HB&C, in partnership with the National Association of State Energy Offices (NASEO), has been performing finance tune ups for State Energy Offices over the past two years. These tune ups are designed to be a quick and inexpensive assessment of existing finance programs offered through the State, with recommendations on how those programs can better achieve their intended purposes. These often lead to deeper engagements, vis a vis DOE SEP grants, to perform implementation work. Most recently, our team completed a tune up for the State of Oklahoma’s Department of Commerce.
The main components of the tune-up project involved identifying and interviewing key financing stakeholders; reviewing existing financing program documents and loan portfolio data; and offering a set of options to improve the delivery and uptake of DOC financing solutions. Here’s a brief synopsis of that work:
In general, DOC’s existing financing programs appear to be suffering from two key barriers: 1) a high burden of program documentation and 2) poor visibility among eligible participants.
- Program documentation burden: Our review of the programs guidelines found that potential borrowers are required to complete and submit anywhere between seven and 14 separate forms as part of the application process, depending on the program. For some programs, these forms may be redundant or duplicative, inconsistent with the Application Checklist in the program guide, or potentially unnecessary.
- Poor visibility: Our discussions with major energy service companies (ESCOs) including Schneider Electric and Johnson Controls working in the Oklahoma MUSH market indicated that very few ESCOs are taking advantage of this low-interest financing and opting instead for the state’s Master Lease Program for higher education.
There are ways to consolidate, restructure, and/or leverage DOC’s existing program funds to better serve their target market or to address new target markets.
- For all programs, one important and common need is to streamline application documents to ensure consistency between each program’s guidelines and its required forms; to assess whether every form is necessary and makes sense for the program
- As a near-term step, we recommend that DOC consider combining 3 separate MUSH-market programs into one unified program targeting institutional buildings; setting rates based on Treasury rates or the interest rate swap rate; lengthening loan terms; and setting aside funds to support marketing and outreach to borrowers and ESCOs.
- An additional improvement to the MUSH market programs would involve combining the funds and restructuring them as a credit enhancement or interest rate buy-down. Such a structure would enable DOC funds to be used to leverage private investment and make otherwise difficult-to-finance projects more attractive to private lenders.
As has been the case with past tune-ups, HB&C and NASEO recommend that DOC consider using the results of the tune up to form the basis for a DOE competitive SEP grant where HB&C could perform the work of enacting the recommended solutions. HB&C is currently wrapping up a large project for the State of Illinois that followed such a process.
Click the link below to download our 1 pager describing the finance tune up