Energy Loan Mgmt 323 team 5

Energy Loan

Mgmt 323 Team 5

Jonathan Delvoie
Nick Howell
Hsin Heng Lee
Bee Ai Lee
Joyce Chiu

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Table of Contents

Executive Summary 3
Target Market 4
Situation Analysis 5
SWOT Analysis 7
Marketing Strategy 8
Marketing Program 9
Resources 11

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Executive Summary

Plan Description
The Energy Loan program strives to persuade customers of REMC’s in Indiana to use
less energy by helping them improve their home and energy usage to be more efficient. This
would be accomplished by helping them finance home improvement projects and replacing
inefficient appliances to consume less energy. The REMC, partnered with a financial
organization, would sponsor the front-end cost of these projects and be repaid through the
monthly savings of the consumers. The end result would be a bank or credit union loaning to the
REMC, which loans to the consumer.
Initially the REMC would offer the program to their customers. Those who are interested
and sign up would have an energy advisor inspect their homes and offer suggestions to improve
energy usage and inform them of those that would qualify for the program (those improvements
that have a high enough return to be covered by the bank). The REMC collate all the loans from
their users and report the loans to the bank. The bank would make one larger loan to the REMC,
which would disperse it to the consumers to pay for the improvements.

Objectives and Issues

Initially, the consumer would have to hire their own contractor for their home
improvement and forward the bill to the REMC to receive an accurate loan. This would give
guarantee to the REMC that their money is being used for energy savings. A future objective
could be setting up a relationship between reliable contractors so that a rate could be
standardized, and the REMC would be assured of quality work and maximized energy reduction.
This would be beneficial for the bank as well as quality contracted work would further improve
the security of the loan.

Bank Advantage
The Bank involved would receive a new source of income from a new and untapped
market. These loans would be a safe and secure investment in today’s market where many loans
are being examined closely. This loan program would be a stable base of income to offset riskier

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loans. While each of the individual loans in this program may be too small for banks to finance
individually, when amassed into one plan, they could provide a sizable source of income.

REMC Advantage
The REMC would be able to reduce energy expenditures as they currently want while
raising awareness and participation in green technologies. They would also be able to harness a
portion of the return from the program to pay expenses and further other avenues of green
technology.

Consumer Advantage
While the consumer would certainly save more money financing their projects
themselves, this plan enables them to immediately have a lower energy cost at no cost to
themselves. This program yields direct savings for the consumer at no frontal cost for them, and
with less hassle than they would have otherwise.

Hypothetical Example
The bank would loan $10,000 to the REMC at a rate of 4% per month. The REMC
would then loan $1,000 to each of 10 customers to put their plans into effect, reducing the energy
prices of the consumers by $75 per month. The customers send 5% back to the REMC, $50 per
month, yielding them a net savings of $25 per month at no cost to themselves. The REMC
would keep a 1% return on the loan to cover expenses of the program, and return the remaining
4% to the bank. If this loan were to be applied for 5 years, the bank would have 240% of its
initial investment, the REMC would have acquired 60% of the investment made, and the
consumer would have had 5 years of a lower energy bill at no cost to themselves, and once the
loan expires their rates would lower once again as they are no longer paying off the loan.

Target Market
Our target market is the customers of the REMC’s and any potential environmentally
conscious customers in Indiana. We're focusing on households and businesses that are interested
in actively reducing their energy costs. We hope to expand our project to be adopted by the
government and public facilities and also in applying the plan nationwide.

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Situation Analysis

External Analysis

SWOT of Bank of America

Strengths Weaknesses
Leading market position in the US Declining net interest margins
Robust growth in core banking Weak wholesale banking operations
Capital management and dividend policy Sub-optimal geographic asset allocation
Product and service innovation Deteriorating asset quality
Raise awareness for going green
Opportunities Threats
Credit card operations & affinity marketing Sub prime exposure
Wealth management and consumer banking Consolidation in financial services industry
Increased regulatory pressures on
Interchange rates
Volatility in financial markets
Not being able to pay back loan
(SWOT of Bank of America is from Datamonitor company profile of BoA)

For our analysis of the banking portion of this plan, we chose Bank of America due to
their strengths in raising Green awareness and their strong current position in the US. They are
one of the favored lenders for equipment loans for the US government, due to their size and
lending power. Due to their strong base, Bank of America has picked up loans with smaller
returns that other banks have passed up, allowing the loan to provide its income over time.
Two of Bank of America’s largest weaknesses, their strong asset allocation in the US and
current defaulting loans make this plan ideal for them seize this plan, as it provides a stable loan
to offset other defaulting loans.

