Pennsylvania Treasurer: A Vanguard in Energy Efficiency Financing
Keystone HELP was introduced by the Treasury in 2006 as a means for providing homeowners with unsecured loans for improving the energy efficiency of their homes and heating systems.
The Pennsylvania Treasurer’s Office expects that the anticipated sale of its $25 million portfolio of residential energy efficiency loans will serve as a prototype for national efforts to take such loans to scale on the secondary market. That means that one day, large numbers of private investors will be able to reap the investment rewards of supporting loan programs that benefit homeowners making energy efficiency improvements.
The drive to create a secondary market for its “Keystone HELP” (Homeowner Energy Loan Program) is the Treasury’s next step in its efforts to create innovative financing mechanisms with large-scale application potential.
As Treasurer Rob McCord puts it, “Creating a liquid, functioning secondary market for energy-efficiency loans should reduce the cost of capital and help more homeowners. Doing so can make help make private loans available cheaply enough to support financing for the retrofitting of America’s 120 million homes.”
Keystone HELP was introduced by the Treasury in 2006 as a means for providing homeowners with unsecured loans for improving the energy efficiency of their homes and heating systems. The Treasury created an innovative public-private partnership with AFC First Financial, a consumer lender with an established regional presence in energy financing. AFC originates and services the energy efficiency loans, for which the Treasury provides the necessary investment capital.
The unsecured financing is structured to keep the loan recipient’s total monthly cost for the loan equal to or lower than the resulting savings on energy bills. The program also relies on a network of local contractors who are prequalified for relevant experience, ethical practices and business stability, specific training, good conservation-oriented motivation, and a multi-tiered quality-assurance program.
The program has proven so popular that, to continue financing it, the Treasury is now pursuing the sale of a $25 million portfolio. At the same time, the Treasury is working with several partners – both philanthropic and private – to develop a national financing facility that can serve as a transitional structure towards aggregating loans at a scale large enough to sell to secondary investors.
Bostonia Partners LLC, Treasury’s financial advisor for the portfolio sale, is meeting with potential investors who have previously expressed interest in the nature and quality of these energy efficiency loan assets.
Treasury is also working with the Energy Programs Consortium (EPC) and Forsynth Street Advisors to design and model the business needs of the financing facility, and are in discussions with a number of foundations that have expressed an interest in providing grant or program related investment support to develop a loan “warehouse” that can help stimulate the growth of a secondary market for these loans.
Through Keystone HELP, the State is hopeful that it has found an entry point to tap into the $600 billion in potential economic activity experts predict could be generated nationally by energy efficiency efforts. Private investors may soon gain a new vehicle for supporting their return targets made feasible by the aggregation of loans.