Customer access to affordable sources of financing can be an important part of successfully converting interest in your program into a completed home energy upgrade. Financing can help homeowners afford an energy upgrade by allowing them to pay for the improvements incrementally over time. The financed costs of energy upgrades may even be partially or entirely offset by energy cost savings from the installed measures during the loan repayment period.
While many contractors have used financing to increase the sales of all types of home improvement projects, recently contractors have begun using financing to drive the sale of home energy upgrades. In the past, the energy efficiency industry relied primarily on rebates that pay for part of the cost of the energy upgrades to drive uptake. Financing applied to energy upgrades is a strategy that has begun to take hold over the last several years, with major new financing initiatives in California, Kentucky, Michigan, New York, Oregon, Pennsylvania, and many other states.
Financing can offer some key benefits to your program:
- Financing allows your customers who don’t have “cash in hand” to purchase energy upgrades, increasing overall uptake of energy efficiency measures in your community. Unlike rebates, financing can cover the full cost of an efficiency upgrade.
- Financing allows your customers to purchase higher-cost upgrades than they might otherwise find possible, which can result in deeper energy savings. Early analysis of Recovery Act grantee finance programs show that those customers using financing consistently install larger projects with deeper energy efficiency savings than those without financing. With long term, fixed rate financing, consumers can benefit from low monthly payments.
- Financing can help your contractors offer customers low monthly payments to make upgrades more affordable, thereby improving contractor closing rates. Financing also helps contractors expand the scope of work offered to customers and sell larger jobs.
Financing does, however, have limitations, and is not by itself a robust enough tool to make a residential energy efficiency program successful. Specifically:
- Financing alone is not enough to increase demand. The primary barrier to energy efficiency adoption is often low customer demand for upgrades, not access to attractive capital. Homeowners must first be sold on the benefits of home energy upgrades before they become interested in financing options
- Unlike rebates which are simpler to administer, financing requires a continuing relationship between a lender and a customer, and are based on stricter eligibility criteria. Lenders typically rely on credit-based underwriting to determine who is likely or unlikely to meet their loan repayment obligations; as a result, not all customers will qualify for and have access to financing.
- Even if they do qualify for financing, not all customers will want or need it.
- Only some lenders will want to offer consumer loans for the residential energy efficiency marketplace.
The Financing component handbooks offer the steps and background you need to design, operate, and evaluate your program’s financing activities in partnership with your lenders, contractors, utilities, and other partners. The goal of these handbooks is to help you use financing tools to increase both the number and size of home energy upgrades in your community and achieve your program goals.
The Financing component provides your program with strategies to:
- Determine the need for home energy loans in your community based on a market assessment, and establish goals and objectives to guide your financing activities.
- Identify and engage the most promising potential lending partners.
- Design financing activities that help homeowners pay for the desired home energy upgrades.
- Develop an implementation plan that identifies workflows and defines the roles for your program, lenders, and contractors, as well as an evaluation plan and metrics to help you track and measure program progress.
- Develop financing resources that will enable you to perform the core functions of your program and deliver financing to homeowners in conjunction with other program components.
- Learn and adapt your program over time, and communicate results to relevant stakeholders.
The Financing handbooks describe several options that you can use to offer financing to homeowners. A common theme among all of these options is that they involve identifying and integrating partnerships with outside entities. For the most part, the options that the handbooks describe do not require that you create and operate your own loan products. Many lenders that operate in your own community, or maybe even nationally, can provide the financial services that will support your energy efficiency program designs. Your program can assist homeowners with energy efficiency financing in many ways. The most common services that programs have offered are:
- Referring homeowners to an existing lender (e.g., bank, credit union, nonprofit lender) that offers appropriate loan products.
- Providing homeowners with a comparison of existing financing programs and making recommendations for the most appropriate options.
- Providing financial support (often called “credit enhancements” or “buy-downs”) to lenders that are willing to offer loans at lower rates or better terms.
- Working with contractors and lenders to provide a “dealer loan,” under which the contractor offers the financing on behalf of the lender, eliminating the need for the homeowner to deal with an additional party (the lender).
- Providing the lender with funds to be lent out to customers (referred to as providing a revolving loan fund).
- Performing all of the functions typically performed by a lender: underwriting, origination, funding, and servicing.
While there are combinations of the above options, these six financing activity types represent the most common approaches taken by energy efficiency programs seeking to assist their homeowners with financing. Utilities can also be important partners for your residential energy efficiency upgrade program. Once financing programs are operational, your program can work with utilities to incorporate loan options into their outreach and activities. By building a relationship with utilities over time, you might find utilities willing to co-brand with your program, promote your program, or even allocate resources longer term.
