At the Grid Edge for 2019

Clean Energy Works has championed innovations in finance that can accelerate investment for any cost effective grid edge solutions, including energy efficiency, clean transit, and solar power. While these distributed energy upgrades are growing more competitive by the day, deployment is still constrained by upfront cost barriers, and traditional financing remedies continue to systematically disqualify people based on socio-economic factors that affect political support for clean energy policy. This framing provided context to our work in 2018, which featured breakthroughs on multiple fronts where we aim to expand the landscape of opportunity in 2019.

 

International progress

In February, Clean Energy Works was selected by the Global Innovation Lab for Climate Finance to “pressure test” the concept of PAYS for Clean Transport. Led by Climate Policy Institute analysts, our working group conducted financial modelling and completed many stakeholder interviews which lead to the endorsement of the concept in September. Lab members from the World Bank, Inter-American Development Bank, Bank of America, WRI, and more, attended the endorsement event in New York City and we have leveraged their engagement into upcoming projects – moving the PAYS for Clean Transport from the Lab to the streets.

Our work with the Lab lead directly to a Design Funding Award at the end of October from Convergence, a global network for blended finance. This grant will allow Clean Energy Works to complete the necessary feasibility work to narrow down the pipeline of cities in Latin America to a candidate city for a first implementation project.

In addition to these long term projects, Holmes Hummel had the opportunity to engage with international stakeholders through sessions at the Global Climate Action Summit; C40’s CFFactory; Financing Sustainable Cities Initiative Clean Bus Finance Academy; the Global Pilot City Forum, part of the EV Initiative of the Clean Energy Ministerial, hosted by International Energy Agency; and Innovate4Climate, hosted by the World Bank

 

U.S. engagements

In the United States, Clean Energy Works focused on key states with one to two cities with conditions that appeared well suited for introducing the PAYS for Clean Transport concept, in addition to continuing our work on energy efficiency building upgrades and explore new areas such as electric school buses and solar.

Clean Energy Works was invited by the American Council for an Energy Efficient Economy (ACEEE) to publish for the first time the performance data of every inclusive financing program in the United States. Co-authored by the creator of the PAYS system, the paper entitled “What is inclusive financing, and why are some of the largest states seeking it now?” was presented to a standing-room only session at ACEEE Summer Study on Building Energy Efficiency.

This paper drew heavily on our work with rural electric cooperatives, and though Clean Energy Works has begun to focus more keenly on transportation, we were keen to continue to build on our relationships with rural electric cooperatives. Electrifying school buses is a way to fulfill both these goals. However, the technology was lacking as no bus manufacturers had yet produced electric school bus models. This changed in latter half of 2018 with ThomasBuilt in North Carolina partnering with Proterra in South Carolina to make dozens of electric buses for school districts in California. Roanoke Electric promptly expressed an interest in applying PAYS for Clean Transport to school buses, possibly on a faster time frame than even the fastest prospect for transit buses. With support from the Storer Foundation and the Flora Family Foundation, Clean Energy Works will work with Roanoke Electric on the electric school bus frontier and hope to have preliminary results in early 2019.

As part of our work financing grid edge solutions Clean Energy Works has also begun to explore inclusive financing as applied to solar. Clean Energy Works was part of a team lead by Groundswell that has been awarded funding from the U.S. Department of Energy Solar Energy Technologies Office (SETO) to support research that will rapidly accelerate community solar and energy efficiency access for low-income communities. Clean Energy Works and the creator of the PAYS system will work with the other grantees as well as Ouachita Electric Cooperative which will be testing the Solar PAYS concept.

In addition to our work on established and new inclusive financing projects, Clean Energy Works continues to undertake education and outreach to build awareness of this concept and engage stakeholders in the energy, environment, and equity fields. With the support of the Storer Foundation and the Flora Family Foundation, we worked with the Solutions Project to expand the number of foundations making grants to groups engaging electric cooperatives across rural America and develop a Funder Advisory Group with more than 30 foundations expressing interest in participation.

