June 1, 2015

Subject: White Paper Green Finance, ITC and Energy Tax Simplification, Solar Subprime
This paper will develop a well supported position for rationalizing energy and climate-change policies, based
on sound economic and finance principles. The paper will suggest better financing options in order to stop the
massive mis-allocation of capital, now the norm. Current practice damages the interests of property owners,
by undermining potential asset appreciation and capital formation. Interestingly,. the proper economics applied at the property level go hand in hand with the interests of society as a whole. However, policies and in centives promote a mis-allocation of capital and effectively cause capital destruction, largely because they are
regressive from the standpoint of reducing GHG-emissions in the long run. Getting the economics right will
have a profound constructive impact on climate change.
The principal authors and researchers of this paper will be:

Rogier Fentener van Vlissingen, BA Econ., founder of DaBx, and a recent finalist on SeekingAlpha
with a paper titled: SolarCity Is My Favorite Idea that Everyone Knows, But That No One Understands, and his research was used in a prize winning paper in a competition by The Economist and
Kerrisdale Capital: SolarCity Road To Six Feet Under.

Bruce Lorentzen, E.E., advisor to DaBx, and formerly Manager of Engineering and Construction head
for Connecticut Light & Power, who has also taught at University of Bridgeport.

Other guest authors as needed.

The paper will published under a CC-BY-SA 4.0 license and made available as follows:

https://www.indiegogo.com/projects/white-paper-on-green-finance-energy-taxpolicy/x/3928372#/story or bitly: http://bit.ly/1HZpVuw

Publication January 6th, 2016, after which it will be available by download from Scribd at $29.00

Limited private participation on special terms.

2141 Starling Avenue, Apt. 404, Bronx, NY 10462

P 718-409 0293 E rogierfvv@dabxdemandsidesolutions.com
C:\Users\RogierFvV\Documents\Green Energy\DaBx DSS Inc\Business
Analysis\WhitePaper_ITC_GreenFinance_EnergyTax_SolarSubprime_V1.01.doc

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Main topics of the paper

1. False incentives - The complete economic illogic of the incentive system from a supplier/grid/economics/energy policy viewpoint, in the spirit of a 5/18/15 WSJ article on rooftop solar (by utility atty.
Brian J. Potts). Various energy efficiency projects suffer from the similar issues such as financing
short term operational savings with long term money.
2. Majoring in a minor - The complete economic illogic, from a green standpoint, of rooftop making the
30% of residential energy demand that is necessarily electrical greener, at the cost of a financial and
physical impairment. Solving the minor problem first makes it hard to impossible to eliminate GHGemissions on the 70% of energy demand that is thermal (HVAC + DHW). This short-termism leads to
the metastasis of GHG-emissions; we are literally majoring in a minor.
3. KISS principles for energy taxation - The need to simplify energy taxes along the lines of the Baucus proposal (supply-side), but to include the demand side of the grid, and get government out of
sponsoring specific technologies. Instead we need to incentivize results in the range of 50-80% GHGreductions. These higher targets mean that the real exercise is about making the thermal demand,
which is 70% of residential energy, greener with a combination of passive and active tech (solar ther mal, geo thermal and other heatpumps, etc.).
4. Solar Subprime - The consumer financial scam that is rooftop solar - solar subprime - selling the payments, not the investment. No consumer needs a 30-year energy contract (refer to NREL paper). The
issue is selling expensive financing instead of actual solutions that would produce asset appreciation.
Real renewable energy retrofits would move energy from liabilities to assets. The problems include
both the trap of diminishing returns on marginal energy savings, as well as the mounting bill of sunk
costs by redundant investment. The current approach is fitting the problem to the solution we want,
instead of fitting the optimal solution to the problem.
5. Mortgage finance, not ABS - Mortgage finance as the better alternative for residential energy
retrofits, because interest is tax-deduictible. In the long run, mortgage finance will need to become the
preferred form of financing for serious retrofits. Economically sound retrofits move energy from lia bilities to assets, and should have a positive NPV to strongly add to the value of the property. Combined with #3 (tax simplification), better finance options would support enhanced real estate values,
instead of another round of subprime scandals by lowering down payments as the GSEs are now doing all over again. Lower (tax-deductible) interest costs, and value creation go hand in hand. The
FHFA's single security initiative is the logical place to support such financing options.
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6. DOE Energy Savings approach changed the focus to whole property solutions - The $55billion DOE
ESPC contract is the model that proves that energy retrofits done right can save money for property
owners, and make money for contractors. This concept is essential to preserving affordable housing
and keeping it affordable, because it can lower costs for landlords, and lower living costs for tenants.
7. Getting practical about climate change - We are getting serious about climate change to the point that
some of the theological debate over causes can be postponed to the hereafter on the strength of what
can we do about reducing GHG's now. We can do a lot, but not if we proceed like chickens with our
heads cut off. The real issue is entropy, and we need to work on a whole property basis. Buildings are
the cause of the demand, and that is where the problem needs to be solved.
8. The new sustainability paradigm We need to move towards a new environmental, economic paradigm, in particular applying it to the utility industry, and the future of the grid. FTC needs to free up
the utility companies to market their expertise and/or invest in 'generation' on the demand side. There
is no monopoly threat, as long as extant software analytics are used to provide transparency. These
tools make the marginal economics of the local grids explicitly part of negotiations so that all parties
can discuss it, and 3rd party providers guarantee objectivity. (FTC ruled against this happening in
NYS recently).
The important thing here is to undertake this evolution in a collaborative and economically sound
way, not the infantile infighting we now see between rooftop solar and the utilities. This point implies
revamping national policies and codes as they apply to energy delivery and indeed generation. Current practices virtually mandate over-building the grids without necessarily making them more reli able. Smart regulation would create a proper environment for investments and also promote renewables. GHG reduction would then occur naturally without specific projects targeting reductions only.
We believe there is an energy equation lurking here. It goes somewhat like: UTILITIES + INVESTORS + CONSUMERS +SMART REGULATION equals a sustainable energy system that also
provides capital appreciation and profits.
9. 'Green finance' provides cover for short-termism Today's practices add up to little more than a scam
on the ESG/RI community of would-be green investors. The need for meaningful ratings of the greenness of 'green projects,' is paramount. Such ratings should be founded in the economics presented
here, which include shifting the attention from energy efficiency and projects that achieve sub 35%
GHG-reductions to sustainability and projects that achieve 65+% GHG-reductions (on the demand
side).
10. Greater reliability and sustainability of energy requires collaboration - In general, the fact that we
need to make the supply more reliable, not less, includes thinking towards micro-grids, and for the
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grid to evolve towards a more cooperative role. We need collaboration with the power industry towards real solutions instead of the silly in-fighting between the rooftop solar companies and the utili ties, which do not help either consumers or the country.