Financial Innovation Is Spreading to Efficiency

AUGUST 13, 2014


Content originally printed in Greentech Media.

America has been the focus of attention in efficiency finance, but Canada is seeing a wave of activity too.

According to a recent international scorecard, the U.S. and Canada rankthirteenth and ninth respectively for energy efficiency, out of sixteen major global economies.

The scorecard compared policies and programs in each country, and scored them on the efficiency of their buildings, industries and transportation networks.

Although there's plenty of room for improvement in those areas, Canada and America are indeed seeing progress -- particularly in energy efficiency financing. A number of innovative third-party financing mechanisms have emerged that are helping these two countries scale up deal flow.

Much of the focus has been on activity in America. But what about Canada?

Here are a few recent important developments in Canada that are helping efficiency expand in the country. 

TPG and SMi-Enerpro

In April, SMi-Enerpro, a division of Quebec-based engineering firm SM Group, closed a joint venture with TPG Special Situations Partners, the firm’s credit platform. With almost $60 billion of assets under management, TPG is one of the largest private equity firms globally.

SMi-Enerpro designs, builds, and optimizes HVAC systems to save buildings energy. The company's focus is on buildings across Canada, U.S. and Europe with energy bills of at least $500,000.

As Jean-Simon Venne, VP of energy efficiency at SM Group, explained, “We save energy for buildings by optimizing the whole thermodynamic equation (i.e., heating and cooling needs) of the building, not simply optimizing amongst the various building mechanical systems.” According to Venne, SMi-Enerpro’s services save buildings an average of 40 percent off their energy bill.  

The company has been financing projects with internal funds, usually with simple paybacks of less than three years. The partnership with TPG will help SMi-Enerpro scale by offering financing to prospective clients. Furthermore, TPG may help generate leads via its large portfolio of companies and buildings.

TPG is not new to the clean energy game; the firm has a large portfolio ofalternative and renewable technology investments in startup companies. And in 2011, it committed $150 million to Chinese solar manufacturer Comtec.

This partnership is a major signal that smart mainstream investors see promising returns from efficiency.

Guaranteed performance: The ESPA

One of the key barriers investors face in an efficiency deal is managing and isolating risks. The Toronto Atmospheric Fund’s (TAF) deal structure addresses those risks.

TAF operates as an independent arms-length agency from the City of Toronto, with a mission to reduce local greenhouse gas and air pollution emissions. Set up with a $23 million endowment in 1991, TAF’s debt and equity investments have since delivered over $55 million in energy costs savings to the city, at no additional cost to Toronto taxpayers.

In May, TAF announced a retrofit project with a local housing co-op, Robert Cooke Co-Operative Homes. Using its innovative Energy Savings Performance Agreement (ESPA) model, TAF financed $460,000 of energy upgrades including heating, cooling, lighting and appliances in this 123-unit apartment co-op. 

The first of its kind in Canada, the ESPA allows the building owner to finance the upgrades without taking a loan. Instead, TAF pays for the improvements, and is paid back over time out of the energy savings, projected to be $70,000 per year. 

If the savings do not materialize, the building owner is not obligated to pay the fund. Instead, TAF is compensated by an energy savings warranty, in this case provided by the reinsurance company Energi.

The exciting aspect of this model is that it isolates the investor from the performance risk of the efficiency equipment. Since the reinsurance companies’ internal engineering team is guaranteeing the performance of the equipment, this model has the potential to unlock lots of new capital.

One source of this new capital could be the “crowd.” The potential for crowdfunding clean energy projects is vast. In a separate transaction, TAF and CoPower (a firm co-founded by one of the authors, David Berliner) are working to "crowdfinance" an energy-efficiency project in Canada.

Property-assessed energy efficiency investments

Property-assessed clean energy (PACE) financing for energy efficiency and renewable energy is another model making progress in the U.S. and Canada. Under PACE, a building owner is loaned money by a government, or a third party working with the government, to carry out energy efficiency improvements on the property. The loan is then repaid through a special assessment added to the property tax bill. 

This structure offers many advantages. The obligation to repay the loan stays with the property at the time of sale, ensuring that the obligation remains linked to the energy saving benefits. Also, municipalities can offer their extremely low borrowing costs to residents, with extended payback periods, thus encouraging deeper energy savings.

Ontario is the first Canadian province to enable PACE-type financing through a 2012 amendment to the Local Improvement Act. This allows any Ontario municipality to establish a program that invests in voluntary local improvement on a single property.

In March, the Toronto launched the Home Energy Loan Program, the first pilot under this legislation. The city is allocating up to $10 million to support home energy retrofits and another $10 million for financing energy and water efficiency projects in large multi-family buildings. 

Earlier this year, Connecticut sold $30 million of PACE efficiency loans to Clean Fund, a private investment firm. This showed how smartly designed public policy can catalyze private investment into efficiency.

Though these various financing models are still in their early days, it’s clear that efficiency is on track to become a mainstream investable asset. Canada and the U.S. may still lag other countries in overall efficiency, but they're gaining momentum in the world of finance.


David Berliner is CEO at CoPower.me, an online investment platform that helps Canadians make investments in clean energy and energy efficiency projects.

Alex Hill is a senior consultant at Dunsky Energy Consulting, where he provides analysis and strategic counsel around efficiency and renewable energy to leading utilities, government agencies and private firms throughout North America.  


Tags: Clean Energy - Social Impact Investing - Green Bonds - Ethical Funds - Fintech