Thursday, November 10, 2011

Energy efficiency financing has potential to soar from $20 to $150 billion annually, creating over one million American jobs, according to new report - Mobilizing large-scale financing by public sector is key to reducing emissions and saving businesses, households money

A newly issued report details the immediate opportunities available for private sector investments in energy efficiency projects. “Energy Efficiency Financing: Models and Strategies,” issued by Capital-E, explains the popular financing strategies employed by policymakers and private investors alike, and concludes that opportunities for financing $150 billion annually in energy efficiency projects over the next 10 years would cost-effectively make the American economy more competitive, enhance national security, and help slow the impacts of climate change.

“Energy efficiency is the largest, cheapest, safest, and cleanest way to provide energy services,, and making investments now in building efficiency will create jobs, save money for consumers and businesses and reduce emissions,” said Jason Hartke, Vice President, National Policy, U.S. Green Building Council (USGBC).  “With clarity and resonance, this new report shows how these financing strategies can drive energy efficiency improvements and accelerate uptake into new and emerging markets.”

The report, developed by Capital-E in association with American Council for an Energy-Efficient Economy (ACEEE), Appraisal Institute, Citigroup, JPMorgan Chase and the National Association of State Energy Officials (NASEO), evaluates over a dozen financing models. To access the report, visit

U.S. Green Buildings Council (USGBC)
Press Release dated October 26, 2011

The full report is available free of charge at Efficiency Financing - Models and Strategies.pdf

Increasing energy efficiency financing represents one of the largest and most important opportunities for the US to expand economic growth and job creation. Relative to almost all other investments, it cost effectively creates more distributed jobs, reduces energy costs for businesses and households of all income levels, cuts air pollution and enhances domestic security.

The potential for cost-effective energy efficiency (EE) investments in the US is on the order of $150 billion a year1. Investment at this level would, within a decade, save American businesses and households $200 billion annually and create more than 1 million new full time jobs. After decades of public and private support, however, current energy efficiency financing is only about $20 billion per year, less than one-fifth its cost effective potential. This investment gap represents an enormous opportunity to strengthen the economy, increase competitiveness of US businesses while creating jobs and strengthening exports. 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. Leading financial institutions recognize the opportunity to develop financial products in this area and are increasingly committed to expand financing for energy efficiency. To do so, banks are seeking to develop efficiency performance data and build scalable efficiency financing models.

For building owners, energy efficiency offers the opportunity to lower operating costs, increase occupancy, enhance building quality and increase financial returns. Standards such as LEED and Energy Star reflect and foster increasing interest in making buildings greener and more energy efficient. However, the vast majority of EE opportunities remain unfinanced due to split incentives, insufficient credit and limited data, among other reasons.

The Obama Administration, with Congressional authorization, has invested billions of dollars into energy efficiency as part of its stimulus funding. This funding, however, peaks by the end of 2011 and will disappear  in 2013. A recent approach to rapidly expanding EE funding, called the PACE program (Property Assessed Clean Energy) prompted over 20 states to pass legislation allowing cities to use liens on home value to enable community-wide EE funding. Objections by the Federal Housing Finance Agency (FHFA) and others have, in the view of most experts, largely closed this PACE option for residential efficiency financing. The large unmet opportunity, the imminent reduction of federal EE funding and the demise of residential PACE make the need to develop scale efficiency financing imperative.
In late 2010, the Energy Foundation engaged Capital E to better understand the existing and potential models/mechanisms to scale EE financing and their potential to dramatically expand and more efficiently deploy private capital in the space. Capital E has been working closely with 30 private, public and NGO partners to identify and co-develop the most promising mechanisms to scale efficiency financing over the next three to five years. As part of the May, 2010 annual ACEEE Energy Efficiency Finance Forum, Capital E ran a highly-structured meeting of 25 leaders from banks, regulatory agencies, project developers and industry organizations to co-design new mechanisms for energy efficiency financing. Findings from this on-going collaborative work have been captured in this report, which is intended to provide a succinct, structured description of existing and emerging models and strategies for energy efficiency financing. The structured format and links to best available documents and studies are intended to facilitate understanding and application of best practices in energy efficiency financing. In addition to narrative explanations, this document contains summary tables of models and strategies.

The first phase of this work was a survey of literature to identify the viable, existing and potential strategies to scale EE financing. This report draws from and seeks to build upon the large body of often excellent, ongoing work and analysis by banks, national laboratories, NGOs such as the American Council for an Energy-Efficient Economy (ACEEE) and the Alliance to Save Energy, Federal/State agencies, think tanks and others. A range of experts have contributed to and have helped shape this document.
This report provides a structured and succinct summary of energy efficiency financing models and strategies applicable to the Residential (R), Commercial (C), Industrial (I) and the Federal/Municipalities, Universities, Schools and Hospitals - MUSH (F/M) sectors, including links to some of the best current literature on each of the models or strategies described. For the purposes of this analysis, models are defined as arrangements amongst institutions and market players to finance and implement energy efficiency projects. Strategies are defined as tools to scale efficiency financing which bring down capital and/or transaction costs and increase the deployment of funding to efficiency projects. The following models and strategies are reviewed and summarized in this document.

1. Energy Savings Performance Contracting (ESPC)
2. Energy Services Agreements
3. State/Municipal Loan Programs
4. Sustainable Energy Utilities
5. Carbon Market Funding
6. Mortgage-Backed EE Financing
7. Preferential Terms for Green/EE Buildings
8. Utility On-bill Financing
9. Property Assessed Clean Energy (PACE) - Commercial
10. Property Assessed Clean Energy (PACE) – Residential
11. Unsecured Consumer Loans

1. Intermediary Aggregated Scale Purchasing
2. Revolving Loan Fund
3. Preferential Loans
4. Risk Reallocation
5. E-Loan
6. Point of Purchase Interest Rate Buy-down
7. Re-Align Incentive Structure

The review describes each model and indicates its limits to scale, sources of funds, program administration structure, repayment vehicle and project risk allocation. The analysis summarizes the level to which a model is currently being deployed, its potential to enable large investments in energy efficiency, as well as market-enabling actions that could facilitate greater investment. Strategies are described, best-case examples provided and applicable models are identified. The order in which the models and strategies are displayed in this report does not reflect potential or preference. Energy Service Performance Contracting is listed first due to its widespread adoption, while subsequent models are clustered to reflect similarity.

Analysis and key stakeholder co-development has informed the identification of new financing mechanisms that could potentially drive additional billions of dollars in energy efficiency financing within a three to five year time frame. Using the results of this report and on-going collaboration, Capital-E is co-developing mechanisms with key private and public stakeholders. These mechanisms include:
 Green Ginnie Mortgage Backed Securities (MBS)
 Making Energy Efficiency a Standardized Asset Class
 CO2 to Energy Efficiency (EE)
See for more information.

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