Funding Energy Efficiency Projects February 8, 2010

There are several ways to fund energy efficiency projects, but none of them seem to be particularly any good in today’s economic climate. Even though reducing energy use in buildings is usually achievable, most property managers cannot utilize those savings on their corporate balance sheets. Also, most commercial mortgages will not allow building owners to take on additional debt. As more and more building owners are interested in spending money to save money in their buildings, how can it be financed?

There are several newer options for financing energy efficiency.projects. One is the green lease, which offers incentives to invest in energy efficiency. One problem with the green lease is that it works primarily for new leases: most landlords do not want to disrupt an existing lease. So this option will take some time to get into the marketplace.

Another option is the use of Property Assessed Clean Energy Bonds, or PACE bonds. These are municipal bonds associated with a property tax lien to provide the financing of an energy efficient project. If the building is sold prior to the financial payback period of the project being finished, the cost is transferred to the new property owner via the property tax. This is very new and many municipalities do not allow it, and many landlords still do not favor it. To date, it has been used primarily for renewable energy projects.

A third option is the Managed Energy Services Agreement (MESA). This solves the problems of the first two financing options by committing a landlord to pay the historical energy use while the energy efficiency supplier is responsible for paying the actual monthly energy bill. There are no liens or debt on the building, and at the end of the term, the building owner owns the energy efficient equipment and gets the benefit of the reduced monthly bills.

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