SWOT of Tipmont REMC

Strength Weaknesses
Product and service innovation Small business based
Supports Going Green Low presence in other states
Strong local customer based
Opportunity Threats
Acquisition of Environmental project Current nation’s economic state
Expanding market to be Environmentally Intense competition
friendly

Due to its proximity and our communications with them, we have been working closely
with Tipmont REMC throughout this project and use them as an example for other REMC;
however the plan would be applicable to any energy provider and would be distributed
throughout many REMC’s in Indiana through Service Concepts LLC, a coop of REMC’s in

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Indiana.

Changes in Green Technology

Technology is always improving which sprouts more Green technology advancements.
Our project approaches the Going Green concept in order to lower the environment’s recourse
usages, lower household bills, and educating while disciplining the society about the
environmental dangers. Our loan idea enables more sustainability within the environment as it
meets the needs of the society’s need of a better future without damaging or losing anymore of
the natural resources. We hope to reduce as much of the excessive waste, electricity, and
pollution made by non-Energy efficient products by changing the consumer’s consumption of
resource wasting products. Our project is creating a service that will only increase in capability
as green technology improves, lowering cost and improving savings with each technological
breakthrough.

Financial situation in the US

Bank of America proposed a bailout to the members of Congress, predicted to be about
$739 billion . “With Bank of America now becoming the largest mortgage lender, the company's
share of a $739 billion loss would be substantial indeed” (NY Times).
While such a loss would be damaging to Bank of America and many other lending
organizations that face similar situations, our plan would provide a subtle counterbalance to these
losses with a secure loan to counter the increasing number of defaulting payments.

Consumer Analysis
The current trend for customers is that more people are becoming environmentally
conscious and therefore there is a growing trend to go green. However, people are uneducated
on what exactly this means, which causes problems in implementing new initiatives since most
people think it’s easy (or easier than it is) and cheap (which in some cases it’s not).
The current initiative by the REMC’s is education so that the REMC can try to eliminate
the ignorance that’s causing the problem. However the methods used to contact people are
voluntary to the consumers and as such only the people who are already interested are getting the
information. Obviously that doesn’t help as much as they’d like.
Most customers that want to go green are environmentally conscious and want to lower
their impact on the environment through energy saving techniques. The cost saving benefits is
what drives most people now with the faltering economy to adopt green alternatives, which are
simultaneously the most cost efficient methods.
As mentioned before the cost savings are what drive most people, so the benefit of using
our idea is that the consumer gets an itemized look at what savings they’re going to get and how
they’re going to be helped in paying for it. It also helps alleviate their concern over the
potentially “high” front-end cost on establishing a green household.

Internal Analysis (REMC)

At present Tipmont REMC is a small business with only 53 employees and does not have
the staff to put such a plan into full effect. However, with a Banks aid, Tipmont REMC would
certainly be able to come forth with the necessary staffing by the time the plan is ready to be
placed into operation.

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SWOT analysis of plan

Strengths
Highly advantageous
Untapped market
Stable loan
Grants and Tax Credit opportunities

Weaknesses
Lower than typical return

Opportunities
Expansion
Improvement in green technologies
Grants and Tax Credits

Threats
Default payments
Change of service

In Depth

Strengths
-Highly advantageous
Each party involved has multiple advantages to signing up for this plan, making it easily
marketable.
-Untapped market
No loan program of this type exists yet, allowing for a completely open market for this
type of loan from which every homeowner, business, and public facility can benefit.
-Stable loan
Since the money to repay the loan is freed up by the very action the loan is paying for,
there should be no problem paying off the loan. Even should one of the loans default, this
program puts in place a large quantity of loans which should cover any defaulting loan.
-Grants and Tax Credit opportunities
This program could easily apply for grants and tax credits to reduce the costs of
investment.

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Weaknesses
-Lower than typical return
Some of the energy saving methods and procedures may have lower return rates than
typical loans, these appliances and procedures should be researched in depth to determine the
capability of these products to be applied into the loan program.

Opportunities
-Expansion
Opportunities for expansion exist both within the program, adding more products to
qualify for the loan program, to different markets, public facilities and larger businesses, to
expansion across the nation.
-Improvement in green technologies
Improvement in green technologies would only improve the program as the cost would
reduce and the energy efficiency would improve. This would lead to larger returns and potential
addition of other technologies to the loan program.

Threats
-Default payments
Default payments are always a threat to loan programs, however this program deals with
this issue by having many simultaneous loans to continue to provide a profit while the defaulting
loan can be investigated. Also, the loans free up the money necessary to pay themselves back, so
the risk of non-payment is lowered.
-Change of service
The loan would have to be paid back should the consumer choose to switch energy
providers.

Marketing Strategy

Bank:
Given with the current financial situation, the bank loan project is a safe investment for
the banks to undertake because it is secure with low risks and stable return. Since the banks
would do direct loan to REMC, both the default risk and credit risk are low. Moreover, the direct
loans to REMC would be easier to monitor and evaluate than to REMC’s clients. As a result, the
banks could receive stable monthly interest on the investment, which should be about 4% of the
investment.

