9 Ways to Finance A Renewable Energy or Energy Efficiency Project
Nine solutions to financing a renewable energy or energy efficiency project:
1. Power Purchase Agreement
A contract between two parties that enables a company (the seller) to install and own a renewable energy system on a client's (the buyer) site. The client agrees to pay for the energy as it is produced at a rate agreed upon in the contract for a set period of time instead of making a large investment upfront.
2. State and Municipal Revolving Loan Funds
A state or municipal pool of funds that capitalize a loan fund managed by the state or municipal government; loan repayments recapitalize the fund to allow additional lending on an ongoing basis.
3. Third Party Loans
A loan program administered by a third party such as a financial institution that is targeted at energy efficiency or renewable energy improvements. This can be a bank or a private investment group.
4. On-Bill Repayment
Clean energy improvements are repaid as part of the utility bill; this can be a personal or business loan, or it can be attached to the meter so that repayment transfers with tenancy.
5. Energy Savings Performance Contracting (ESPC)
An ESPC is a partnership between an energy services company (ESCO) and its customer formed for the purpose of financing and implementing cost-saving energy-efficiency improvements. The ESCO pays the up front cost of purchasing and installing new equipment, and the customer repays the ESCO over the life of the contract from the cost savings resulting from the project. The original capital used to finance the needed upgrades is typically secured from municipal leases, bonds, revolving loan programs, etc.
6. Property-Assessed Clean Energy (PACE)
Allows clean energy improvements to be repaid via an assessment on the property tax bill; the repayment obligation and savings transfer with ownership.
7. Energy Efficient Mortgages (EEM)
A mortgage that credits a home's energy efficiency in the mortgage itself. EEMs give borrowers the opportunity to finance cost-effective, energy-saving measures as part of a single mortgage and stretch debt-to-income qualifying ratios on loans thereby allowing borrowers to qualify for a larger loan amount and a better, more energy-efficient home.
8. FHA Power Saver (PowerSaver)
This is a new mortgage insurance product from the Federal Housing Administration (FHA) that will help lenders offer credit-worthy borrowers low-cost loans to make energy-saving improvements to their homes. This program supports loan amounts up to $25,000 for terms as long as 20 years.
9. Qualified Energy Conservation Bond (QECB)
A tax credit bond used to fund energy conservation projects. It is a bond that a borrower pays back the principal on the bond and the bondholder receives federal tax credits in lieu of traditional bond interest payments.