Show HN: I quit my job to help communities fund energy efficiency upgrades(sparkfund.co)
sparkfund.co
Show HN: I quit my job to help communities fund energy efficiency upgrades
http://www.sparkfund.co/
15 comments
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.)
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.)
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).
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!
I'll definitely add something to make that clear. Thanks for the suggestion!
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.
Something to look into anyway.
Great. This is a really cool idea and I hope you get enough traction in the US to eventually be able to move into other jurisdictions.
Thanks!
We hope so too!
We hope so too!
Seconded. It’s getting to the point where I just assume any website of this nature is US-only, since so few actually mention this clearly up-front.
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...
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...
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?
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?
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).
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).
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?
Does the person/company who borrows money legally owe this debt to the investors? And which government bodies regulate these transactions?
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)
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)
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.
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.
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.
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)?
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.
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.
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
exactly!
We're really excited to start launching projects in the NYC area.
We're really excited to start launching projects in the NYC area.
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
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)
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)
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?
Do you just give the businesses the money and say buy efficient products or are you all more hands on?
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.
We also pay the installers directly. So there’s no chance of funds ‘accidentally’ being spent on something not related to energy efficiency.
What are the kinds of projects you can invest in? How are you planning on getting competitive returns?
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.
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.
Whats the approximate return you expect investors to receive ?
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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Looks awesome! New approach to help build communities!
How can people help your new enterprise?
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.
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!