Earlier this year, Crankshaft Supply, a north Minneapolis business that refurbishes parts for diesel engines, invested $180,000 in a rooftop solar array that CEO Jay Miller expects to cut electric consumption for his remanufacturing business by 50 percent and pay for itself within 10 years.
But this small business, even though it has rebounded strongly from the recession, couldn't finance the investment internally or through a bank. So Miller turned to a four-year-old Minneapolis company called Eutectics that has put together nearly $40 million worth of energy-finance deals and helped building owners like Miller take advantage of energy loan and grant programs around the country.
Eutectics CEO Jeremy Kalin is a former Minnesota legislator who saw a need for a focused, streamlined energy-finance process for small businesses. He talked about how it works with the Star Tribune.
Q: What is Eutectics and why was it needed?
A: Eutectics is an energy-finance adviser. We connect small businesses or big businesses doing energy-technology upgrades such as LED lighting and solar with committed capital that understands the technology and process. Too often, energy efficiency, solar and water-saving projects require too much time, effort and fees for lenders or investors to understand. Eutectics' lean model connects prequalified energy projects with our committed capital partners, in a way that no one had been doing in the energy-financing marketplace. We've built new financing tools to get deals done quickly, and at moderate cost. And larger lenders and investors increasingly rely on Eutectics to build large portfolios of similar projects, to bring capital at scale to these previously underserved sectors.
Q: How does your background lend itself to this venture?
A: I grew up watching my dad and grandparents manage a Main Street business, where the strongest partnerships were built on a handshake and trust. As a sole proprietor and as a state representative, I saw that the best exchanges happen when each partner is equally invested in the other's success. That's precisely how we've built our network of contractor and trade-ally partners — and our network of committed capital partners. Also, I authored several energy conservation and renewable energy financing bills [in the Minnesota Legislature] and led efforts with the White House and other national groups to accelerate this market.
Q: Why can't borrowers get financing through banks or other lenders? What are the typical loan terms?
A: Both energy efficiency and solar financing have been focused on large borrowers with very strong, "investment-grade" credits, like large cities or Ikea and Wal-Mart. But more than 90 percent of our building owners do not have rated credits. And their buildings are in the greatest need of smarter energy strategies. For some borrowers, like Crankshaft Supply, the answer has been new credit-enhancement tools like Property Assessed Clean Energy (PACE) financing. For other properties, the bigger challenge is getting capital partners to understand the reliable value of energy savings and solar generation. We built Eutectics Finance for these borrowers. Fast underwriting, collateralized by the equipment itself, with single-digit rates and terms ranging up to seven years.
Q: What is the PACE program and how does it fit?
A: PACE financing allows owners to use a special assessment to gain 100 percent project financing through the St. Paul Port Authority from privately financed revenue bonds. Owners then make payments via their property taxes, with terms from five to 20 years.
Q: How's business?
A: We're busy. Across all of our financing tools, Eutectics has facilitated $38.5 million in solar, energy efficiency and water-saving projects nationally. By the end of 2015, we project at least $210 million in solar, efficiency and water-saving projects financed nationally. It will be balanced between the Upper Midwest and nationwide. The financial partners include the PACE program, Eutectics Finance, a committed partnership with an equipment-finance company that also does oil-and-gas and health care. And we work with Bremer Bank. Eutectics has been able to make clean energy much more accessible to business owners, local governments, affordable housing and individual homeowners. LED lighting is now mainstream technology; the cost of solar has dropped 45 to 60 percent in Minnesota in the last three years. Clean energy is here to stay. With smart financing via Eutectics and others, increasingly "going green" means "making green."
Q: How do you get paid?
A: Eutectics — and we have a staff of six people — reviews the reliability of technologies, the contractors and basic finances of the project owners. We then act like a Lending Tree — sourcing the best financing options for the project, and secure the best deal for the owner. While our project fee depends on size and scope, we typically get paid by the owner or contractor as part of the overall project cost.