Whether the objective is to achieve Net Zero or simply to get started with energy improvements, how to fund the work is an important piece of the puzzle. For commercial, industrial, retail, healthcare, K-12, higher ed and multi-family residential properties, there is good news! Several different funding options exist to help move a building forward on its energy efficiency journey.
To get started, let’s do some defining:
- Who is this for? Everyone! Any owner-occupied or leased space ‘project’ doing energy efficiency improvements can utilize this information.
- What projects qualify? The scope could be an HVAC replacement, upgrades to motors and drives, or a moderate rehab (roof replacement or new windows and doors, for example). It could also be as extensive as new construction or major renovation + addition. We’ll elaborate further below.
- What is Net Zero Energy? Net Zero Energy is achieved when the amount of energy used is equal to the amount of renewable energy produced on-site. Please read our Net Zero part 1 and part 2 blogs to get a deeper understanding--while they were written specifically about manufacturing, our clients from software companies to universities are regularly asking the Net Zero question.
Financing for Net Zero
So, if you are considering how to get started--new lights, new windows, new AC, new roof, new boilers, new chillers, new whatever-that-affects-your-energy-consumption (electric and gas)--how to pay for it is likely a burning question. We can skip over the easiest (pay cash), and focus on six options for you to consider:
Policy Incentives: If you DESIRE specific information, we recommend checking out the DSIRE site--a comprehensive source of information on incentives and policies that support renewables and energy efficiency. It has been around for more than 25 years and is operated by the NC Clean Energy Technology Center at North Carolina State University. This site offers guidance on grants and incentives such as loans, tax abatements and more for specific improvement categories. It’s a great place to start to see what’s available in your region.
Traditional Financing with Green Incentives: Many banks and lending institutions offer preferable rates for loans that include paybacks from energy efficiency. Ask your lender about opportunities to save on your terms with green incentives. Included in this option are special programs for HUD Loans for multi-family housing.
On-Bill Financing: In states with deregulated electric and gas markets, this option is available for commercial contracts. Many suppliers offer on-bill financing, where the cost of your project is paid for over a period of time (usually less than 7 years). Terms of financing depend on several factors, yet traditionally include a supply contract with the financing entity. On-Bill financing is available from both gas and electric suppliers.
Energy-as-a-Service: Deloitte defines Energy-as-a-Service (EaaS) as a delivery model that combines hardware, software, and services. The chief benefit for the consumer is in the simplification of an increasingly multifaceted service offering. In this scenario, the EaaS provider owns the equipment installed at your location and maintains it during the life of the service agreement. Payback for efficiency is included in the service contract. The payback period for EaaS is traditionally longer than on-bill financing.
Performance Contracting: Unlike the EaaS model where the provider owns the equipment, in the Performance Contracting model, the Energy Service Company (ESCO) develops, designs, builds and arranges financing for the project. The ESCO assumes technical and performance risk, and debt payments are tied to the energy cost savings guaranteed for the project. Performance Contracting often is used for projects too large for EaaS.
PACE Financing: Property Assessment Clean Energy programs allow a property owner to finance the up-front cost of energy or other eligible improvements on a property and then pay the costs back over time through a voluntary assessment. The unique characteristic of PACE assessments is that the assessment is attached to the property rather than to an individual. The assessment goes on the property’s tax bill and remains with the property if sold. While many jurisdictions allow both commercial and residential PACE financing, federal regulations on mortgages limit the availability of this financing for single-family residential properties – it is available, however, for multi-family properties. We see PACE used on large renovation and new construction projects and smaller item-specific projects, such as a roof replacement with solar install. If interested in PACE, research both public and private lending opportunities in your area.
Getting Started
Before you decide which financing vehicle is right for you, be sure you’ve done your homework on what your building needs. Is your goal simply energy reduction, or is there a broader risk category you are looking to manage? With an ASHRAE Level 2 Energy Audit (often required for any of the financing mechanisms), you will receive an evaluation on your current energy profile and specific recommendations with pay-backs to meet your organization’s goals. Let us help you get started!
Bonus Video!
You can also learn more by watching our video on this subject, Paying For a Cleaner Future. As policies to mitigate greenhouse gas emissions roll out globally, business operations are shifting to help guide the world toward a cleaner, more sustainable future. If you own or lease space and want better energy performance, we can help you investigate ways to fund the work. We explore PACE financing as a finance tool.