REMC:
One of the goals for the company is to encourage energy saving; therefore, REMC should
apply for “Energy Inventions Federal Grant”. The grant enables REMC to receive financial and

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technical assistance to execute the project. In addition, the government would help to
commercialize the project.
The bank loan project is beneficial to REMC as well due to the additional interest that it
charges on top of the banks’ interest to its clients. The cash flow of the loan would look like
following:

Loan Loan CUSTOMER

BANK REMC
Interest Interest

The REMC would provide loans for the customers to replace the energy inefficient
equipment while earning interest on the loan that customers borrowed. Through this project,
REMC would be able to achieve its energy saving goal and make a profit from the interests it
received from the loans. The project positions itself through differentiation; as most of the
energy saving projects in the market targets either the equipments or financial aid, “bank loan”
project covers both areas, it would give the financial fund to the customers to replace its
equipments to the energy efficient ones.

Customer:
The bank loan project would help the customers to obtain the fund required to replace the
energy inefficient equipments. With the new energy star equipments, they would lower the
electricity bill for the customers and the drop in payments should cover the interest payments to
REMC and still have left over to cover part of the principle matures at the end of the contract.
The difference of this project from the rest in the market is that REMC would lend the fund to
the customers to improve their energy efficiency; however, the savings from the electricity bill
should be able to cover both the interest payments each month and the principle at its maturity.
Therefore, the customers do not only save their money but also improves their living standards
and have a positive impact on the environment.

Marketing Program

Product: The bank loan service is a loan program that the banks give loans to REMC then REMC
lends the loans to its customers for energy saving equipments replacement. Through this loan
service, the bank could earn stable interest revenue from the loans, REMC could earn interest on
the loans it makes to its customers, and the customers could cut down its electricity bill from
changing to energy star equipments using the funds from REMC loans.

Pricing: The pricing would be entirely based on the loans from the bank to the REMC and the
loan amount to the user, as well as based on their energy savings. To show the viability of this
loan program however, we will use the process of re-sealing a home. For a 1500 sq ft house, the

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average savings of changing from a moderate leak to sealed is $79 per month, while if the house
is in worse condition and has bad leaks, the average savings go to $131 per month. A rough
estimate for sealing and insulating a 1500 sq ft house is $1500-3000. A 4% rate on a loan of that
size would be $60-120, which falls well within the energy savings given the same parameters.
These estimates are acquired from Tipmont’s Energy Calculator, and Pillar to Post’s home
project pricing guide.

Promotion: REMC can compare the customers’ electricity bills between this year and last year
after the replacing to energy star equipments. For the same month, if the consumers could cut
down their energy consumption by 10%, they could get a 5% discount on the month’s electricity
bill. Through this promotion, customers would have more incentive to save energy; thus pushes
the bank loan service to a greater level.

Internal advertisement: Advertisements on bank loan should be on the REMC websites and by a
notice on the consumer’s electricity bill. The bank could also help promote the program from
their end.

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Resources

Datamonitor. (2008). Bank of America Corporation. DataMonitor, 1. Retrieved December 4,

2008, from http://web.ebscohost.com/bsi/pdf?vid=4&hid=17&sid=97191ef5-3eaf-49ad-b19c-
4eb6287b5286%40sessionmgr9.

Department of Energy - Homepage. (n.d.). Retrieved December 7, 2008, from

http://www.energy.gov/.

EERE State Activities and Partnerships: Indiana. (n.d.). Retrieved December 7, 2008, from
http://apps1.eere.energy.gov/states/state_specific_information.cfm/state=IN.

Grants.gov - Contact Us. (n.d.). Retrieved December 7, 2008, from

http://www.grants.gov/contactus/contactus.jsp.

OED: Home. (n.d.). Retrieved December 7, 2008, from http://www.in.gov/oed/.

Repair Cost Estimates. (n.d.). Retrieved December 6, 2008, from pillartopost.com/home-repair-

cost-upgrade-guide.aspx.

Save Money, Energy and Water — Choose ENERGY STAR Qualified Clothes Washers :
ENERGY STAR. (n.d.). Retrieved December 7, 2008, from
http://www.energystar.gov/index.cfm?c=clotheswash.clothes_wasers_save_money

Wabash - Tipmont REMC :: Home Energy Suite . (n.d.). Retrieved December 1, 2008, from
http://tipmont.apogee.net/homesuite/calcs/rescalc/default.aspx.

Interviews
Clark, J. (2008, October). Tipmont REMC. (J. M. Delvoie, N. Howell, & B. A. Lee, Interviewers)

Geoffrion, K. (2008, November). Bank of America. (J. M. Delvoie, Interviewer)

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