WHEEL (the Warehouse for Energy Efficiency Loans) is an aggregation platform for residential energy efficiency loan programmes sponsored by US states, local governments, and utilities. The program was created as the state of Pennsylvania had an unusual problem: an energy efficiency loan program that was too successful. The Pennsylvania Treasury Department had invested state funds in a residential energy efficiency loan program called Keystone HELP. The funding needed to meet the demand for loans was so great that it threatened to exceed portfolio diversification limits that the Treasury observed, to fulfil its fiduciary role. Pennsylvania sought to sell its portfolio of loans but soon realized there was no market for this unfamiliar asset. Fannie Mae, the US government sponsored enterprise, would buy the loans, and had bought similar assets for many years, however, it would only do so at a significant discount that was not warranted by Pennsylvania’s loss experience with the assets. Pennsylvania explored the possibility of securitizing its portfolio and tapping the secondary capital markets. The state quickly realized that, despite the size and success of the program, it was not large enough on its own to regularly generate the large volumes of loans needed to create a liquid asset class that would interest investors and make securitization cost- effective. It was at that point that the Treasury launched an effort, along with several other interested parties, to establish a multi-state facility to warehouse and then securitize these loans. This became the WHEEL aggregation platform.
USA - Multiple cities
USA & Canada
Project size (range)
Project size (details)
USA State Treasuries
Year of financial closure
In Pennsylvania: Partnership between Citigroup; the Pennsylvania Treasury Department; Renew Financial; the Energy Programs Consortium; National Association of State Energy Officials and the U.S. Department of Energy.
Energy, Ford, Rockefeller, Surdna and William Penn Foundations.
Other transaction participants
Overcoming a lack of funding for subsidising residential EE investment: WHEEL brings low-cost, large-scale capital to government and utility-sponsored residential energy efficiency loan programmes.
Providing a platform for securitization of energy efficiency loans: There are many benefits to enabling securitization. Firstly, this approach creates liquidity needed to attract additional investors in the asset class. Banks no longer need to hold the loans on their books, which allows them to make many more loans than they could if they had to hold them and maintain the associated capital coverage required by banking regulations (Basel III/Solvency II). Second, securitization often results in a lower cost of capital (and lower interest rates to borrowers) because of the diversification benefit it provides to investors. Securitization allows investors to diversify their risk by taking a small piece of many loans rather than a large piece of a small number of loans. Third, investors may generally choose which “piece” or “tranche” of the loans they wish to purchase based on their risk/reward profile. More senior tranches generally provide investors less yield while mezzanine and subordinate tranches offer greater yield but greater risk since they absorb the first losses that may come on the underlying assets if borrowers default. Finally, over time, regular securitization creates a wealth of historical performance data that facilitates risk assessment. With greater supply of investors and greater familiarity with the performance of the asset class, the cost of capital should decrease.
Decreased capital costs due to liquidity, diversification, and greater familiarity with the asset class: Linked to the point above, data from an established performance track record in turn means lower costs to borrowers to do energy efficiency work. Lower borrowing costs should mean more work done by more borrowers and more energy-efficient buildings and systems.
WHEEL makes financing programs simple for states, utilities, contractors, and homeowners. Approved local contractors offer low-cost financing directly to consumers. In the State of Pennsylvania, the loans are purchased by Renew Financial with a credit facility provided by Citi and the State of Pennsylvania Treasury, aggregated into diversified pools, securitized, and sold to institutional bond investors, thereby replenishing the capital to be loaned to consumers.
Suitability for cities in low-and-middle income countries (detail)
No. Suitable for high- and middle-income, but not low-income countries. A study carried out to understand the replicability of WHEEL-type programs resulted in it having the potential to succeed in countries with high homeownership rates, residential energy burdens similar to or greater than those in the United States, established securitization markets, government-sponsored energy efficiency rating systems for identifying appropriate home improvements to support governments committed to mitigating the impacts of climate change through innovative financing programs. Few countries have established primary loan markets for home energy efficiency improvements segregated from other consumer debts. However, a segregated market would need to be created to generate the pipeline for a WHEEL-type securitization. In addition, WHEEL-type programs outside of the US would often require a modified underwriting approach since numeric credit scores are less common in many markets studied than in the US. The UK and India have been identified as the best markets on which to focus first because they have the highest number of key WHEEL components.