
Show HN: I quit my job to help communities fund energy efficiency upgrades - npatten
http://www.sparkfund.co/
======
tvladeck
For two years I ran a company called Building Hero (www.buildinghero.com) that
marketed and financed LED lighting retrofits to commercial locations in New
York City and San Francisco.

Here are a few things to consider when wading into energy efficiency finance:

1\. Returns to energy efficiency upgrades accrue out of negative cashflow
(money not spent), which means its hard/impossible to put a legal "box" around
the financial returns to the project, contra solar investments, where there is
a meter and it's usually possible to slice and dice who gets what.

2\. Energy efficiency upgrades also pose a problem with respect to collateral.
In our case, although we had the right to take back our LED lamps, the value
of what we got back, even in the best case, would have been negligible. Most
EE upgrades are even less inviting as collateral, like insulation or HVAC
upgrades.

3\. There are simpler, but more balkanized (i.e., different not only from
state to state, but even utility to utility, or city to city) financial
incentives for energy efficiency upgrades. This poses a challenge for finance
as a differentiator for energy efficiency. Simpler incentives mean the value
of a third-party financier who abstracts away these problems is less valuable;
and more balkanized incentives mean that is harder in any case for a third-
party to offer solutions that scale geographically. Again, contra solar, where
the federal tax incentives mean that it’s almost necessary for a third-party
with tax equity appetite to finance a portion of the investment, and since
it’s at the federal level it scales across the US.

My advice would be to do some careful thinking about how and why your
financial offerings are better than what you could do financing them on a
credit card or through a normal bank loan.

In addition, I would put some serious thought into whether or not finance is
the true barrier for energy efficiency projects. Again unlike solar, these
things are inside the home/office/whatever, not outside, so bring up aesthetic
concerns as well as comfort concerns. Other things, like HVAC systems, are
usually replaced when they break.

Anyway, I hope this is useful and that you get a lot of projects done!

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barunio
This seems very interesting. At my company (WegoWise) we've been working for
the last 4 years to help solve some of the fundamental information problems
that result in inefficient buildings. Most folks aren't aware of how
drastically energy efficiency can save money for building owners and improve
the built environment. It isn't unusual, for example, for one apartment
building in a development to consume 4x in utilities per square foot as the
other similar buildings around it, without the owner of the buildings even
realizing it (despite the fact that they're paying the bills).

We've made excellent progress in this space, but better financing mechanisms
for energy efficiency are still required as a next step. Even though the
returns can be huge, building owners still need to get money to invest, and
utility programs can't keep pace with the level of demand.

I'm excited to see how this effort progresses. Solar has been taking off in
the US largely because of better financing mechanisms, and I think there's
ample opportunity for the same thing to happen in the efficiency sector.

I'd love to chat with you about what you're doing at Spark, as I suspect there
could be some areas for collaboration. (My contact info is in my profile.)

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eigenvector
Do investors have to reside in the US? If so, please state this clearly on
your sign-up page rather than ambiguously (by only allowing the input of US
addresses).

~~~
npatten
Unfortunately for now you do have to be a US resident due to SEC regulations.

I'll definitely add something to make that clear. Thanks for the suggestion!

~~~
a-priori
I don't know what I'm talking about, but it may be possible for Canadian and
Mexican investors to participate due to NAFTA. I understand there's something
in there about investment.

Something to look into anyway.

~~~
npatten
That would be awesome!

I'll definitely have the more legalese fluent members of our team check it
out.

~~~
a-priori
Cool. I fully expect that their response will be "haha that a-priori dude is
an idiot".

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jchrisa
I was just in a budget meeting for the local (Portland, OR) transportation
department and asked them if they knew whether when an individual switches
from a car to a bike, how much does that impact their budget? They didn't
really have an answer. Maybe someone reading this does?

I feel like if you had an answer, you'd be able to use it to drive financing
in much the same way this startup is. Very cool stuff, monetizing the "green
dividend".

Link to paper by Joe Cortright where I got that term
[http://blog.oregonlive.com/commuting/2009/09/pdxgreendividen...](http://blog.oregonlive.com/commuting/2009/09/pdxgreendividend.pdf)

~~~
dbenamy
[http://www.mrmoneymustache.com/2011/04/18/get-rich-with-
bike...](http://www.mrmoneymustache.com/2011/04/18/get-rich-with-bikes/)

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kyle_t
This is really, really cool and equally impressive. I can't imagine the amount
of legwork that was involved with legislation and groundwork getting all
parties involved interested.

I don't see it stated anywhere so I'm assuming you are running this as a for-
profit? Are you going to disclose your take?

~~~
plafarge
Thanks! We're incredibly excited to be in full launch mode, and can't wait to
have our beta platform and pilot projects available over the coming months.

We are a for-profit, and believe that building a strong, scalable financial
model is what it takes to transform a sector and fix what we see as a market
that is structurally underserved by credit markets (small and medium scale
energy efficiency projects).

We will be disclosing Spark's take through the investor disclosure documents.
Each project will include a detail prospectus for each project that will lay
out credit risk decisions, upfront schedule of lease repayments and investor
yield (the delta of which is Spark's revenue).

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yetanotherphd
What kind of legal arrangements are being used here?

