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 Model||How It Works||Benefits||Learn More|
|Energy 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.||US Department of Energy|
|Property 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.||PACE Now|
|On-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.||American Council for an Energy Efficient Economy|
|Green Bonds||Like 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.||U.S. Green Building Council|