As you move through the steps that these handbooks describe, keep in mind that financing is not a program in itself. Financing is a tool to support energy efficiency programs and enable customers to commit to a home energy upgrade. In order for your program to successfully drive uptake of energy efficiency measures, your financing activities need to be tightly integrated with all of the other parts of your program, including contractor networks, utility or other incentives, and outreach programs.
Step by Step
The following are important stages for successful program administrators to follow when implementing Financing activities; however, no two programs are the same, and program administrators need to take into account the unique aspects of their market to create the most effective approach possible. Select each stage to access its handbook.
- Assess the Market
Determine how your target audience currently funds energy efficiency services, to what extent upfront cost is a barrier, and whether improvements to their financing options would increase the uptake of energy efficiency measures.
- Set Goals & Objectives
Establish goals, objectives, and timeframes for your financing activities.
- Identify Partners
Identify and partner with financial institutions that can provide capital, underwriting, and other functions to enable your customers to access financing.
- Make Design Decisions
Determine if enhancements to existing financing products or the development of new products are necessary to allow you to achieve your goals and objectives.
- Develop Implementation Plans
Develop a plan to implement your financing activities, with defined roles for financial institution partners, contractors, customers, and your program.
- Develop Evaluation Plans
Establish an evaluation plan that will allow you to determine how your financing activities are impacting the market.
- Develop Resources
Develop the procurement, outreach, and loan support resources required to perform your financing activities.
- Deliver Program
Launch your financing activities in coordination with other program components.
- Assess & Improve Processes
Focus on the continuous improvement of your financing activities by tracking and evaluating data, responding to feedback, and modifying strategies when needed.
- Communicate Impacts
Communicate the results of your financing activities to internal and external partners.
Key steps and topics for designing and implementing energy efficiency financing activities
Tips for Success
In recent years, hundreds of communities have been working to promote home energy upgrades through programs such as the Better Buildings Neighborhood Program, Home Performance with ENERGY STAR, utility-sponsored programs, and others. The following tips present the top lessons these programs want to share related to this handbook. This list is not exhaustive.
Low-cost financing for home energy upgrades does not increase customer demand for upgrades on its own. A comprehensive evaluation of over 140 programs across the United States found that homeowners must be sold on the benefits of home energy upgrades before financing can become valuable to them. Programs interested in achieving high loan volume have promoted access to low-cost financing as part of a broader effort to make upgrades an attractive and worthwhile investment.
- Boulder County, Colorado’s EnergySmart program learned that loans are an effective tool within a larger residential energy efficiency program, but a loan program on its own is not a solution. To sell home energy upgrades to homeowners, the program realized that access to low-interest financing was not enough to entice homeowners to make upgrades. Instead, the program focuses on messages that increase the awareness of upgrades as a path to homeowner benefits, such as comfort, health and safety, and reduced energy bills. The EnergySmart program also used energy advisors who helped homeowners understand their upgrade options, choose a contractor, and learn about available financing. Between October 2010 and September 2013, EnergySmart was designed, launched, and supported the completion of upgrades in more than 4,100 homes. Over $1.7 million in energy loans were issued by EnergySmart between August 2012 when the loan product became available and September 2013, helping 150 homes and businesses overcome cost barriers to energy efficiency investment.
- When the Greater Cincinnati Energy Alliance (GCEA) began its program in 2011, there was little understanding of energy efficiency and its impact on individuals and business in the Greater Cincinnati region; therefore, community education on the value of energy efficiency was, and continues to be, a cornerstone of the GCEA’s mission. The program’s loan options are a tool to help facilitate home energy upgrades and are included in outreach initiatives, but selling homeowners on energy efficiency is the larger focus of the program. GCEA used a variety of outreach strategies to connect with the community, including a website with links to educational information including financing options; educational sessions held at churches, schools, and libraries; a partnership with AmeriCorps in the summer of 2011 to provide door-to-door canvassing; regular business outreach and core business meetings with contractors; partnerships with local community events such as fairs and farmers markets; energy advisors who served as a resource for both homeowners and contractors; and traditional advertising (e.g., radio, newspaper, TV). GCEA aims to increase adoption of energy upgrades through marketing, education, quality customer service, and loans. In 2011, GCEA established the GC-HELP financing program to offer unsecured, fixed rate loans (6.99%, up to $20,000 and 10 year terms) that can be used for specific home energy improvements or a whole home energy upgrade. As of September 2013, 127 residential loans (approximately 9% of home upgrade projects) had been issued, totaling more than $1 million.
