Project Finance Metrics 101: Impact Metrics
Impact metrics are a series of measurements designed to track a project's holistic impact, extending its accountability beyond sheer economic performance. From public health to energy equity to climate and community benefits, these varied benchmarks provide a wide-ranging view of the tangible impact that renewable energy projects have.
As developers and others in the renewable energy industry face increasing pressure to define the public benefit of their projects, impact metrics are fast becoming must-have data for financiers. During origination, these metrics may be required to secure certain loan terms. Some government tax credits require impact metric reporting to qualify for specific loans or grant funding, while impact-driven financiers — from CDFIs to green banks, philanthropic investors to private capital — may base their investment decision-making on not only financial returns but the social and/or environmental value of a project. Certain impact metrics may also be included in a deal’s reporting covenants, requiring portfolio managers to keep track of this data throughout the full life cycle of a project.
As part of Banyan’s Infrastructure’s Project Finance Metrics 101 series, below is a glossary of essential impact metrics that equips renewable energy project financiers with the right measurements for impact compliance.
Key Metrics for Project Finance
The specific impact metrics that financiers need to track will vary based on funding source restrictions as well as the unique requirements of a deal and the capital providers involved. For instance, a financier may require a deal to track avoided greenhouse gas emissions, the number of beneficiaries served, or the local economic value generated by a project. Having well-defined methodologies for each of these data points is crucial for both clarity and standardization, as is the ability to pull data from a variety of sources into one centralized platform. By creating and applying the same formulas across various projects and portfolios, financiers are able to develop a common language for evaluating potential deals. Digital tools and automation then speed up that evaluation process, enabling capital providers to move faster.
Below are some of the metrics a project financier might track to show local- and project-level impact.
Projects Financed in Disadvantaged Communities: This metric looks at whether or not a project is built in a disadvantaged community. Many states define this as a community where the population is both economically disadvantaged and located in an area that is overburdened by pollution; underinvested in areas like transportation, health care, and housing; or both. In addition to applying this metric to individual projects, financiers can also track the ratio of projects in a portfolio that are in a disadvantaged community compared to those that aren't to determine its proportional impact.
Affordable Housing Upgraded: This metric allows users to track the percentage of affordable housing units created or preserved by a sustainable infrastructure project or deal. Affordable housing has historically been left out of the energy-efficiency conversation, with few federal incentives for low-income residents whose energy bills account for a higher percentage of their total income. However, programs like the Energy Efficient Home Improvement Credit offer homeowners a tax credit worth 30% of the upgrade up to $1,200 for energy-efficient property costs like heat pumps and energy-efficient windows. This metric allows the reporting organization to track those upgrades and prove to federal entities that a certain percentage of their impact benefits low-income and disadvantaged communities.
Reduction in Energy Use (e.g., kWh or MMBtu): This metric tracks energy consumption and how it is reduced over time thanks to sustainable infrastructure projects. A reduction in energy use can be achieved in various ways, such as installing energy-efficient appliances in a building or creating a stronger building envelope to prevent heating and cooling leaks. Reduction in energy use is typically measured in MMBtu (one million British thermal units), which is a standard unit of measurement for the volume of gas. Tracking this metric is helpful for property owners; developers; engineering, procurement, and construction (EPC) partners; and lenders, among others, because it enables them to see their impact on a community’s energy consumption. Banyan Infrastructure’s platform automatically converts MWh—the metric that companies and developers typically use to measure the amount of energy a project uses—to MMBtu.
CO2e Emissions Avoided: This metric tracks the greenhouse gas emissions that were not released due to creating and operating a carbon-negative or carbon-efficient project. For example, companies can avoid emissions by utilizing renewable energy resources to power a new factory or office building, thereby avoiding the greenhouse gas pollution that would have come from powering that same facility with fossil fuels. Financiers typically use methodologies such as the Environmental Protection Agency (EPA) methodology to calculate this metric.
Public Health Savings: This metric allows financiers to keep track of changes in air pollution and the public health savings associated with clean energy and energy-efficient solutions. Alongside climate change, air pollution from fossil fuels costs Americans $820 billion in healthcare expenses per year. This metric is designed to take in data from the government's COBRA tool, developed by the EPA to help state, local, and Tribal governments estimate the air quality and health benefits of different emissions scenarios, and is universally used by states and local governments as an estimator of a project’s environmental quality. However, it does not replace the high-quality analysis that some regulators require, so financiers should conduct qualifying analyses to stay compliant.
Leveraging Technology for Proactive Metric Management
Banyan Infrastructure’s platform was built to provide a centralized view of your project, portfolio, and fund performance data, with actionable insights to help you better manage risk and performance. Each of the above metrics—plus 40 more financial, performance, and impact indicators, including internal rate of return (IRR), cash flow available for debt service (CFADS), and weather-adjusted forecast—is calculated and tracked within Banyan Infrastructure’s software platform to optimize operational efficiency and ensure reporting compliance. By making these metrics instantly accessible, Banyan Infrastructure software allows for quick decision-making and generates clear, easy-to-read reports.
Impact metrics are a key part of measuring a project's holistic benefit, alongside common project finance metrics like the debt service coverage ratio (DSCR) and cumulative loss rates. By leveraging digital tools like Banyan Infrastructure, portfolio managers and financiers can track and optimize these and other crucial data points to ensure their projects’ success and their portfolios’ growth. And as the project finance market continues to evolve, new impact metrics are regularly added to the Banyan Infrastructure platform, helping financiers not only standardize project finance metrics and best practices but save valuable time.
Ready to upgrade your project finance reporting? Reach out to Banyan Infrastructure today to learn more.