California CLEEN Center LED Program
The California CLEEN Center has recently created an LED Program to finance the installation of LED street lights for public Municipalities, Universities, Schools and Hospitals (MUSH) borrowers.
The CLEEN Center has financed one deal through the LED Program so far—a $7.7 million loan to the City of Huntington Beach to finance its LED upgrades. The financing was a combination of a low-interest rate loan from the CLEEN Center and a zero interest loan from the California Energy Commission (CEC) that was underwritten on the credit of the City’s General Fund. In general, the interest rates offered by the CLEEN Center are determined by credit quality of source of repayment. In this case the general fund of the municipality had a credit rating of AA+ by Fitch and AA by S&P.
City of Huntington Beach received a nearly $7.7 million low-interest loan for the acquisition and retrofit of more than 11,000 streetlights, replacing existing low-efficiency streetlights with new LEDs. The projected annual energy savings from the LED project will be 3.5 million kwh the first year. The project will benefit Huntington Beach residents and businesses by saving between $10 million and $14 million over 20 years.
The CLEEN Center provided the capital at a rate of 2.32% for a term of 10 years. The Huntington Beach municipality has restrictions on incurring debt without voter approval, so a lease/lease back structure, which doesn’t impact debt, was chosen by the CLEEN Center.
The LED streetlight retrofits are a new focus for the CLEEN Center, and the Huntington Beach transaction may be replicated and used to produce standard underwriting procedures. The CLEEN Center hopes to include projected savings of the project in the underwriting of future transactions, or perhaps relax certain aspects of the deal structure, but can only do so after savings have been demonstrated in multiple transactions. Toward that end, the CLEEN Center encourages and may require LED Program borrowers to create:
- A policy of savings reinvestment and creation of a savings fund where the annual savings from the LED project are deposited into an account as security for the LED financing (Energy Savings Account).
- An Energy Savings Account used to pay off debt incurred for LED project and to fund other energy savings initiatives the MUSH may have.
- Covenants to leave the operations budget line item for street lights unchanged during the term of the SWEEP LED financing so as to ensure savings capture.
- An operations and maintenance plan with a credit worthy party/parties.