A funding partnership involving Citibank and Kilowatt Financial to bundle energy efficiency loans for homeowners could eventually help small to medium businesses gain access to funding for energy retrofits.
Earlier this year, Kilowatt Financial closed a $100 million debt facility from Citibank to finance energy efficiency loans for homeowners. With the funds, Kilowatt will enable consumers throughout the United States to make energy efficient improvements to their homes through 10- to12-year unsecured loans of up to $30,000.
Homeowners can use the funds for a broad range of improvements, including HVAC equipment, water heaters, windows, roofing, insulation, lighting, and energy efficient appliances.
Here’s a summary of how it works, according to an article on Grist, “Citibank holds the loans in its virtual warehouse until it has enough – $25 million chunks, or ideally more – so that it can bundle the loans into a ‘financial instrument,’ or investment product, that can be sold to pension funds or other institutional investors like insurance companies. Once sold, Citibank can then turn around and finance more, ad infinitum. (If all this sounds familiar, it should. This is the same approach used not-so-successfully with subprime mortgages. But unlike subprime loans, energy efficiency has high likelihood of being paid back, and therefore real value.)”
In February, Deutsche Bank launched a similar program: offering securities backed by a portfolio of Property Assessed Clean Energy (PACE) bonds issued by Western Riverside Council of Governments (WRCOG) in California, reports Structured Finance News.
In 2013, the Guardian reported that although huge investment houses such as Deutsche Bank and Goldman Sachs have billions they’re looking to invest, they aren’t interested in small energy efficiency projects: they want large bundled projects.