Published on January 6th, 2015 | by Zachary Shahan2
Energy Efficiency Financing Tools For Cities And Governments
January 6th, 2015 by Zachary Shahan
Originally published on Sustainnovate.
There are tremendous financial benefits to building owners and tenants who implement energy efficiency projects. In fact, energy efficiency improvements are generally much cheaper than any type of electricity generation project on a “levelized cost of energy” (LCOE) basis. (If you don’t know what LCOE is, the point is just that energy efficiency is the cheapest option out there.) However, many can’t do so due to lack of good financing options. A good friend from graduate school who is now working at the Institute for Market Transformation, John Miller, recently worked with Brendan McEwen of the MIT Community Innovators Lab to put together a report on the financing tools that cities and other local governments can use to bring financing to more homes and businesses. It’s an excellent resource that includes financing tools I’ve written about many times as well as ones I had never run across.
Before diving into the heart of the report a little bit, it’s important to understand why this is important. “Numerous studies have noted the tremendous potential for energy efficiency in existing US commercial buildings, and the broader US economy. Estimates by Deutsche Bank Climate Change Advisors and the Rockefeller Group suggest that roughly $72 billion will need to be deployed to achieve all profitable efficiency in existing buildings,” the report notes in the first chapter. But $72 billion doesn’t mean much without some context. Here’s the context: “This investment requirement dwarfs current spending on energy efficiency—Rockefeller and Deutsche Bank estimate that in 2012, roughly $1.5 billion was spent in dedicated project financing for commercial building energy retrofits with turnkey project management by a service provider (RF & DBCCA, 2012).” In other words, we have a long way to go in order to capitalize on the tremendous potential of energy efficiency retrofits. The story is similar in countries around the world.
What is stopping greater investment in energy efficiency projects? Several things, including lack of financing (noted above), a desire of many building owners to have a 2–3 year payback period, and (perhaps most importantly) the fact that building owners are generally the ones who need to make the investment but it’s tenants who actually see the financial benefit of reduced energy bills. There’s a lot more detail in the report on these and other barriers, and it’s an interesting read, so I encourage you to check out the report.
The report breaks down the various financing tools local governments can use to stimulate more energy efficiency upgrades according to whether or not they are market-based tools or financing tools that come directly from local governments. The first category includes: equipment lease financing, energy performance contracts (EPCs), energy services agreements (ESAs), and metered energy efficiency transaction structures (MEETs). The second category includes: energy efficiency investment corporations (EEICs); energy efficiency loan programs; loan loss reserves, interest rate buy-downs, and loan guarantees; property assessed clean energy (PACE) financing; on-bill repayment and financing; tax increment financing; and property tax abatements.
To adequately summarize each of these tools would require… writing a report about them. Obviously, I’m not going to do that when John and Brendan have already done a great job of that. If you are at all involved or interested in this matter, I strongly recommend checking out the free report. I haven’t seen anything else that compares to it.
Image Credit: Bing (CC BY-NC-SA 2.0)
Reprinted with permission.