11 Ways to Unlock $150B in Energy Efficiency Financing
11 Ways to Unlock $150B in Energy Efficiency Financing
In today's tight-money environment, energy efficiency financing hovers around $20 billion. But that could grow to as much as $150 billion a year if businesses, banks and other institutions would work together more strategically to unlock funds for green building, according to Capital-E.
Investment at that high level over a decade could lead to savings of $200 billion a year for U.S. businesses and households, in addition to creating more than a million full-time jobs, says a new report from the consulting firm that specializes in cleantech energy innovations and green design.
"This investment gap represents an enormous opportunity to strengthen the economy, increase competitiveness of U.S. businesses while creating jobs and strengthening exports," the report says. "The critical step to close this gap is to make EE financing a mainstream financial asset class with a high degree of standardization, predictability and scale."
Capital-E's report, prepared for the Energy Foundation, explores 11 mechanisms for energy efficiency financing, takes a look at the firms that have put them to work, summarizes pros and cons for each, and offers its view of what it will take to scale up those practices to achieve full investment potential.
Here are the 11 models detailed in the report:
1. Energy Savings Performance Contracting, in which government agencies, hospitals, universities, schools and other entities pay for energy efficiency improvement using savings that result from the work. We've reported on Johnson Controls' and Honeywell's business in this area on GreenBiz. The report highlights efforts by those companies as well.
2. Energy Services Agreements, which build on the idea of power purchase agreements. Such arrangements are frequently seen in solar power installation projects at retailers, schools and hospitals. The firms host solar arrays on their rooftops and benefit from negotiating lower energy rates with the outfits that install, own and maintain the systems and get rights to the electricity they produce. Kaiser and Walmart are among the companies that have installed solar power systems using PPAs.
3. State/Municipal Loan Programs. The programs take several forms and state programs, administered by energy departments, are among the most common. The initial funding pool for such programs can come from the general fund, federal grant allocations or ratepayer funds.
4. Sustainable Energy Utilities, which are set up to administer financing programs, offer technical assistance and provide financial incentives to building owners. Such entities are designed to implement efficiency measures and support renewable energy installations.
5. Carbon Market Funding. The growth of energy management and demand response firms like EnerNOC, Tendril and Efficiency 2.0 are examples of this "new and fast growing pathway to motivate and guide energy efficiency," according to the report.
6. Mortgage-Backed EE Financing. Examples include an energy efficient mortgage, which can provide further borrowing capacity or better terms to borrowers who are buying an energy efficient home or want to make energy improvements in their current home.
7. Preferential Terms for Green/EE Buildings. Though few lenders have programs that recognize the greater value and diminished risks associated with green buildings, insurance firms have. Fireman's Fund was the first to provide green insurance in the commercial market and has steadily expanded its offerings for residential and commercial properties, improvements and vehicles.
8. Utility On-Bill Financing. In such arrangements, the utility, or a third-party financier, cover upfront costs for upgrades and customers repay the investment through a monthly charge on their utility bills.
9. Property Assessed Clean Energy (PACE) for Commercial Properties. The property-assessed clean energy program enables property owners to accept a voluntary tax assessment to repay upfront financing of energy efficiency and renewable energy improvements. Though stymied for residential properties, this mechanism is alive and well for commercial buildings. As GreenBiz recently reported, the city of San Francisco launched a PACE program for commercial buildings earlier this month. And the Carbon War Room has devised a plan to update the commercial PACE model so that it relies on private capital.
10. Property Assessed Clean Energy (PACE) for Residential Properties. Objections by the FHFA, Freddie Mac and Fannie Mae put the residential program on ice indefinitely. To revive the program, the report says it's necessary to "demonstrate to home loan banks that energy reductions created by PACE-funded retrofits are NOI positive (loan repayment < energy savings) and therefore enhance a borrower's ability to pay. Pursue federal legislative or executive action to resolve the FHFA opposition."
11. Unsecured Consumer Loans. Residents often turn to one of three types of unsecured consumer loans to pay for less capital intensive energy efficiency retrofits: credit card financing, contractor liens and unsecured home improvement loans. "For unsecured efficiency loans to scale, mechanisms must exist to aggregate and sell loans to secondary markets," the report says. The Warehouse for Energy Efficiency Loans, called the WHEEL program, is being developed by the Energy Programs Consortium and Pennsylvania Treasury Department to aggregate and sell a portfolio of loans to capital market investors, the report notes.
Capital-E's report, "Energy Efficiency Financing -- Models and Strategies," is available for free download at
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