LOS ANGELES — Gwen Yamamoto Lau has her work cut out for her.

Lau was named executive director in January of a Hawaii renewable energy financing program that has only spent $14 million of the $150 million in bonds it sold in 2014.

“It is obvious the program has had difficulties,” said Gwen Yamamoto Lau, executive director of Hawaii Green Infrastructure Authority. “I am the fourth executive director in four years. That shows the difficulties.”

The program launched in June 2013 after then-Gov. Neil Abercrombie signed legislation establishing the green infrastructure financing program named GEMS.

Lau, who joined HGIA in May 2016 as managing director, worked for 30 years as a banker. She was a senior vice president and chief lending officer of HawaiiUSA Federal Credit Union and president of the Hawaii Community Reinvestment Corporation before taking the position at HGIA.

“I would not have taken the job unless I thought there was hope,” Lau said, before launching into both an explanation of what went wrong and what she and Authority employees are doing to get the program on track.

Gwen Yamamoto Lau was named executive director of the Hawaii Green Infrastructure Authority in January.
Gwen Yamamoto Lau was named executive director of the Hawaii Green Infrastructure Authority in January.

The program raised $150 million in a November 2014 taxable green bond sale that was expected to be spent within two years. Instead, only $14 million has been spent of the money intended to provide affordable loans to low-income residents for energy efficiency installations such as solar panels.

The bonds received triple-A ratings from the three largest rating agencies ahead of the 2014 sale, which was honored in 2015 as The Bond Buyer's Non-Traditional Deal of the Year.

The bond structure employed through GEMS was modeled after stranded-asset bonds and rate reduction bonds that utilities have used for decades. The bonds were issued through the Hawaii Department of Business, Economic Development and Tourism as special and limited obligations of the state. The bonds are repaid from a surcharge on the bills of Hawaii electric customers, not added to the property tax bill.

Lau said studies on market demand for solar panels, the program’s main thrust, were done in 2012-13 and the market shifted by the time GEMS began accepting applications. Banks had become more comfortable with financing such projects.

“We overpriced the market and were not very flexible,” Lau said.

The program's loan originator was also in Wisconsin, a five-hour time difference, and the system being used required the use of snail mail. Plus, a lot of Hawaii homes are in irrevocable trusts, a concept not as broadly used in the Midwest.

The Wisconsin bank hired outside counsel and is now comfortable underwriting loans for houses in trusts. The loan qualifications have been changed to allow credit scores of 600, when most lenders won’t go below 640, she said.

Hawaii had such a large adoption of solar energy retrofits that the electric company will no longer give homeowners credit for excess energy produced that goes into the grid. The advantage is just a reduction in the homeowner's or business's own energy use.

But GEMS is trying to get approval from the Public Utilities Commission to allow installation of batteries to store power as well as solar panels. The GEMS program is currently underwriting $31 million in potential loans for non-profits and businesses – and has another $84 million in queries, she said.

Under House Bill 957, approved by lawmakers, but yet to be signed by Gov. David Ige, the program will loan $46.6 million to the Department of Education to continue the “cool schools” initiative that began last year with the appropriation of $100 million for energy efficiency projects aimed at air conditioning classrooms. Ige has until early July to sign bills.

The bill would also appropriate general funds to pay for interest on the loan for the first year.

Lau said loaning money to the DOE is a valid use for funding.

“When PUC approved the program order, they said 51% was to be used for what the PUC defined as underserved – defined as low income households, renters and non-profit businesses – they did not say what the other 49% had to be used for,” she said.

Tom Yamachika, president of the Tax Foundation of Hawaii, said the program is a failure and the program should be repealed and the money returned to the bondholders.

“I am not entirely sure what has gone wrong,” said Yamachika, who admits he was skeptical of the program from the start. “It was supposed to make loans available to economically distressed and nonprofit associations and other people who might not qualify for loans from conventional lenders.

“I don’t know if it is salvageable or not, but it did not turn out the way it was intended,” he said.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.