By: Timothy Den-Herder Thomas
Location: Twin Cities, MN
I’ve been spending a good part of the last five years imagining, developing, and implementing an energy cooperative, Cooperative Energy Futures, that will help Twin Cities communities take our energy economy into our own hands. For months now, I’ve been waiting eagerly for the final step in a series of projects that will allow us to hire a full-time staff person and start scaling up. I’ve been excited to announce our success to the world. And I’m still waiting.
Making a successful, financially self-sustaining venture is hard, even when the basic economic seem self-evident. Basic investments in energy efficiency are no-brainer deals, a few thousand invested now can save tens of thousands of dollars in energy costs over the coming decades, but it’s still hard for most people to afford the upfront cost. Even more importantly, the current process of delivering efficiency programs hasn’t made the transition from knowledge to action click for most folks – nationwide, an energy audit program is considered successful if 5% of the people who receive audits act on the recommendations. While it is clear that over $200 billion/year in potential energy savings is sitting untapped in United States communities, it’s nearly impossible to get at it.
In 2007, I started researching this challenge and learning home energy system science. In 2008, I helped convene a team of youth leaders and community experts to start evaluating what to do about it. In 2009, we incorporated Cooperative Energy Futures as a 308B Minnesota cooperative, a member-owned business. 2009-2010, we worked to develop our outreach strategy, educational approach, and network of community groups and energy service providers, and in 2011, we started launching our programs in full. We coordinated a series of workshops with a local neighborhood organization, training 30 residents, many of them renters and Spanish speakers, in energy conservation practices. We launched an insulation bulk buying program in late 2011 into Spring 2012, insulating 7 homes in our neighborhood. We launched a solar bulk buying program in summer and Fall 2012, securing 24 letters if intent from community residents to install solar (a total of 83kW) on their homes, pending Xcel Energy rebates. And we piloted a series of three commercial solar arrays financed by an equity investor, a first step towards community solar. As we closed up 2012, Cooperative Energy Futures was positioned to take it to the next level.
The biggest challenge has been that to effectively manage and coordinate these programs, the cooperative needs dedicated staff. While a team of volunteers has been able to take us from idea to development, the high rate of transition of volunteers has made it hard for other leaders to create a long-term base of community relationships, and my own time has been stretched thin between several other projects. We’ve been able to keep the cooperative alive, but to make it thrive and start generating large-scale revenue, we need dedicated staff, and to get staff, we need money.
Businesses traditionally get money to start up from one of three sources:
- Independent, prior wealth, such as a person who has made money in previous jobs or businesses and is ready to invest it. That was off the table for CEF.
- A loan or equity source in which a bank, private investor, or private equity fund either loans the company money or invests an amount of money in return for a percentage of the return and control. Traditional lending sources (eg banks) generally want to see a tried and true business model, which is difficult for a new and innovative business approach, and equity investors generally seek a level of control and profit that would be unacceptable to the community-control aims of a cooperative. There are a few options in this arena, but they are slim.
- Boot-strapping, a technique in which one uses very few initial resources to start generating revenue quickly, and then starts building up the business in ways that rapidly increase revenues as one goes along. Bootstrapping can be very effective, and retains significant control and autonomy, but it can also make it hard to juggle all the key pieces of developing a business as capacity is limited until revenue generation scales.
We’ve largely used this third approach to get Cooperative Energy Futures off the ground, and it’s largely worked. We’ve used small-scale revenue generation to build an inventory of energy efficiency materials, cover the costs of meeting and storage space, and print promotional materials for our work. We’re breaking even and still growing, but only with extensive volunteer labor. The next leap, to full time paid staff is a big one, around $30,000, and given the extensive role that community relationships and local partnerships play, we want to be sure we can pay for a year of work up front before the position has to be self-sustaining.
We had a plan to get us there – one that still may work. As we pulled together the final stages of a series of projects, we identified the following revenue projections:
- Commissions from contractors on neighborhood insulation projects – around $3,000
- Commissions from contractors on residential solar projects – around $14,000
- Commissions on commercial solar projects by investor – around $15,000
Together with around $4,000 in cash reserves, this would give us enough to hire an initial staff person, with some of their compensation based on additional commissions. They would then be able to accelerate and stream-line our operations to both line up more projects with a high revenue generation potential (particularly community solar arrays) and focus on a deeper membership base working for a cooperative energy future.
The catch has been that both the residential and commercial solar projects are reliant on the Xcel Energy Solar Rewards Rebates. This state mandated rebate program run by our electric utility was originally supposed to be opened in January, but delays in the approval process by the Minnesota Public Utilities Commission pushed the opening date back to early March (supposed to open the morning of Monday March 4th). Then, around 5PM on Friday March 1, Xcel sent out an announcement saying that they were delaying opening the rebate application until the following Monday, March 11, essentially scrapping all the planning we had done to get customer signatures on the rebate applications in order. When the rebates opened on March 11th, our installer partners spent a feverish day getting all of the complex documentation in for all of our projects – projections had already been made that all the rebate funding available would be accounted for by the end of the day. We were told that we would start getting acceptance letters from Xcel at the end of April.
Cooperative Energy Futures started a staff search process in February, and slowed this down as the rebate timeline stretched out, ultimately aiming to provide notice by early May. But Xcel started processing the back-log of 2012 applications first, and didn’t get around to the new 2013 ones by the end of April … or the end of May .. or the end of June. In early July, we have received acknowledgement letters on three of the residential solar installations, enough revenue for us to keep well ahead of our current expenses, but far too little to make this crucial hire. This long delay isn’t just a problem for us – the majority of the solar installers in MN have not made money in 6 months or more after hurrying to fill the rebate pipeline with customers and then being forced to wait for the first half of 2013. Many have laid off most of their staff, and will have to hire them back on quickly if the rebates start coming through. Theoretically, we should be hearing back from Xcel Energy on the remainder of solar rebates they have not yet awarded by mid August, but until we know more, we’re largely in a holding pattern. The solar install season is slowly slipping by …
Whether by accident or by design, the current rebate structure, and Xcel Energy’s glacial pace of processing it, is keeping Minnesota’s solar industry from gaining a solid foot-hold. While CEF will survive this debacle, it has deeply delayed, and possibly ruined one big opportunity for us to take the next giant leap forward. We can keep focusing on other opportunities not dependent on rebates, but our insulation work is largely too time intensive per revenue gained to be worthwhile on our limited volunteer capacity, and most of the solar industry is tied up in trying to make decisions around the uncertainty of this rebate cycle.
We do have some promising signs:
- Several potential partners, including the City of Minneapolis, local utilities, and allies in Minnesota’s rural electric co-ops have identified a on-bill financing platform for efficiency and clean energy as a priority. This would allow us to pay the upfront costs of home energy improvement and have the resident pay it back month to month on their energy bill. Because the monthly payments are structured to be less than the energy savings, residents save money from month 1, with no upfront cost.
- Community interest is surging. A recent series of farmers markets and community events has yielded 126 residents signing on to participate in neighborhood insulation and solar bulk-buying, community solar, and weatherization work parties.
- Passion for community solar is blooming city-wide, with local business associations, community organizations, and more coming to us looking to host community solar arrays financed and owned by members of the community.
As we forge ahead, we’re looking for the next round of projects that can get us to that next level of staff capacity, this time in a way that doesn’t require a utility bureaucracy to operate in a timely manner.