New thinking in EERE projects

Energy Efficiency, Renewable Energy ( EERE ) seems to be a puzzle that the current banking professionals seem to be attempting to solve with the same old tools ... term financing structures composed of principal and interest, fully amortizing over the useful life of the equipment (5-10 years).  This is equipment finance traditionally constrained by capital equipment used in the everyday operations of going concern businesses. 
The gap comes in our uncertainty regarding the production capacity of this equipment, or retrofit system solution.  What happens if the spring turns out to be colder and darker that we would otherwise expect.  The equipment generates less power and that power generation translates into reduced income to service debt.
Government subsidies defined by the PUC compound the issue.  For example, the current Feed In Tariff  (FIT) was calculated so as to pay for the cost of solar PV systems over 15 years.  Within that calculation, the PUC included the cost of financing, but did so assuming a fixed rate, 15 year, fully amortizing loan facility.
Again., the gap is that this particular loan facility is seldom used, and when it is used, banks tend to add a loan pricing premium as a hedge to rising cost of funds and a generally escalating interest rate environment.
We need to think about renewable energy in a new light.  I would like to throw out an idea that I think holds water as supporting vehicles for a growing EERE market.
First - when financing solar PV in concert with the FIT program, a reasonable structure for loan service would be monthly interest payments with an annual leveling payment.  What I mean by this is for banks to take assignment of the FIT revenue stemming from energy production of a Solar PV system and apply that revenue to the interest portion of the loan on a monthly basis.  During the winter months, the loan, consisting of an interest account and a principal account, would self service the interest portion of the debt, but would likely not reduce the principal balance of the loan.  This "issue" would self correct over the Summer and fall months when the sun shines longer and the days are longer.  I would expect that the interest portion of the loan would self correct over the summer months and the principal portion of the loan would be reduced.  In the event that the production of the system exceeded projections, the loan would amortize faster than expected ... a good situation for the bank and for the system owner.  In the event that the system failed to generate a minimum production capacity over the year's time, a leveling payment would be required by the system owner.  This leveling payment could come from a pre-determined cash reserve account required by the bank at loan inception.  This type of approach would mitigate payment and amortization risk to the bank and keep the investment of the system owner at a minimal level, thereby preserving the owner liquidity.
Wind systems could be addressed in a similar way ... monthly interest payment with scheduled principal balance reductions in order to keep the loan performing to the expectations of the bank or financing entity.
With some creative thinking and a willing finance community, EERE projects can be a profitable and predictable market sector. 

Careful words

I have a book in me ... I just know it. :)

Tuesday brought my son home at 2:30 am. The good news, he came home in his own car - I didn't have to pick him up at juvenile detention. The other good news ... I don't sleep when he is out late and so the night was a short one. The tertiary good news ... I was moderating a panel discussion at 7am that morning. So on 3 hours sleep, and under the influence of significant amounts of B12 and caffeine, I began my day.
The panel discussion was addressing the gap between building a great building - energy efficient, healthy, lots of sunlight - and finding a banker who recognizes something other than the financial performance of the building. Daily Journal of Commerce was there taking notes. The conversation went really well ... conclusions all pointing towards taking the extra time and effort to consider how the "healthy" aspects of a project translate into better financial returns for a variety of reasons ... then it happened. The B12 and caffeine wore off. Out of my mouth comes the following, "As a banker, I don't care about how clean the air is or how many people show up to work each day ... what matters to me is how your cool LEED Silver, Gold, Platinum, Living Building performs differently than a traditional building built to code. Show me how your building performs better - lower expenses, lower maintenance costs - and how that generates higher Net Operating Income." :-)
The fact of the matter is that I do care, but I was being intellectually lazy in making my point - The human aspects of the sustainability movement are the drivers of change - In order to support the benefits intrinsic in LEED projects, we need to carefully define and defend how the characteristics of a LEED building contribute to behavioral change in the occupants and therefore add value. I know this ... Creating a healthy environment benefits all parties in various ways. Triple bottom line - People, Place, Profit. I didn't make that point in my statement - but it was a great sound bite ... and so was quoted in the DJC and attributed to me. Dan Weldon, Vice President, Eco-banking Manager, LEED AP, Traditional Asshole Banker. Oh man :)... (laughing at self and at life generally). This is what keeps life fun. Maybe I will have the opportunity to clarify ... maybe not. It is out there in the ether now. And I move on. This message needs to be clear - it takes a community of dedicated, intelligent people to solve complex problems. Linguistics - the translation of one language to another - gets a bit convoluted at times. We need to find alternative paths that are not presently there - life is like that.
I enjoy the opportunity to learn this in so many different and vital ways. It all adds to the richness of the journey. I am building new and unique pathways of reasoning in my brain. Making connections that were not there previously. Through those connections, I will see things which were previously hidden from me. That is the beauty of life and learning. I so enjoy being a student.