Financing can be a complicated topic for programs, and having staff with financing knowledge and expertise can be very valuable. Financing program administration involves working with lenders and understanding how they operate as well as understanding financial regulatory issues and loan product features. Several Better Buildings Neighborhood Program partners hired staff or consultants with financing skills and knowledge, which helped to launch programs more quickly and efficiently, and administer them effectively over time.
- Enhabit, formerly Clean Energy Works Oregon, initially used a consultant to help design their financing products, which began with the pilot program through the City of Portland in 2009. Enhabit later hired a financing expert to serve as a lender relations manager to attract additional lenders and to create strategic partnerships that leverage private capital. Leveraging in-house expertise, the program created five lending partnerships with a CDFI, a regional bank, and three credit unions, which enabled more than $50 million in capital for home upgrades. Enhabit staff understanding of bank and credit union financing, in addition to efforts to ensure compliance with required regulations, have been key factors in successfully attracting and retaining lenders. Through its network of pre-qualified contractors, the program is able to offer financing options that are convenient with competitive rates and flexible terms.
- Michigan Saves works to create a one-stop shop for energy efficiency financing through their Home Energy Loan Program. To facilitate a smooth process for both homeowners and participating lenders, Michigan Saves hired staff with financing expertise. Financing staff helped to attract and provide ongoing coordination with the nine credit unions currently participating in the program (as of early 2014). Staff work with participating credit unions to make adjustments to loan design and process (when needed), ensure that non-financial staff at Michigan Saves understand the program’s loan offerings, and coordinate lending activities with participating contractors. Through June 2014, the Michigan Saves Home Energy Loan Program made more than 3,600 loans representing an investment of nearly $30 million.
- New Hampshire’s Beacon Communities Project relied heavily on staff financing expertise to create its successful program. New Hampshire’s program was awarded to, and administered by, the New Hampshire Office of Energy and Planning (OEP). OEP contracted with the Community Development Finance Authority (CDFA) to assist with implementation of the project. CDFA staff managed homeowner outreach, and served as direct liaisons to local municipalities, utilities, property owners, lenders, auditors, and building contractors. New Hampshire’s program included the use of loan loss reserves (LLR), interest rate buy-downs, and co-lending with local banks. Establishing the bank partnerships and agreements needed to implement these financing mechanisms was spearheaded and managed by a CDFA staff person with prior financial program experience. As the program moved beyond the Better Buildings grant period, OEP continues to rely on financing experts to provide guidance related to the LLR needed, the percentage of bad debt which the bank should write-off prior to charging the program, and current market interest rates. In total, ten local banks and credit unions made over 150 loans through their partnership with NH Better Buildings during the grant period of 2010-2013.
In order to overcome lenders’ concerns over the risk associated with energy efficiency loans, many Better Buildings Neighborhood Program partners offered credit enhancements to lenders (e.g., loan loss reserve funds) to attract lender participation and to mitigate lender losses in the event of loan defaults. Over the long term, however, a thriving market for energy efficiency financing requires that lenders and capital providers operate without credit enhancements. In order for this to happen, lenders and capital providers need to understand that home energy lending can be profitable and that the risks are manageable. Several Better Buildings Neighborhood Program partners were able to prove the viability of energy efficiency lending.
- Enhabit, formerly Clean Energy Works Oregon, took a sequential approach to designing for long-term sustainability through successfully engaging lenders in the program with credit enhancements, but removing these over time following evidence of success. In the process, Enhabit has unlocked millions of dollars of private capital while eliminating the need for program-funded lending support. During its program pilot, the City of Portland partnered with Craft3 to provide low-interest, long-term financing with utility on-bill repayment to program participants. Craft3 used bill payment history as a proxy for credit to help more homeowners qualify for loans. Loan defaults proved to be low from the outset, demonstrating the low risk associated with home energy lending. As Enhabit expanded its program throughout Oregon in 2011 and 2012, additional lenders joined the program. While loan fees and loan loss reserves were initially offered to some of these new lenders, Enhabit eliminated payment of all loan fees and loan loss reserves effective January 1, 2013, and still maintains a strong network of lending partners. Enhabit’s strategy to remove credit enhancements over time has worked because program results (e.g., low defaults) demonstrate that home energy lending can be profitable to lenders while also providing them access to new customers from whom they can solicit additional business. In addition, lenders become more comfortable with lending for energy efficiency if measures are properly installed and deliver the promised savings (which helps ensure loans are repaid) so Enhabit’s quality assurance has been an important factor in supporting the lending partners in non-financial ways. Between program launch in March 2011 and December 2013, Enhabit completed nearly 3,200 residential upgrades and 2,600 loans valued at $33.4 million (through its lending partner, Craft3), generating $49 million in local economic activity.