Does the person/company who borrows money legally owe this debt to the
investors? And which government bodies regulate these transactions?

~~~
npatten
It's all regulated by the Securities and Exchange Commission. So we're
actually selling securities of the debt owed to us by the borrower to the
crowd investors.

A lot of the work we've done over the past year is navigating the regulatory
labyrinth required to offer securities to 'non-accredited' investors. (i.e.
everyone who doesn't have a million bucks in the bank)

~~~
yetanotherphd
Wow, I'm impressed. Before you replied, I would have guessed you found a
loophole to avoid SEC regulation.

I haven't read enough to judge how beneficial the particular loans you broker
are, but I think that just showing that it's possible to crowdsource
investment this way is a great achievement.

~~~
npatten
We've worked really hard to make sure it's a significant benefit to everyone
involved. Investors can expected yields between 4-10% with durations between
1-10 years. While borrows save money even in month 1. They only pay back a
portion of the savings they earn from their reduced energy bill. In as little
as 1 year they'll be keeping all the savings.

~~~
aray
What if the pricing tiers for energy change, and reduce the savings (either by
reducing the cost for the original configuration more than the new one, or
increasing the cost for the new configuration more than the old one)?

~~~
npatten
Changes in utility rates (both in absolute terms and in pricing tiers) are
always a risk to the performance of energy efficiency upgrades. Spark leases
are designed with a shared savings "buffer" to protect against this and other
changes to expected savings. For any Spark lease, monthly repayments are set
to between 95% and 60% of the savings that the upgrade is expected to achieve,
allowing the customer to absorb some reduction in savings while remaining cash
flow positive.

Structurally, Spark leases and our payouts to investors are not affected by
changing prices or fluctuations in savings unless it results in default. Our
leases are designed to be cash flow positive in all but the most unexpectedly
poor performance scenarios, and we vet the methodologies used by our
contractor partners to ensure that savings estimates adhere to accepted
standards. Spark lease terms are also relatively short, with terms that
typically fall in the 3-6 year range, reducing the risk of major shifts in
utility prices during that time. Ultimately, however, a Spark lease is not a
guarantee of performance, and the lease still requires repayment even if
performance lags in a given month.

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t3hprogrammer
Goes hand in hand with new government requirements (in NYC, for example) to
increase building efficiency!

[http://www.nyc.gov/html/gbee/html/home/home.shtml](http://www.nyc.gov/html/gbee/html/home/home.shtml)

~~~
npatten
exactly!

We're really excited to start launching projects in the NYC area.

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rwhitman
This is really fascinating and sounds kind of groundbreaking, but I don't know
the space. Is crowdsourcing investment in a community's infrastructure of any
sort, not just efficiency, something that has been done before to date? I
can't help but think this is a powerful model for funding poor communities
with roads, plumbing, telecommunications etc

~~~
plafarge
Great question! Spark is the first of it's kind in terms of enabling
individual investors to invest directly in energy efficiency projects.

However, we're following in the inspiring footsteps of some incredible
companies in the cleantech crowd investment sector, particularly Solar Mosaic
(joinmosaic.com) and SunFunder (sunfunder.com)

There are also some great teams working on impact focused energy efficiency
investments offered to accredited impact investors, including one of our
favorite companies, Bloc Power (blocpower.org)

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wehadfun
How involved is spark in the spending of the funds?

Do you just give the businesses the money and say buy efficient products or
are you all more hands on?

~~~
npatten
We actually partner with installers all over the country. More often than not
they already have projects waiting to go, the only missing piece has been the
financing. That said, if a borrower contacts us directly we can certainly
point them in the right direction to get help determining which upgrades are
best for them.

We also pay the installers directly. So there’s no chance of funds
‘accidentally’ being spent on something not related to energy efficiency.

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Ascendency
What are the kinds of projects you can invest in? How are you planning on
getting competitive returns?

~~~
plafarge
Spark's upcoming beta platform will focus on energy efficiency and renewable
energy projects, primarily building retrofits like LED upgrades, HVAC,
boilers, water efficiency, building automation systems, heat pumps, etc. We're
targeting projects in small businesses, community organizations like churches,
charter schools and non-profits, and mid-scale commercial and industrial
facilities.

Luckily, efficiency projects with three to five year paybacks are generating
significant current year cashflow through avoided energy or resource costs,
meaning Spark can offer solid returns and short tenor notes, lowering temporal
risk to our investors. Specifically, we generate returns for our investors
based on the revenue we receive from lease payments made by the project
recipient.

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nikhilalmeida
Whats the approximate return you expect investors to receive ?

~~~
plafarge
We're building our project pipeline to be able to offer efficiency note with 2
to 5 year tenors (durations) and interest rates between 5% and 10%, depending
on the credit risk and payback period of the project.

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sxmkid
Looks awesome! New approach to help build communities!

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marze
How can people help your new enterprise?

~~~
npatten
Spreading the word is hugely helpful - like us on
Facebook(facebook.com/sparkfund), follow up on twitter(@sparkFunder), share
our URL on Reddit and any other aggregator sites you enjoy. Every signup we
get on our site is validation that there are folks out there who are
interested in this kind of investment.

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prayag
The link is 404'ing.

~~~
npatten
I goofed on an AWS update - should be fine now. Whoops!

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GutsyBat
This looks really cool!

~~~
npatten
Thanks!

