelves in the volume they require. Most of the Whole Foods Market suppliers simply don't have the infrastructure to meet the needs of millions more buyers.

Out of the ecosystem of suppliers that Whole Foods Market nurtures, some of the brands take off and are able to go mainstream, to cross the chasm into the early majority market and be able to scale to meet the needs of large retailers. Seth Goldman's Honest Tea is one of the early examples of a product that made this jump.

Honest Tea was founded in 1998 to provide healthier (and later organic) iced tea products to the market. It was initially sold through Fresh Fields, later acquired by Whole Foods Market. Their first shipment to the stores was for 15,000 bottles. The product quickly took off, and sales through Whole Foods were booming. It caught the attention of the king of sugary beverages, the Coca-Cola Company, who made a major investment in the company in 2008 to help it move into the larger markets. Honest Tea was even President Obama's preferred drink and was being stocked at the White House.

By 2011, what Honest Tea found, however, was that building and managing the distribution and production necessary to fill the shelves of major retailers and reach the majority of Americans was a daunting task. It required a different kind of company, where marketing, distribution and production were its core competencies. That same year, Honest Tea was acquired by Coke, which enabled the Honest Tea brand to sit on top of the same marketing, production and distribution systems of Coca-Cola. Whole Foods had incubated a product that had crossed over into the majority.

This is the story of how sustainable and healthy foods move through the adoption curve. More companies will follow the path of Whole Foods and Honest Tea and find ways to distribute their products by partnering with large platforms, who can bring their products to the masses. Some of these platforms may also begin to create their own new products to meet this market need.

As the brands go mainstream, it's too easy to lose sight of the fact that they are about more than just profits. They are key players in what I call the "purpose economy," which is where markets meet our individual desire for purpose. They are creating meaningful impact in service of people and the planet with more human-centered markets.

These early pioneers that have gone mainstream are now attracting the human and financial capital needed to build and grow markets in the purpose economy.

Photo of local produce section via Whole Foods

Tweet


Tweet

Accelerator program aims to spark community energy innovation

By Rebecca Cole
Published April 04, 2014
Email | Print | Single Page View
Tags: Energy & Climate, Energy & Utilities, More... Energy & Climate, Energy & Utilities, VERGE
Accelerator program aims to spark community energy innovation

This week, RMI kicks off eLab Accelerator, our bootcamp for electricity innovation. More than 100 participants from across the country are rolling up their sleeves to make rapid and targeted progress on the trickiest issues they're facing.

Across the electricity sector, stakeholders are reimagining conventional business models and system designs to develop solutions for today's energy challenges. But success in these projects is not assured; a host of challenges and barriers threaten to prevent the full system benefits of renewable and distributed resources from being realized. New solutions are needed to work through vexing problems. New processes are needed to enable constructive dialogue between stakeholders, share best practices and scale results.

In this first of three blogs, we explore some teams coming to scope, develop and fund energy innovation districts in their communities. These four teams are faced with tough questions about understanding and surmounting the inherent barriers, selecting the right technologies to meet desired performance objectives (such as zero emissions) and engaging stakeholders within their community to support these projects.

Spokane, Washington: University District Smart City

Spokane's University District project is focused on creating, attracting and retaining new economy workers and businesses and represents a fundamental shift in the pursuit of economic development for the city and the region. City leaders have an important opportunity to position the District as a "smart city" proving ground that would include a profound shift in the way electricity and other resources, such as water, natural gas and transportation, are used and supplied.

Key issues the team will tackle this week include:

• Developing a shared understanding of the current state of the University District project, particularly as it pertains to implications for energy and smart city dimensions

• Developing a first cut assessment of key barriers that will need to be overcome, who else needs to be involved and next steps

• Developing effective, collaborative partnerships with the city, the district and the utility

Bloomington, Indiana: Certified Technology Park

In 2011, the city of Bloomington acquired 12 acres of land in the heart of downtown with the goal of establishing a Certified Technology Park (CTP). The master plan for the CTP aims for the development to become a model of modern, sustainable urban redevelopment, with energy innovation as a key piece of the long-term vision. Options under consideration include onsite solar, biomass, waste-to-energy, geothermal, cogeneration, energy storage, demand-side management, power from the utility grid and microgrids.

Key issues the team will tackle this week include:

• Developing an energy plan and strategy to meet their long-term vision
• Building a shared perspective of what success looks like for different stakeholders in the project
• Exploring and weighing the options available for building a microgrid

Arizona State University Microgrid

In addition to a goal to achieve climate neutrality by 2025, Arizona State University is working with Arizona Public Service Company and Ameresco to develop a campus microgrid to reduce energy costs; improve grid reliability, redundancy, resiliency and flexibility; and offer a unique demonstration project that will benefit research and education for faculty, students and the community.

This week, the team will explore the feasibility, implications and impacts of taking the university completely off the grid during normal operations or in the event of a grid outage. The group also will investigate the potential for capacity displacement and firm energy supply that a microgrid can provide to the grid, including the necessary utility business models to enable these services.

Houston, Texas: Independence Heights Zero Energy Initiative

Houze (the "ze" stands for zero energy) Advanced Building Science Inc. is an innovative, technology commercialization company integrating disruptive technologies into real estate development and building. Houze is partnering with Houston city officials and leading building materials and appliance manufacturers to revitalize the neighborhood of Independence Heights by building homes that cost less to own, operate and maintain.

Key issues the team will tackle this week include:

• Building perspective and framing the complexity of the challenges facing the Independence Heights initiative and other future net-zero communities

• Understanding how the challenges that face the project in early phases will evolve with scale

• Developing a project collaboration plan that will meet the needs of the stakeholders

This article originally appeared at RMI Outlet. It is first part of a series about the eLab Accelerator; read the second part here. Follow news about eLab Accelerator, the teams, and the projects on Twitter using #eLabAccelerator. City solar plant image by Naypong via Shutterstock.

Tweet
Also in The Institutional Acupuncture Blog:


Syndicate content