New Funding Strategies Emerging for Energy Efficiency

Many businesses are eager to make energy upgrades and reduce their operating costs. They just don’t have access to the cash needed to do it.

It’s a problem lawmakers both in Minnesota and nationwide are grappling with. As energy efficiency and conservation becomes a top national priority, so is finding innovative and easy ways to finance energy improvement projects.

New legislation sponsored by Minnesota state representatives Jeremy Kalin and John Doll would allow businesses to finance their energy upgrades through their special assessments on their property tax bills. The idea – called “PACE”, or property-assessed clean energy – would let local governments in Minnesota sell municipal bonds and use that money to provide loans for energy improvements that could be repaid through property-tax bills. Businesses or homeowners seeking to use the funding mechanism would be required to get energy audits

"If it costs $10,000 to upgrade your furnace and add solar hot water and there's a five-year payback, you would then amortize that $10,000 over the five years on your property taxes," Rep. Kalin told Minnesota Public Radio.

But while property-tax-based, there are other models of funding being tested and used around the U.S. Here are some other financing models being tested around the U.S.:


- On-bill financing: Some utility providers offer 100% energy-efficiency project financing for small- and mid-sized customers that is then repaid through regular utility bills. 

- “Green leases”: A property owner pays for energy efficiency improvements to a commercial building. The tenants then reap the benefits but also may pay some of the cost through somewhat higher rents. Green leases come in many formats and some carry stipulations for how the tenants must try to conserve energy.

- Local government low-interest loan funds: Some cities, including Portland, Ore., and other local governments are getting in the financing business by establishing low-cost loan funds for residents and/or small businesses.

- Efficiency services agreements: Large commercial and industrial facilities can make energy improvements with no upfront costs by working with an energy-services firm. The energy-services firm covers the entire cost of the energy upgrade and then gets paid back through the realized energy savings created by that improvement. (Read more about how this can work.)

- Managed energy services agreement (MESA): An energy efficiency financier pays for the energy upgrade while the commercial property owner continues to pay the regular, pre-upgrade energy bills. The financier gets paid back through the realized energy savings and then the upgrade belongs fully to the property owner once the upgrade is paid off.

Read an interesting white paper by CalCEF Innovations, a program run by the California Clean Energy Fund, to find out more about new strategies for funding energy efficiency.

What kind of funding mechanism do you think businesses need for energy efficiency?