Upfront costs are often cited as a major barrier to getting energy efficiency projects done. Many organizations cannot spare the capital required to pay for the equipment, installation and servicing of energy efficiency and renewable energy upgrades out of pocket. Even those with access to cash may prefer to spend it on their core operations as opposed to a project that they view as “optional.” Despite demonstrated savings and the low-risk nature of investments in energy efficiency and renewable energy, these projects can face significant barriers to financing. These barriers are due in part to poor market information and education regarding financing solutions.

While the U.S. is experiencing an era of exciting growth in energy finance – including the rise of models like Efficiency-as-a-Service, Property-Assessed Clean Energy (PACE), and Power Purchase Agreements (PPAs) – many building owners still struggle to find the capital they need and financial products that work for their specific situation and location.

To provide better information for end users, the Department of Energy (DOE) recently released version 2.0 of the Better Buildings Financing Navigator. This online tool helps public and private sector organizations find financing solutions for energy efficiency and renewable energy projects. Since 2017, the tool has helped nearly 10,000 users understand the array of financing solutions available in the market as well as refine and explore which options may be best for them. The updated Better Buildings Financing Navigator expands and improves upon the previous iteration of the tool, adding renewable energy financing options such as power purchase agreements and solar leases, a database of financing providers that can be searched and filtered, sector-specific and location-specific financing resources, updated market data, and more.

Common Barriers to Financing

In the broadest terms, "financing" means using someone else's capital to fund projects in your facilities and then paying them back over time. Despite a large investment opportunity and increasingly available capital, many potential energy projects do not receive the funding required for implementation.

There are a few common reasons for why businesses struggle to access financing for clean energy and energy efficiency projects:

• Many organizations have a limited understanding of the financing solutions that are available to them, and they do not know where to look for information.
   
• Oftentimes the resources that do exist are inaccessible, too technical, or are fragmented and require extensive research to confirm they meet an organization’s investment criteria.
   
• Personnel in charge of energy projects have limited time or expertise to shop around for financing.
   
• It is difficult to locate providers of a specific financing solution due to a lack of centralized information on provider offerings.
   
• Often, the individuals responsible for project implementation do not have the authority to enter into financing arrangements without the consent of executive management. This creates issues such as extended timelines for project execution, additional evaluation of the proposed financing, or potentially a flat refusal to continue the process of securing financing.
   
• Split incentives. When the parties responsible for paying energy bills (tenants) are not the same as those making the capital investment decisions (the landlord or building owner), the landlord may not be inclined to initiate building upgrades or projects when the resulting energy cost savings accrue to the tenant. This is a situation that affects a significant portion of commercial buildings in the US.
   

Diverse Array of Financing Options Now Available

As demand for energy efficiency and renewable energy financing has grown, the diversity of financing options available in the marketplace – and the number of companies that provide them – has grown as well. In the last decade, there has been a tremendous increase in the number of lenders offering products for clean energy projects, and many existing banks and lenders have innovated their product offerings in response. The current financing landscape can be summarized by categorizing financing options into two main buckets: traditional and specialized.

Traditional financing options, such as leases and loans, are commonly used to finance a variety of projects - including those focused on energy. These options have existed for many years and are typically well understood by both lenders and consumers. Although exact figures are difficult to quantify, the current market size for leases and loans is very large and these options are among the most common mechanisms for financing clean energy.

While traditional financing options have historically financed a large majority of projects, these simple structures often do not account for some of the unique challenges that energy efficiency and renewable energy projects face such as split incentives, performance risk, or third-party ownership. An emerging trend in the market is the use of specialized financing options tailored specifically to help consumers overcome these barriers that traditional options typically do not address.

Property assessed clean energy (PACE) financing is a structure in which building owners borrow money for energy efficiency, renewable energy, or other projects and make repayments via an assessment on their property tax bill. The financing arrangement then remains with the property even if it is sold. The transferability of PACE loans allows building owners to facilitate long-term investments in building performance without concern for

a debt burden if the property is sold before the PACE term is complete. PACE can also overcome the tenant/landlord split-incentive problem through aligning incentives for landlords and tenants, as both the tax assessment and cost-savings from the project can be shared with tenants under most lease structures.

Power Purchase Agreements and savings backed arrangements such as energy savings performance contracts (ESPCs), and efficiency-as-a-service involve a service provider (rather than the building owner) assuming the performance risk of an energy efficiency or renewable energy project by guaranteeing a certain amount of savings or level or operational performance. This immediately alleviates the need for upfront funding on the part of the building owner and allows them to make the payments as an operating cost instead of a capital outlay.

On-bill financing (OBF) and repayment (OBR) are financing options in which a utility or private lender supplies capital to a customer to fund energy efficiency, renewable energy, or other generation projects and is repaid through regular payments on an existing utility bill. The benefits of OBF/OBR include low-to-zero interest rates, streamlined repayment, availability for leased space, and structural flexibility that allows for repayment obligations to be passed along to future tenants. Utilities can also bundle financing with incentives such as rebates and tax credits to reduce the need for financing and lower payback periods. However, OBF and OBR are only available in regions where utilities support on-bill programs.

While the expansion of available financing options and providers mean that there is a greater potential for funding energy projects, it also adds complexity to the process of gathering information and many organizations don’t have time to wade through scattered resources in an attempt to understand and compare all of the available options. This is where the Better Buildings Financing Navigator comes into play.

Making Sense of It All: The Better Buildings Financing Navigator

Developed as part of DOE's Better Buildings Initiative, the Better Buildings Financing Navigator offers unbiased assistance to users in a few key areas. This recently updated tool helps users seeking to learn more about the basics of the energy efficiency and renewable energy financing landscape. The tool’s “Explore” section features “everything you need to know and nothing you don’t” fact sheets on each financing option and a new compendium of sector-specific financing resources. The Navigator also includes a browse section where users can compare financing options across different attributes such as balance sheet treatment, contract complexity, typical close time, and more. These tools and resources help to simplify the diverse financing landscape and provide guidance to users on the options available to them in a straightforward manner.

Users with specific projects in mind can answer a few simple questions about the opportunity and their preferences to see which financing options might be a fit for them; users can easily see how each option matches to their preferences and compare pros and cons.

The Navigator also connects users to the larger Better Buildings Financial Ally community, which includes banks and lenders that are committed to investments in energy and are actively pursuing new opportunities to finance projects. Version 2.0 of the Better Buildings Financing Navigator features a filter that allows users to search for the right financing partner based on products offered, sectors served, technology types financed, and the region in which they work.

The Better Buildings Financing Navigator is located on the Better Buildings Solution Center. The Better Buildings Initiative encourages collaboration between public and private sector organizations across the country to share and replicate successful strategies with the overarching goal of making commercial, public, industrial, and residential buildings 20 percent more energy efficient over the next decade. This means saving billions of dollars on energy bills while accelerating America's investments in energy infrastructure and creating thousands of jobs.

More than 900 Better Buildings partners are sharing their innovative approaches and successful strategies to accelerate the adoption of energy efficient technologies; discover more than 1500 proven solutions in the Better Buildings Solution Center.