Equity continues to be a guiding focus for Clean Energy Works, and Holmes Hummel spoke on this theme at mainstage events during VERGE Hawaii  and VERGE 2018. Green Biz recognized Dr. Hummel’s contributions to this space with a spot in the VERGE Vanguard.

 

Entering 2019

With ongoing projects internationally and in the United States, in building energy efficiency upgrades, solar, electrification, and clean transportation, Clean Energy Works is poised for another great year in 2019. After a year of outreach and refining our model, we are looking forward to pursuing projects across the globe, and continuing to accelerate investments in an inclusive clean energy economy, where cost effective distributed energy solutions are accessible to all.

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What’s Preventing the Rapid Deployment of Electric Buses Worldwide?

A blurry picture of a transit bus

Holmes Hummel explores this question and shares our recent work with The Global Innovation Lab for Climate Finance  and Convergence on Pay As You Save® (PAYS®) for Clean Transport in a guest post on the NextBillion Blog:

Electrifying Transportation: Can This Innovative Financing Model Make Electric Buses a Global Reality?

Electrifying transportation at scale is critical to fighting climate change and urban pollution. In the context of both near-term Paris Agreement commitments through 2030 and long-term greenhouse gas mitigation paths through the end of the century, rapid electrification is vital to success in every conceivable climate stabilization scenario. Mass adoption of electric vehicles would also contribute to the reduction of harmful urban pollutants that contribute to seven million pollution-related deaths each year and cause nine in 10 people around the world to breathe polluted air.

Within the transportation sector, transit buses present an excellent business case for electrification. Between declining battery costs and lower fuel and maintenance expenses, electric buses have life-cycle costs that are increasingly competitive with diesel buses in many markets. Their electricity usage patterns are regular and predictable, and buses can often charge during off-peak periods of excess electricity supply, minimizing both the cost of electricity and the strain potentially placed on the grid by the presence of other electric vehicles and/or intermittent energy sources.

So, what is preventing the rapid deployment of electric buses worldwide?

THE BARRIER TO ELECTRIFICATION

High upfront costs are the primary barrier to electrification. Electric buses have up to 40 percent higher upfront costs than diesel buses, primarily due to the cost of batteries and charging infrastructure. This increased cost can be prohibitive to many bus service providers who might otherwise be interested in electrifying.

However, primarily due to savings on operating and maintenance costs, electric buses can actually have lower total operating costs (TCO) over the life of the bus than their diesel counterparts. A 2018 report by Bloomberg New Energy Finance showed that the TCO for most configurations of electric buses is already less than the TCO for diesel buses, and with falling battery costs, electric buses may be fully cost-competitive on a TCO basis within two to three years.

A WAY FORWARD: PAY AS YOU SAVE® (PAYS®)

To overcome the upfront cost barrier and accelerate the electrification of global bus fleets, Clean Energy Works is applying an innovative financing solution called Pay As You Save® (PAYS®) to the transportation sector.

With PAYS, utilities cover the high upfront costs of eco-friendly/sustainable upgrades, and recover their costs over time. This model has been successfully applied to energy efficient appliances in India and building upgrades in the United States, but it has never been applied to the transportation sector.

Under a PAYS for Clean Transport program, the utility would buy the bus batteries and charging infrastructure, lowering the upfront costs and allowing bus service providers to buy electric buses at no additional cost over diesel buses. The utility company then would recoup the cost of the batteries and infrastructure over time through a tariff, which would be calibrated to ensure that the operating costs of the electric buses remain lower than those of diesel buses. Once the utility’s costs are fully recovered, the bus service provider would own the battery and charger assets.

financial analysis conducted by the Global Innovation Lab for Climate Finance indicates the strong potential for impact in this approach. For example, in Santiago, Chile, a PAYS investment for 100 buses could leverage more than $70 of investment capital for each grant dollar, while reducing overall grant requirements by 97 percent, generating $25 million in electricity sales revenues, and eliminating 62,000 tons of CO2 emissions. Modeling for Bogota, Cape Town, Mexico City and Belo Horizonte demonstrated that at a 100-bus scale, electric buses with PAYS are already cheaper over their lifecycle than diesel buses in some cities. Electric buses with PAYS support require far less grant funding to be viable, and are a significantly more effective use of grant funds, also leveraging a greater proportion of private finance than a non-PAYS transaction.

