Barriers to Energy Efficiency Financing: The New State of Things

As the idiom says, “money talks.”  This is still true at a time when energy efficiency has been shown to have a strong, if sometimes lengthy, return on investment. Regardless, it’s no surprise that first cost financing challenges continue to be a key market barrier in the widespread implementation of energy efficiency projects. Unlike the renewable energy industry, which has been successful in communicating the value—both economically and environmentally—to elected officials and financial institutions, the energy efficiency sector has had a harder time making the case.NBI’s Amy Cortese attended last month’s Energy Efficiency Financing conference hosted by the California Energy Efficiency Industry Council, which brought together energy efficiency, financing and policy experts. They met to explore existing financing mechanisms, identify opportunities and challenges, contrast state and federal experiences, as well as examine financing from the private investor standpoint. Attendees and panelists also debated the future of public policy in the realm of energy efficiency.Discussions emphasized the fact that while many financial institutions are interested in energy efficiency financing, they are faced with numerous challenges including: a lack of value information and expertise about how to underwrite projects; understanding of how energy efficiency, or “projected energy savings,” will pay off; critical mass to overcome transactional costs; and aggregation of projects for improved viability in the private equity markets. Many of the other challenges mentioned include those that are also shared by the energy efficiency industry itself— including fragmentation of the sector, a lack of project uniformity, the level of public subsidy, owner/tenant turnover, and difficulty showing energy efficiency impacts on real estate values.

In fact, there are at least 11 eleven energy efficiency financing techniques currently being used including: Direct Loans,  Property Assessed Clean Energy (PACE),  On-Bill Financing, Energy Loan Funds, Energy Saving Performance Contracts, Public Loan-loss Guarantees / Reserving,  Rate Recovery Bonds, Qualified Energy Conservation Bonds, Tax Credit Bonds, Tax exempt Leases, Local Government Financing Programs.If that doesn’t complicate energy efficiency for a reticent market, what will?