CBJ Energy’s Financing Program Helps Companies Net Significant Savings
Claire Johnson has wanted to be an energy executive since she was a child.
A middle school science fair project studied the effect of acid rain on the environment. That was just her start. She helped create an undergraduate major in environmental science and public policy at Harvard University, and after earning that degree, she continued on to earn a master of business administration from the Harvard Business School.
Since 2003, Johnson has either started an energy company or worked for one. She co-founded SunEdison, the largest renewable services provider in North America, which she sold in 2009. Johnson served in the Obama Administration as an advisor to Secretary of Energy Steven Chu and deployed $11 billion in funding for clean energy projects across the United States in 2009 through the American Recovery and Reinvestment Act.
A year ago, Johnson decided to start a local company aiming to help businesses save money on energy and water by installing clean, solar energy systems in old, efficient buildings, enabling property owners to generate their own, less expensive electricity. Her business, CBJ Energy, finances building retrofits and renewable energy projects. Building owners repay the construction loan over time through their annual tax bills, similarly to a tax assessment.
CBJ Energy works with municipalities like Baltimore and Harford counties to enable Property Assessed Clean Energy (PACE) programs, which offers a commercially competitive interest rate when compared to other sources of capital for small, medium and some large real estate owners. PACE is also the only commercial loan available for energy investments for businesses that has a 20-year term. The program has been adopted in 32 states and the District of Columbia. Maryland authorized PACE in 2014; Montgomery, Anne Arundel, Howard and Queen Anne’s counties are in the process of developing PACE programs; and discussions are underway with multiple other counties to enact the ordinance to begin a PACE program. Although the program is new to the Mid-Atlantic, it has financed nearly $2 billion in construction projects in only five years.
According to PACE, every dollar invested in a solar project provides 56 cents in tax credits for the subsequent five years. Installing a $200,000 solar asset on the roof or including one in a roof replacement not only saves 20 to 30 percent of electricity expenses, but it reduces the business’ tax bill by as much as $100,000. Companies like Google, GE, Apple, as well as those run by Warren Buffett, have taken advantage of this program.
CBJ Energy helps businesses use PACE by performing project economic analyses and due diligence, arranging PACE financing, managing the construction project and coordinating billing with the local municipality. All costs associated with the project are rolled into the PACE assessment, which means 100 percent of project costs can be financed with no out of pocket expenses. The municipality signs off on the project, CBJ’s lender finances the project, CBJ executes the project with its construction partners, and the property owner pays back the cost of the project through the tax bill annually over the course of the loan. The property owner nets a more efficient building, reduced operating expenses, and the ability to take advantage of some significant federal tax incentives.
“Businesses secure savings on day one and tax benefits on day one if they are installing solar arrays and systems,” Johnson says. “And their energy bill goes down right away as well.”
PACE also finances equipment and systems that have a real impact on a building’s energy usage such as insulation, windows, hot water heaters, HVAC, boilers, low flow toilets, washers and dishwashers.
“If a technology reduces your energy or your water usage, most likely you can use PACE to finance it,” Johnson says. “It’s incredibly broad.”
Johnson says business owners don’t necessarily solely use the program because they care about the environment. They choose the renovations to become more efficient and save money on their utility bills without paying up front.
“People can save money and not pay anything up front,” says Johnson, who has clients in California, Washington, D.C., and Connecticut. “And they make their buildings better.”
One company that took advantage of the opportunity is Dantes Partners, a Washington, D.C., real estate firm with a focus on urban neighborhood revitalization. The company, in business for 10 years, works to create and preserve housing for people of modest means.
Buwa Binitie, managing partner at Dantes Partners, says although his firm has been aware of the technology and its potential, it was a 2014 encounter with a local firm that creatively finances energy improvements that led to their understanding of the program. A series of meetings and discussions ensued, and Dantes Partners officials were able to understand how to best utilize this tool to benefit one of its projects and ultimately its residents, who experienced lower than projected energy bills as well.
“It started with an open mind that allowed us to invest the time and truly understanding the economics,” Binitie says. “We pride ourselves on our ability to dissect, understand and utilize complex financing structures. Once we were able to discern that this would meet a doable bottom-line, we never looked back.”
The process from decision to completion lasted about 18 months, Binitie says, with most of the time needed to close on the nine sources of financing for the development. The PACE eligible energy improvements totaled approximately $700,000, including $100,000 for the solar panels, he says. The company expects to save $1.2 million over the life of the systems, with $365,000 saved in the first five years.
Binitie considers the renewable energy program an excellent investment for two primary reasons. First, it provides the ability to upgrade the quality of systems in the building.
“For our project, which services the near indigent segment of society, the increased quality translates to better, longer lived systems for our residents,” he explains.
Second and just as important as the human factor is the capital. The savings from installation of more efficient systems more than offset the cost of the systems due to PACE financing program.
“Over the life of the loan, there is a net benefit to our non-profit partners, further enhancing their ability to pursue mission objects,” he says. “This was an excellent investment from environment, human and economic capital perspectives.” I95