Leaps and bonds

Of course, the most efficient form of renewable energy is energy efficiency, and innovative ways of financing this form of sustainable energy are also emerging. One of the difficulties of funding energy efficiency in schools, hospitals and municipalities is that federal and state tax credits are of no use to those tax-exempt entities, and they are often short on available capital. So a number of investment groups are looking to set up private equity funds that would buy a hospital or college power plant and make it more efficient (and/or install renewable energy wind or solar projects), and then “sell” for a fixed price the energy savings (or electricity) generated to the not-for-profit institution for a set period of time. The fund could take advantage of the tax credits by passing them through to their limited partners in the private equity fund, thus reducing the capital costs of the sustainable energy improvements, and also benefit from accelerated depreciation. At the end of the contract, the fund could sell the improvements to a third party (or the institution) for a residual value. Everyone wins, as the institution has a lower fixed price for part of their energy costs, with no price volatility risk for a period of time without investing scarce capital, and the fund investors receive tax credits, a stream of income, and a residual payment at the end of the contract. Everyone wins by reducing risk while increasing income and reducing energy costs.

These are just a few of the innovative approaches that the financial world is looking at to profitably, and at lower risk, accelerate the rapid implementation of renewable and sustainable energy, now and in the future.

John L. Cusack is head of financial services risk management, Maplecroft Ltd., and was former startup CEO and co-founder of Innovest Strategic Value Advisors, senior VP for the Environmental Risk Consulting Practice of Marsh, and a senior executive running subsidiaries of Asea Brown Boveri in Europe and North America. He teaches an online “Finance & Sustainability” course for Marylhurst University’s MBA in Sustainable Business.