The utility is a key part of this transaction. Utilities are typically much larger and better capitalized than bus service providers, which means they can access the capital needed for these upfront costs with a lower cost of capital and lower transaction cost. The utility benefits from this transaction by gaining significant new electricity sales from the electric bus fleets, along with an updated business model that could be used to finance other solutions at the grid edge such as solar panels and storage batteries.

WHAT’S NEXT?

Clean Energy Works spent most of 2018 working with the Global Innovation Lab for Climate Finance to refine the PAYS for Clean Transport concept and model scenarios in locations that are promising for implementation. After receiving the endorsement of the Lab in September, and a Design Funding grant from Convergence in October, we are preparing to undertake a feasibility study of PAYS for Clean Transport in a Latin American city (to be determined).

But Latin America is not the only region where PAYS can have an impact. Many cities and states in the U.S. are great candidates for a PAYS for Clean Transport program, and there is promise for its application in countries such as Vietnam, India, Jordan and South Africa. PAYS can go beyond transportation, too. Once regulators approve PAYS tariffs, they can be used for any cost-effective solutions at the grid edge, from water heaters and energy efficiency upgrades to solar.

As we work towards our first implementation, programmatic support is needed to establish PAYS model in each country, design tariffs, and catalyze scale-up and replication. Other investment opportunities include debt lent to a creditworthy utility for investment in batteries and charging infrastructure, and for any remaining gaps after cost-effective utility investment.

By leveraging utilities’ balance sheets to mobilize capital for clean transport at scale, innovative financing solutions like PAYS will be critical to upscaling investment in climate action and supporting mitigation efforts. As the benefits of PAYS become more widely accepted, we believe it has the potential to disrupt the transportation sector as we know it, and model advancements in scaling other grid-edge technologies. It holds the potential to unleash the  benefits of reduced pollution and greenhouse gas emissions by innovating within a utility sector that can deliver the benefits of the clean energy economy to all.

This post was originally published on NextBillion.

PAYS® for Clean Transport receives Design Funding Award

Convergence Logo

Clean Energy Works has received a Design Funding grant from Convergence to undertake a feasibility study of Pay As You Save® (PAYS®) for Clean Transport in a Latin American city.

“We found the PAYS model compelling, not only because it presents an innovative off-balance sheet solution for bus service providers smartly borrowed from other applications, but also because it shows potential to be catalytic for the clean transport space,” says Joan Larrea, CEO of Convergence. “Our mission is precisely to bring to light initiatives like PAYS that drive blended capital to where it is needed most and provide learnings for the broader market.”

PAYS has received significant traction from governments, development finance institutions, investors and philanthropies worldwide, including endorsement from the members of The Global Innovation Lab for Climate Finance in September. Convergence’s funding will allow Clean Energy Works to complete the necessary feasibility work to narrow down the pipeline of cities in Latin America to a candidate city for a first implementation project.

Financial analysis indicates strong potential for impact in emerging markets cities. For example, in Santiago, Chile, a PAYS investment for 100 buses can leverage more than $70 of investment capital for each grant dollar, while reducing overall grant requirements by 97%, generating $25 million in electricity sales revenues, and eliminating 62,000 tons of CO2 emissions.

Clean Energy Works will present an online briefing for those interested in learning more about the PAYS for Clean Transport model in the coming weeks. To receive more information about that event, please register here.

The Lab endorses PAYS® for Clean Transport

Logo of the Global Innovation Lab for Climate Finance

The Global Innovation Lab for Climate Finance announced today that it endorses Pay As You Save® (PAYS®) for Clean Transport, starting with battery electric transit buses.

