How to Attract Investors to Energy Efficiency

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attract investors to energy efficiency

Jeff Haydock: How to Attract Investors to Energy Efficiency

Policymakers could work harder to attract investors to energy efficiency and ensure the US reaps all of efficiency’s environmental and cost benefits, says Jeff Haydock, president and CEO of EcoCFO.

The biggest barrier, he says: “The investment community has become increasingly risk averse, overall. This means there’s a smaller pool of funds capable of being deployed into projects in which the stars don’t align. Investors are sticking to what they know, as well they should. Taking risks is much different than taking calculated risks.”

So how do we overcome the barriers to boosting investments in the cleanest, most cost-effective fuel source — the negawatt?

On the policy side, policymakers need to focus on minimizing the risks. This can be done in three ways, Haydock says:

First, “Create clear and consistent policy. Constant changes are detrimental to private sector investment. Changes mean volatility, and volatility means risk.”

Second, don’t develop policy that intentionally stunts energy investment. For example, don’t handicap net-metering policies or require lengthy and expensive permitting or approval processes.

Third, create low-interest loan programs. These provide affordable capital that can supplement private investment. “This also creates returns to taxpayers, and supports job and economic growth locally,” says Haydock, who is a consultant to energy and environmental companies.

Those involved in energy efficiency projects should identify the risks they can control and effectively mitigate them, he says.

“Make sure the off takers and/or counter parties in the deal are all solid financially,” he says. “Try to line up matching funds from a conventional bank or low-interest lending source to minimize the risk exposure to the investor and to (hopefully) lower your weighted average cost of capital.”

And be sure that all legal documents  are ironclad and that they clearly define default events and provide sufficient remedies for default. Be certain the physical location is suitable and that maintenance costs won’t be exacerbated due to existing conditions, he says.

So are there any states doing a good job of attracting investors to energy efficiency and clean tech?

Massachusetts is a hotbed for most clean tech investments since there’s a good mix of both economic and legislative drivers to create the environment for a robust industry,” says Haydock. “Massachusetts offers progressive legislation, high energy costs and demand, expert talent, a strong and growing investment community, and an overall mindset of the majority of the population that is geared toward environmental and social responsibility. This is replicated in most of the Northeast and the West Coast, also.”

Matt Golden, director of the Environmental Defense Fund’s Investor Confidence Project, also addresses ways to boost investors’ confidence in this podcast:

http://energyefficiencymarkets.com/building-investor-confidence-energy-efficiency-projects-part-1/

Here’s the good news: With efficiency advocates like Haydock and Golden on hand, we’ve got clear ideas about how to overcome investment challenges and boost investments in the all-mighty negawatt.

Please follow Energy Efficiency Markets on Twitter @EfficiencyMkts.

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