There are plenty of money-making opportunities from reducing energy use that go above and beyond implicit savings, but the market for energy reduction assets is opaque, and financing opportunities for smaller-scale projects are few and far between. Energy efficiency financing and insurance firm Joule Assets has introduced new services designed to grow that market, by offering direct financing, more transparency, and a means of enhancing the profitability of efficiency investments.
Energy Reduction Assets come in many forms. One is the purchase of negative energy. An unregulated electricity provider, such as Constellation Energy, does not have to purchase electricity exclusively from a utility. If Constellation has customers willing to cut consumption through demand response programs or other means, “the provider can actually purchase negative energy from their customers to supply other customers with positive energy”, Joule chief executive Mike Gordon told Breaking Energy.
Another means of turning non-use of energy into an asset is through efficiency credits. Regulatory structures such as the Renewable Portfolio Standard may require that everyone selling electricity into the wholesale market must also purchase a certain amount of efficiency. And those who generate more energy efficiency credits than they require can sell those back into the marketplace.
There is money to be made from efficiency, but building out an ERA market faces some high hurdles. “There are two pieces that are critical barriers in that industry: simple, transparent, actionable information and financing,” Gordon said.
Even for companies who are in the business of efficiency retrofits or sales and installation of efficiency-enhancing technologies, the range of ERA’s offering potential revenue streams may not be immediately apparent. Joule started out as a data and analytics company, an expert source of information on ERA’s, and the firm is now leveraging that expertise to capitalize on untapped investment opportunities in demand response and energy efficiency.
For more on earning returns from energy efficiency, see Mining Energy Data and Striking Gold
Joule announced earlier this month that it had begun offering new financing solutions targeting small-to-midsized projects – those valued at less than $10 million. Projects of this size have traditionally had difficulty attracting financing, partly because of high up-front due diligence costs, and partly because of the complexity of the market, according to Gordon. “There’s mutual exclusivity, there are registration requirements, there are entities that do one piece of the project but not another piece,” he said.
In addition to seeking out and identifying all the possible revenue streams for a given project, Joule will provide both financing and direct loans for smaller-scale projects in exchange for a share of ERA revenue streams. “What we’re offering is the opportunity for vendors to take their technology and offer it to their consumers for free,” Gordon said. The vendor or technology provider is then paid a portion of the value derived from that asset through the ERA market.
Not all efficiency projects are of interest to Joule. “If we feel that we can identify things that people were missing, that we can help a project create more energy reduction assets or more revenues from a project, we will potentially invest in the project and help someone get more out of it,” Gordon said. “If we don’t feel like we have anything to add, then there’s no reason to engage us, it’s better to go to a traditional financier.”
Ultimately, the goal is to grow the ERA market. “The only way you’re going to do that is to make sure that all three counterparties win,” Gordon said.
Vendors taking advantage of Joule’s offerings gain access to both financing and clear, transparent information about the DR and EE markets. Consumers considering retrofits or other efficiency or DR upgrades identify sources of value from their projects. And “the investor in our private equity fund wins, big time, simply because when we go in and we finance a project, we find extra revenue streams”, Gordon said.
“Typical traditional financing might have a return of 6-8%, but when you can go in and find extra revenue streams, the investor is getting a better investment return because of the expertise that this investor is bringing to the table.”