Members of the Lab, including governments, private investors, philanthropies, and development finance institutions convened at the Rockefeller Foundation in New York during Climate Week to endorse and formally launch new investment vehicles for implementation including PAYS for Clean Transport. Public and private investors also committed to financial, technical, and political backing to take these rigorously developed instruments to market. Barbara Buchner, Executive Director of Climate Policy Initiative and the Lab Secretariat said, “The instruments are already on their way to making significant impact on the ground, at a time when swift and catalytic solutions for climate action are needed more than ever.”

Clean Energy Works participated in the 2018 Lab process as a proponent for the concept of PAYS for Clean Transport. PAYS harnesses a utility’s capacity to reduce the upfront cost of electric vehicles by investing in the on-board batteries and charging equipment that connects them to the grid. The utility recovers its costs through a service charge for the transit provider that is less than the expected savings, providing a path to ownership for the transit agencies without a loan or lease obligation.

Dr. Holmes Hummel, founder and principal of Clean Energy Works, noted the business opportunity for utilities. “With PAYS, utilities have a growth opportunity at the grid edge as electricity gains market share in a historic transition to clean energy on both the grid and in the transportation sector. Our aim in advancing this solution is to accelerate investment without expanding utility monopolies by introducing instead business models fit for many distributed energy innovations in the 21st century.”

Along with the endorsement, the Lab also released a brief overview and an instrument analysis with more detail. Clean Energy Works will present an online briefing for those interested in learning more about the PAYS for Clean Transport model in the coming weeks. To receive more information about that event, please register here.

Financing Innovations featured at the Global Climate Action Summit

Global Climate Action Summit Logo

Dr. Holmes Hummel of Clean Energy Works will be participating in an affiliate event at the Global Climate Action Summit on innovation in mobilizing capital. The focus of this session is on solutions that can unlock investments, especially from the private sector, or create enabling conditions that will be crucial to achieving climate and sustainable development goals.

Across the globe, cities are implementing their climate commitments by acting locally, and front-runners are taking steps to keep global temperature rise to well below 2ºC above pre-industrial levels by the end of the century.

At this event, experts representing development finance institutions, government, and the private sector will share their insights on the barriers and opportunities in mobilizing investment at the city level.

The second half of this invite-only event will explore emerging innovative solutions to unlock investment at the city level, including solutions incubated by the Global Innovation Lab for Climate Finance. Dr. Hummel has been championing Pay As You Save (PAYS) for Clean Transport through the 2018 Lab process and will be matched with an investor for a short interview on this system of unlocking investment for city-level climate action.

Financing Sustainable Cities Initiative includes PAYS for Clean Transport at Clean Bus Finance Academy

Electric Bus

Time and time again, the high upfront cost of electric buses when compared to diesel buses is a major hurdle that cities face when trying to clean up their carbon footprint. The benefits of electric buses are undeniable, including reduced pollution, savings on operation and maintenance of buses, and increased public health benefits. But even if the transit agency, the local government, citizens, and other stakeholders are all aligned on wanting zero-emissions transit options, the biggest question they have to answer is: How can they afford this increased upfront cost?

Our colleagues at the Financing Sustainable Cities Initiative (FSCI) are working to help city governments and investors bridge from innovation to implementation and tackle questions such as this. FSCI is a partnership between C40 and the WRI Ross Center for Sustainable Cities, funded by the Citi Foundation, to help accelerate and scale up investment in sustainable urban solutions like electric buses through their annual Clean Bus Finance Academy.

At the second Clean Bus Finance Academy held in Quito, Ecuador this May, Dr. Holmes Hummel was invited to present on Pay As You Save (PAYS) for Clean Transport, an innovative model where a utility can offer to pay the upfront cost of bus batteries and charging equipment and then recover its cost with a fixed payment on the operator’s electricity bill. This approach reduces dependence on grants to overcome the upfront cost barrier, and as a result, cities can advance their clean transit goals much more quickly.

The Academy was attended by senior officials from nine different cities in Latin America, India, Europe, and North America as well as financial and technical experts.