LED Streetlight Financing

Streetlights across the world generally have some of the least efficient lighting technology on the market. There is a huge opportunity for cities and counties to reduce their operating costs and reduce the burden laid on taxpayers by retrofitting streetlights with hyper-efficiency LED lighting technology.

Yet the upfront costs of upgrading thousands of streetlights can be an obstacle for many governments. Enter Green Banks—by providing low-interest long-term financing for municipalities, Green Banks can enable governments at all levels to save big on energy bills and improve the quality of light that illuminates their streets. Financing LEDs can even be structured such that the savings produced by the LEDs are much greater than the cost of the financing, thereby generating cash-flow positive outcomes for the borrowers.

Below are three examples of innovative LED financing products.

UK GIB LED Financing Product

The UK Green Investment Bank (GIB) has developed a Green Loan product for Local Authorities to accelerate the implementation of LED streetlighting. It is a corporate loan facility to cover the installation costs of lighting upgrades to LED, with repayments sculpted to best fit inside the forecast energy, replacement and maintenance savings.

This more efficient lighting technology saves more money for municipalities than the cost of the loan payment, allowing borrowers to be cash-flow-positive throughout the period of the loan. With fixed rates and terms designed to match the payback period, municipalities are able to save 80% of their lighting costs by switching to LEDs.

The loans are fixed rate and have a sculpted option for loan repayments to fit cost savings. The loan rates vary depending on the tenor and on the underlying government gilt rate (similar to US Treasury rates) at the time the loan is signed. The loans have up to 20 year terms. The municipality is not required to invest any of its own capital and can blend capital from other sources into the financing. GIB “Starter Loans” of up to £500K are available for doing an initial survey of current streetlight stock, and can be rolled into loan.

The Green Loan can be drawn down over up to 5 years reflecting the agreed LED installation profile and there will be pro forma fixed schedules produced by the GIB Green Loan model to allow fixed rate funding.

The UK-GIB developed am 18-page “Market Report” to help other municipalities and local authorities learn how to use the Green Loan program for LEDs, available HERE. The GIB has completed successful LED financing deals in Stirling, Southend-on-Sea, and Glasgow.

CEFC Public Sector Energy Efficiency Product

The Clean Energy Finance Corporation (CEFC) administers an Energy Efficient Loan program targeted at non-profits, municipalities (or “councils”), and universities. The loans help them lower costs and GHG emissions through energy efficiency upgrades. Project types include LED street lighting, along with building-level upgrades such as HVAC and interior lighting. Streetlights are the largest source of GHG emissions from councils in Australia, and it is estimated that only 11% of streetlights have been converted to LEDs.

Commonwealth Bank and CEFC co-finance the Energy Efficient Loans. The total fund is AUD 100 million and is co-administered by CEFC and Commonwealth Bank. Commonwealth Bank enters into individual loan agreements with eligible customers (and negotiates terms and conditions on a case-by-case basis). Loan values will range up to AUD 5 million or more, and may be used to fund the full value of upgrades or just part of them. Favorable rates as well as tenors of up to 12 years are available, allowing energy savings to pay for the financing and provide a cash flow positive or cash flow neutral outcome.

The CEFC also works with other financiers to deliver energy saving and renewable energy projects to the local government sector. This specific loan fund is in addition to other broader loan funds such as the AUD 200 million Westpac Energy Efficient Financing Program.

Full CEFC presentation on energy efficiency loans in local governments is available HERE.

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.