Pennsylvania State Treasurer Rob McCord, along with businesses and organizations from the public and private sectors, Wednesday announced the creation of a groundbreaking national partnership to bring low-cost financing on a large scale to home energy efficiency improvement.

The Warehouse for Energy Efficiency Loans (WHEEL) will fill a long-standing void by creating a new asset class of energy efficiency-related securities. By making it easier to aggregate individual residential energy improvement loans and sell them on the secondary market, WHEEL will result in additional inexpensive capital becoming available for more loans to homeowners.

Pennsylvania Treasury and the financial firm Citigroup will provide capital to launch the program, having worked closely with Renewable Funding LLC of California and the non-profit Energy Programs Consortium of Washington DC to establish WHEEL.

Others who collaborated in the effort are the U.S. Department of Energy, AFC First Financial Corporation of Allentown, and Kentucky Housing Corporation.

“WHEEL demonstrates that innovative thinking by government, especially in partnership with the private investment sector, can save homeowners money, help the economy, create jobs, and reduce greenhouse gas emissions,” McCord said during a press conference at Carnegie Mellon University. “WHEEL, which will increase access to low-cost capital for energy efficiency investments, is the culmination of a careful strategy by the Pennsylvania Treasury to develop a national capital market for energy efficiency loans. Capital market resources will now provide more loans to homeowners to improve their homes, save money, and reduce their energy bills.”

Pennsylvania’s Keystone Home Energy Loan Program (HELP), created by Treasury in 2006, served as the basis for WHEEL.

Keystone HELP has made more than 13,000 low-cost loans in Pennsylvania for high-efficiency furnace or boiler replacements, geothermal heating and cooling units, insulation installations, door and window replacements, and other measures.

Last year, Treasury sold about 4,700 HELP loans worth more than $28 million to investors in the first such transaction of its type in the country. Many industry experts at the time viewed the sale as a milestone in national efforts to develop a secondary market for such loans, and thus make additional low-cost capital available for residential energy conservation upgrades.

“We recognized that there is tremendous growth potential in home energy efficiency, but public sector investors such as the Pennsylvania Treasury cannot meet the demand for capital ourselves. We were hopeful that our approach to the loan sale would serve as a national pilot,” McCord said. “It did, and it also furnished important data that aided the design and creation of WHEEL.”

Allentown-based AFC First Financial originates and services Keystone HELP loans and will serve as loan originator and servicer for WHEEL.

“I’m pleased a Pennsylvania company will continue as an important partner as we take the next steps and expand this program to other states around the country,” McCord said of AFC First Financial.

“I’m also proud to have the excellent work done by the Pennsylvania Treasury in the home energy improvement field now serve the rest of the nation. WHEEL sets up national standards for what constitutes eligible improvements, and for the underwriting of loans and management of contractors. These will ensure quality service and equipment for homeowners throughout America when they upgrade – all based on standards for a reliable contractor network that were developed here in Pennsylvania,” he added.

McCord also acknowledged the involvement of the Department of Environmental Protection, which has worked with Treasury to apply federal funds from the U.S. Department of Energy and make Keystone HELP loans more effective, less expensive, and available to more homeowners.

Renewable Funding, which specializes in financing for clean energy upgrade programs, will purchase loans that AFC First Financial originates, using WHEEL capital provided by Citigroup and the Pennsylvania Treasury, each of whom have made an initial commitment of $12.5 million.

The loans will be aggregated in diversified pools, and securitized for sale to secondary market investors to replenish the capital for consumer loans. Kentucky also plans to sell its energy efficiency loans to WHEEL, becoming the second state to participate.

Within Pennsylvania, the loan program will continue to operate under the Keystone HELP banner, but will be part of WHEEL.

“This nationwide financing platform offers several added advantages for our already successful state program,” McCord said.

With the participation of Citigroup, he noted, more capital will be available for borrowers in Pennsylvania. The state Treasury has provided the capital for HELP, but faced limitations on the resources it could devote to the program.

He also pointed out that while HELP loans have historically proven sound, the multistate system will diversify state Treasury risk because the initial capital for loans will come from multiple investors, and the investment will be spread across a larger number of loans. The collateral support structure will also change and diversify.

Another benefit to homeowners should come over the long term as more bidders to provide capital for loans ultimately results in cheaper capital market financing.

For more information, visit the WHEEL website.

NewsClip: Program To Expand Home Energy Improvement Loans

4/14/2014