Finance
Project Aggregation
Program Overview
High transaction costs can make financing small projects extremely difficult. From an investor's point of view, because the transaction costs, which can include outreach, setup, and legal costs for separate financing agreements, for a small project are substantially similar to the transaction costs for a large project, it is far more efficient to undertake a small number of large projects than a large number of small projects. One strategy to help overcome the challenges of high transaction costs is to identify additional sources of financing that are prepared to bear the costs of aggregating many smaller projects into one or several large portfolios that can be sold to private capital providers. Aggregation can be carried out by public or private entities, such as nonprofit organizations, local utilities, or a public-private partnership.
How to Apply this Program
The concept of bundling smaller investments into an aggregated portfolio of projects, in order to reduce the burden of transaction costs and diversify risk, has been deployed in the renewable energy market, specifically with regard to distributed solar power, but theoretically the concept can be applied to any number of medium- and community-sized commercially viable projects. Depending on how projects are bundled, either by sector or land base, the stimulation of medium- and community-scale projects also has the potential to increase social, environmental, and economic impact. Given that governments would reap these broader benefits resulting from more integrated investment strategies, city or state governments could do more to actively support integrated sector or land-based investment strategies. Governments could do so by motivating or providing grant funding to a nonprofit, for-profit, or public-private consortium to develop an investment-grade integrated portfolio that includes a range of bankable project and corporate finance investment opportunities. Once developed, such a plan could be implemented at scale by both public and private sector investment.
Contact Information
EPA's Environmental Finance Website: https://www.epa.gov/envirofinance/contactus.html
Examples
Living City Block, a Denver-based nonprofit, is acting as a kind of aggregator to attract financing for retrofitting small to mid-sized properties, buildings of no more than 50,000-100,000 square feet. In this model, the property owners won't have to pay for any of the retrofits; instead, they'll turn over their utilities to the nonprofit, which will acquire the financing, pay for, and coordinate all the work. Then, using the savings from property owners' utility bills, Living City Block will repay the loan taken out to undertake the retrofit investments. Living City Block is testing this idea on two blocks of the lower downtown neighborhood of Denver, with a second site in Brooklyn. The Denver location includes 17 buildings, 16 of them historic, spanning 800,000 square feet of space and 40 building owners. These two blocks contain low-income housing, high market-rate rental housing, condos, commercial offices, florists, clothing stores, and restaurants.
