Energy Project Finance: 4 Steps to Success

Building owners are on the hunt for environmentally impactful and financially profitable energy efficiency projects. They've never had more ways to satiate their appetite.

From ESAs to PACE, the plethora of green financing options has unlocked a bonanza in energy project finance. But to make the most out of these new finance tools, building owners must also get accustomed to a new set of rules. Follow the rules and Other People's Money becomes available to finance your project development and ongoing maintenance costs.

Here's how it works: savings realized from an energy project are used to pay back project costs. Banks like Deutsche Bank are ponying up huge pots of money to finance quality projects. This means building owners are no longer on the hook to front project costs. The catch is the viability of these financing structures is predicated upon proving savings are real. This is done through a regime of measurement and verification, "M&V" in industry lingo.

Whether calculating "avoided resource consumption" under an energy services agreement (ESA) or ensuring an energy savings performance contract (ESPC) meets its guarantee, green financing requires a complete and accurate M&V process. Because the savings of an efficiency project are wildly difficult to measure (no pun in intended...), many companies adhere to an internationally recognized protocol such as International Performance Measurement & Verification Protocol, which defines best practices for quantifying the results of an energy efficiency project.

While there are many ways to fund an efficiency project, and even more approaches on how parties should agree to split the benefits of that project, here are four steps for ensuring project success.

Where to start How it helps funding What to do Learn more
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Investment-Grade Baseline

Quality historical data and third-party review of the baseline against which savings will be compared give investors comfort a project is worth funding.
  • Aggregate utility data to determine how operations and technologies affect consumption
  • Identify and remediate erroneous or missing data to determine
  • Hire a third-party to review your baseline and establish a M&V standard
ENERGY STAR: Investment-Grade Audit
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Measurement Plan

Typically developed during financing negotiations, a measurement plan confirms both parties understand how performance savings will be quantified.
  • Detail baseline conditions, data sources, measurement boundaries, and what needs to be verified
  • Document adjustment factors (weather, occupancy, etc.) and establish a process for non-routine adjustments to your baseline
  • Detail assumptions, utility rates, and methodology for calculating energy/cost savings
Example Measurement and Verification Plan
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Savings Verification

Designating an individual or agency responsible for carrying out savings verification, gives both parties confidence in quantified savings.
  • Estimate energy savings for each energy conservation measure (ECM) and key parameters effecting uncertainty
  • Perform inspection of ECM to ensure proper installation and on-going monitoring
  • Continuous and automated monitoring helps maintain ECM efficacy
International Performance Measurement & Verification Protocol
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Disclosure

Reviewing project performance on predetermined intervals helps both parties maintain contact for the life of the performance contract.
  • Establish routine intervals for verifying and disclosing project performance
  • A consistent reporting format provides structure and transparency when reviewing project performance
  • Institute a procedure for both parties to conduct prompt review of each performance disclosure
Post-Acceptance of Energy Savings Performance Contracts

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