Project Finance Metrics 101: Impact Metrics
In the sixth installment of Banyan Infrastructure’s Project Finance Metrics 101 series, we highlight a set of measurements unique to renewable energy project finance: impact metrics.
Impact metrics are a series of measurements designed to track a project's holistic impact, extending its accountability beyond just economic performance. From public health to energy equity to climate benefits, these varied benchmarks provide a wide-ranging view of the tangible, everyday impact renewable energy projects can have on communities. As governments and corporations face increasing pressure to define the public benefit of infrastructure projects, impact metrics are fast becoming must-have data for financiers.
The first formalized set of standards and procedures for measuring impact was born in 1969 from the National Environmental Policy Act and documented the socioeconomic impact of large-scale industrial, land-use, and environmental projects. However, these Social Impact Assessments have since evolved. Today, impact metrics are essential for projects seeking to comply with tax credit requirements and corporate sustainability goals, meaning this data is no longer a nice-to-have but a crucial piece of reporting and compliance. For example, the Inflation Reduction Act (IRA) offers tax credit bonuses for renewable energy projects built in low-income communities. At the same time, large sections of the $27-billion Greenhouse Gas Reduction Fund (GGRF) are explicitly dedicated to closing the energy equity gap in disadvantaged communities. But how do you prove your project meets the requirements to take advantage of these programs? Compiling and reporting the appropriate data can mean the difference between accessing this influx of capital and not.
Key Metrics
When choosing which impact metrics to track, financiers should determine their economic, environmental, and social goals. Having a clear idea of how your organization will measure the success of its projects — and what other stakeholders will require for compliance — is essential in deciding what metrics to prioritize. Below are some metrics you could track to show local- and project-level impact.
Reduction in Energy Use (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, which stands for one million British thermal units and 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 other stakeholders, because it enables them to see their impact on communities’ energy consumption. Further, this metric is a requirement for GGRF reporting, making it a must for stakeholders accessing this public capital. Banyan Infrastructure’s platform automatically converts MWh—the metric companies and developers typically use to measure the amount of energy a project uses—to MMBtu.
CO2 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. While there is some concern around the calculation of this metric, Banyan Infrastructure’s impact calculator utilizes the Environmental Protection Agency (EPA) methodology to derive its numbers, so stakeholders can be certain they are using a verified source to calculate and report emissions.
Projects Financed in Disadvantaged Communities: This metric looks at whether or not a project is built in a disadvantaged community, which the U.S. government defines 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. This measurement has become especially important in post-IRA project finance because the Biden administration’s Justice 40 initiative aims to direct 40% of federal clean energy investments toward projects in disadvantaged communities. 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 who face a higher burden on energy bills. However, recent programs like the IRA’s Low-Income Communities Bonus Credit now direct millions of dollars into energy and money-saving upgrades such as heat pumps and solar panels for this type of housing. 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 (LIDAC), which is required under the GGRF.
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, according to a 2021 Natural Resources Defense Council report. 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 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 impact and ensure reporting compliance. By making these metrics instantly accessible, Banyan Infrastructure software allows for quick decision-making and report generation.
As more and more funding enters the market, leveraging digital tools like Banyan Infrastructure will be crucial for financiers seeking to accelerate the deployment of sustainable infrastructure capital. The EPA estimates that managing and compiling compliance reports for the GGRF alone could require anywhere from $1.6 million to $10.8 million a year in overhead costs — and several of the program’s recipients believe even that is an underestimate. Banyan aims to save customers valuable time on these tedious reporting requirements while providing insightful visualizations to determine the health of projects and help financiers make more informed decisions faster.
With other standard project finance metrics like the debt service coverage ratio (DSCR) and cumulative loss rates, impact metrics are a key part of measuring a project's holistic benefit. By leveraging a digital solution like Banyan Infrastructure, project managers and financiers can track and optimize these and other crucial metrics to ensure their projects’ success and their portfolios’ growth.
Stay tuned to our blog series, Project Finance Metrics 101, to gain deeper insights into the metrics that drive successful project finance.