Commercial Energy Loan Program Overview

PROGRAM OBJECTIVES

With funding from state and federal grants, Michigan Saves is designing the Commercial Energy Loan Program to provide a portfolio of affordable financing options for energy efficiency improvements in commercial buildings in Michigan. The objective is to create a statewide program that issues 250 loans annually by 2013 and thereafter.

TARGET MARKET

The target market is businesses with high efficiency potential and little-to-no participation in traditional energy efficiency programs. Initially, the program will be available only to the retail food sector, including grocery and convenience stores and restaurants, with an emphasis on small, independent businesses. These businesses are typically energy intensive because of long hours of operation and extensive use of cooking equipment, refrigeration, lighting, and heating and cooling. In the city of Detroit, businesses outside the retail good sector would also be eligible.

In addition to a pilot program for businesses in the city of Detroit currently in operation specific geographic locations may be identified for pilot programs in early 2012. Market research on the retail food sector will be conducted during the design phase to inform program design and marketing for a statewide rollout in 2012.

ELIGIBLE IMPROVEMENTS

Projects must achieve a minimum of 20 percent energy savings using a whole-building approach or per energy conservation measure implemented (i.e., boiler, pumps, lighting, refrigeration) as described further below. Businesses can follow one of two options to qualify energy-saving improvements for financing:

Whole-Building Option

• This option will provide financing for work recommended in an energy audit conducted by certified auditor that reduces the total energy consumption of the building by a minimum of 20 percent.
• Energy audits must follow Technical Energy Analysis Standards, as specified by the Rebuild Michigan program or American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) Preliminary Energy Use Analysis (Level I) or equivalent (a more extensive audit, such as ASHRAE Level II or III, also qualifies but is not required when an energy audit is performed).
• Renewable energy installations, including geothermal, solar thermal, and solar PV, qualify for financing only if the overall project reaches a 20 percent energy savings threshold for the entire building. In other words, the renewable energy is packaged with energy efficiency improvements that reduce the building’s total energy (natural gas and electricity) consumption by 20 percent.

À la Carte Option

• This option will provide financing for a measure or combination of measures that achieve at least 20 percent savings over existing equipment or conditions and also meet one or more of the following (Note, typical measures for the retail food sector that have been pre-screened as eligible will be available):

1. Qualify for utility (prescriptive or custom) rebate (can include DTE Energy and/or Detroit Public Lighting Department rebates);
2. Are included in the Michigan Energy Measures Database    maintained by the Michigan Public Service Commission; and/or
3. Are recommended in an energy audit by a certified auditor

• Up to 5 percent of the total financed amount can be for non-energy–saving building upgrades if necessary to complete the energy-saving improvements.

FINANCING DETAILS

Interest rates are expected to be below 5 percent. Financing terms will be structured in most cases so that the expected energy savings are at least as much as the loan payment after utility rebates are deducted. To further mitigate risk, Michigan Saves has $5 million available to provide as credit enhancement, which is expected to be in the form of loan loss reserve. Additional funds may be available to buy down the interest rate or providedown-payment assistance for businesses participating under the “whole-building” track. Michigan Saves is expecting that the loan capital and underwriting would be provided by one or more participating lenders, although alternative models are also being explored, including the use of bond financing and investor capital.

PROCESS

The Michigan Saves Commercial Loan program will be marketed primarily through contractors and trade allies. Secondary marketing outlets would include trade associations, utilities, financial institutions, and economic development entities. The program will be designed to integrate directly with utility rebate programs.

The following describes a general process for initiating projects under the Michigan Saves à la carte (non-audit) or whole-building tracks. This process will be refined based on types of financial products offered, anticipated time requirements to initiate a commercial loan, and commercial sectors participating in the program.

• Business customers will work with a Michigan Saves authorized contractor to scope out the proposed project according to eligibility criteria set by Michigan Saves. The business will either be approached directly by a Michigan Saves contractor, or the business will find an authorized contractor from a list maintained by Michigan Saves after learning about the program from another source, such as Michigan Saves website, utility, business association, etc. The project will be based on list of eligible measures or the audit of the facility. Michigan Saves will provide customer support to review the project, including its payback and alignment with incentive programs, such as utility rebates and tax credits.
• Once the project has been reviewed by Michigan Saves, the customer will be put in contact with participating financial institutions. The customer and the financial institution will work together to complete the loan application and finalize the loan. If it is not already provided as part of the energy audit, Michigan Saves will provide the customer and financial institution with a schedule of estimated energy savings for theproject to be used as information to structure the monthly loan payments.
• Upon loan approval, the customer can authorize implementation of the energy measures. Once the installation is complete, the contractor will complete a Certificate of Completion and Specification Sheet, which will be provided to Michigan Saves and the financial institution. Loan proceeds can be assigned to the contractor with approval by the financial institution.

QUALITY ASSURANCE/QUALITY CONTROL

The primary marketing vehicle and initial point of contact for the customer will be a network of contractors and other energy professionals authorized by Michigan Saves. To participate in Michigan Saves, contractors must provide evidence of business licenses, insurance, and any required certifications and be trained on the financial product and process. In addition, contractors and auditors conducting energy audits and performing work under the audit option are required to have third-party certification specific to their trade such as an architect or engineer license.

Contractors promoting Michigan Saves financing must provide high-quality work. Oversight of contractors will include file checks, as well as random field inspections of a percentage of jobs. This quality assurance role will be performed by Michigan Saves (or its designee). Michigan Saves will coordinate with utility programs to align the quality assurance activities.

In addition, Michigan Saves must report on the impacts of the program, including data on equipment installed and the associated energy savings. Michigan Saves will collect baseline energy data, estimated energy savings, and installation specifications at the time the project is installed. Michigan Saves will collect utility data on a yearly basis. Where possible, Michigan Saves will also collect sub-meter-level utility data.

SURVEY

Michigan Saves, a non-profit organization, has money to help independent grocers, restaurants, and convenience stores finance equipment that would reduce their utility bills. Michigan Saves would like your opinions to help design an energy financing program in which your business would want to take part. Even if you don’t plan to make improvements in the near future, we value your opinion and appreciate your response.

Please answer the following questions to the best of your ability. Click here to begin the survey.