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Top 4 Green Financing Mechanisms

One of the traditional objections to sustainability projects is “who’s going to pay for it all?” Cash strapped companies have tended to shy away from all but the highest yielding sustainable investments like lighting, sidelining more expensive, deeper building retrofits that take years to pay back. But in 2012 when Deutsche Bank and the Rockefeller Foundation issued their seminal paper on the $1 trillion in energy efficiency opportunities locked up in America’s buildings, they ignited a rush to unlock that potential.

Since 2008, the World Bank has issued about $8.5 billion in green bonds in 18 currencies, and the International Finance Corporation has issued $3.7 billion in green bonds.

Now there’s a large and growing appetite for big projects fueled by impact investors, tax-credit hungry banks, and alternative finance companies. Their weapons of choice – on-bill financing, energy services agreements, property assessed clean energy bonds, and now green bonds, are designed to overcome traditional obstacles to implementing retrofits. Here’s some of the top green financing vehicles on the market now.

Financing ModelHow It WorksBenefitsLearn More
receipt-2Energy Services Agreement (ESA)Similar to a power purchase agreement (PPA), an ESA is service agreement developed by a third party who arranges the installation of energy efficiency measures in return for an agreed upon service fee — typically a percentage of realized savings.
  • Payment is based upon actual energy savings
  • Project host has no operational or maintenance responsibilities
  • Third party is incentivized to produce energy savings
US Department of Energy
bank-2Property Assessed Clean Energy (PACE)In areas eligible for PACE assessments, building owners get energy efficiency funding in exchange for a tax assessment levied against the property. The lien is collected along with property taxes.
  •  Lien’s senior tax status is attractive to investors and enables a competitive interest rate
  • Terms correspond to payback period for project
  • Change in ownership transfers repayment burden, overcoming typical holding-period objections
parking-meterOn-Bill Financing / Repayment (OBF/OBR)For OBF/OBR, a building owner uses utility or third party capital for energy efficiency projects. Repayment is handled on the customer or building owner’s utility bill.
  •  Eliminates need for initial project capital
  • Aligns repayment burden with realized energy savings
  • Flexible structure for diverse customers, market segments, and incentives
American Council for an Energy Efficient Economy
hand-coinGreen BondsLike traditional bonds, green bonds are a type of debt financing. The difference is that projects and borrowers are required to meet specific sustainability criteria such as green building certification, energy reduction, or other sustainability risk factors.
  • Attractive option for fixed-income investors
  • Repayment is flexible — typically linked to revenue streams or asset value.
  • Well suited for capital intensive projects with longer investment horizons.
U.S. Green Building Council




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