Develop Finance Mechanisms for Efficiency Investments

While there are many low-cost things that can be done to address the energy efficiency and renewability of our buildings, the improvements that can have the deepest and most drastic energy savings are often the most expensive. Large improvements like heating systems, windows, insulation, or renewable energy systems can save a substantial portion of a building’s energy use but their high price tags keep them out of reach for many homeowners, building owners, or renters. One way we can encourage investment in efficiency and renewables is through innovative and accessible finance mechanisms programs.

When it comes to energy efficiency and renewable energy systems in our buildings, we must adopt a longer timescale to accurately capture the savings from an investment. While a furnace may cost thousands of dollars to initially purchase and install, the system will use significantly less energy over the course of its lifetime than the existing furnace, paying for itself over time. By identifying these longer-term savings, we can design financial tools that allow building and homeowners that lack the initial capital to invest in their properties and save energy and carbon. Moderate- and low-income households, renters, and other vulnerable populations can especially benefit from these programs, especially when they are directly marketed and tailored to specific housing situations.

There are many potential funding mechanisms that can spur development in building efficiency, but two in particular have proven to be effective at increasing access to energy efficiency and renewable energies: On-Bill Financing and Property Assessed Clean Energy (PACE) programs.

On-Bill Financing, also known as Pay-As-You-Save or inclusive financing, is a tool to allow ratepayers to finance energy efficiency improvements through their utility bills. Customers essentially take out a loan from their utility company and pay over time on their monthly bills. Because of the energy savings from the improvement, customer bills should not change drastically, even with their monthly payments.

PACE financing allows property owners to pay off investments in energy efficiency or renewable energy systems through city or county assessments. These longer-term payments are especially useful for financing larger projects like solar arrays that will pay for themselves over their lifetime of power generation, but have a very large initial cost.

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