A Sustainable Solution for Residential Energy Efficiency
The Warehouse for Energy Efficiency Loans (WHEEL) provides low cost, large scale capital for residential energy efficiency loan programs sponsored by states, local governments, and utilities. WHEEL is the country’s first true secondary market for home energy loans. WHEEL is designed to simply and effectively deliver nearly unlimited capital at lower costs to energy efficiency and renewable energy programs. Most importantly, it is designed to create a sustainable loan program that can ultimately be sustained without additional sponsor subsidy.
WHEEL funds unsecured residential energy efficiency loans originated in participating programs. The loans are aggregated into diversified pools and used to support the issuance of rated bonds sold to institutional investors. Proceeds from these bonds allow WHEEL to continue purchasing eligible loans from state and local programs for future rounds of bond issuance.
The Mechanics of WHEEL
Step 1: Participating programs commit funds to WHEEL.
- Sponsor deposits initial commitment of interest rate buy-down (IRBD) and supplemental IRBD (if desired) with custodial agent.
Step 2: Programs or third party originates and issues loans.
- Borrowers receive a fixed rate for the term of the loan.
Step 3: WHEEL purchases, aggregates loans across all participating programs and issues bond for sale to secondary market investors.
- Bond issuance is backed by cash flow of loan principal and interest repayments.
Step 4: WHEEL repays investors and sponsors.
- After private investors are paid with the revenues from the loan pool, remaining cash flows from the loan pool will be returned as Program Income to sponsors.
- If historic loss rates continue, sponsors should receive more in Program Income than they initially contributed to support the loans. The amount of Program Income will depend on the Sponsor’s contribution relative to the size of the entire loan pool and the overall performance of the loan pool, among other factors.
Step 5: Sponsor recycles or reallocates funds.
- Program Income can be recycled to support future lending in the sponsor’s jurisdiction or reallocated for other uses.
WHEEL Team Established: Includes Citibank, Wells Fargo, AFC First, Renewable Funding, EPC, and the Pennsylvania Treasury Department, with support from NASEO (see page two for roles and responsibilities).
Approved Use of Recovery Act Funds: Per SEP Guidance dated June 4, 2012 and EECBG Guidance dated June 4, 2012, the U.S. Department of Energy approved the use of Recovery Act funds in the WHEEL program, noting: “the association of a potential revenue stream with an interest rate buy-down, in and of itself, does not alter the characterization of the use of funds as an interest rate buy-down.”
First Securitization: In June 2015, Renew Financial and Citi issued $12.58 million in WHEEL securities, completing the country's first asset-backed security transaction comprising unsecured consumer energy efficiency loans.