- The Maryland Be SMART Multifamily program utilizes a revolving loan fund initially capitalized with $9 million to provide financing for energy efficiency upgrades in affordable multifamily apartment buildings. Leveraging their Better Buildings Neighborhood Program grant, the Be SMART Multifamily program team worked closely with property managers, owners, and developers to promote the value of energy efficiency in the multifamily housing community and succeeded in leveraging significant private and public capital to finance energy efficiency upgrades. The program’s revolving loan fund allowed short-term loans for loan loss reserves for multifamily upgrade projects accompanied by rehabilitation work funded through Low Income Housing Tax Credits. These short-term loans facilitated several energy upgrade projects that would otherwise not have been possible. These loans also provided for a quick revolution of the loan funds, typically resulting in full repayment of the loan loss reserve within 24 to 36 months (with interest rates ranging from 1% to 4%). The short-term loans have been tremendously beneficial to the viability of the Be SMART Multifamily revolving loan fund, and have enabled program activities to continue at similar projected funding levels into calendar years 2014 and 2015. Between July 2010 and September 2013, the program financed nine projects representing 935 multifamily units. Projected annual energy savings from these projects is more than 3,600 Megawatt-hours (MWh) and more than 260,000 therms.
Homeowners do not benefit from access to financing if they don’t know about or understand options available to them. Contractors are often the primary transaction point for selling upgrades, and many programs have found that ongoing collaboration with contractors through sales training, regular meetings, and requests for feedback can foster greater understanding and sales of program loan products. Some successful programs have staff in a contractor manager role to organize trainings, address questions and concerns, and overall coordinate relationships with participating contractors. Along with simplifying the financing application process, working with contractors to integrate financing into the home performance sales process avoids making financing another complicated decision point for customers.
Source: U.S. Department of Energy, 2012.
Source: U.S. Department of Energy, 2012.
- EnergyWorks of Philadelphia recognized that contractors can have a tremendous influence on homeowner decisions about how to pay for an energy upgrade. The program therefore trained contractors on how to effectively make affordability of energy efficiency a key part of every sales proposal and assessment. Contractors were also trained on how to better utilize special financing and monthly payment plans to increase both their closing rates and market penetration for more energy efficient home improvements. In addition, EnergyWorks provided contractors with program-sponsored technical training for BPI and RESNET certification, if needed, streamlined the energy assessment process and developed a consistent customer report template, and used an integrated software platform to provide maximum efficiency and customer service to contractors during loan/incentive origination, administration, payment, and reporting. Between 2010 and 2013, EnergyWorks helped finance over 1,900 residential upgrade projects, totaling more than $17 million.
- Enhabit, formerly Clean Energy Works Oregon, works with its contractors to provide business coaching, peer mentoring, business development classes, business accounting, and sales training. Supporting the development of these skills is a key factor in Enhabit’s success. Trainings include discussion of Enhabit’s loan offerings and eligible lenders, and how financing is a valuable tool to help drive sales. These trainings were well-received by contractors and helped them improve their business processes, making them more profitable. Between program launch in March 2011 and December 2013, Enhabit’s close relationship with its contractor partners resulted in the completion of more than 3,000 upgrades. For more information on how Enhabit partners with their contractors, see the case study Making the Program Work for Contractors.
- The Greater Cincinnati Energy Alliance (GCEA) recognized that the best way to drive demand for home energy upgrades was to involve local contractors that worked in homes on a daily basis. To that end, GCEA identified, trained, and mentored contractors who were interested in promoting the benefits of energy efficiency and saw it as a means to expand their business. Through a network of participating contractors, homeowners throughout Greater Cincinnati ultimately purchased energy efficiency upgrades and services totaling almost $19 million. Between program launch in 2011 and November 2013, GCEA issued 127 residential loans, totaling more than $1 million with no losses.
- In October 2010, Austin Energy rolled out its single-family residential energy "Best Offer Ever" promotion, a three-month special that combined rebates and no-interest loans for energy upgrades. Austin Energy offered extra contractor training on the financing to drive sales during the promotion. Once draft promotional plans were in place, Austin Energy hosted a breakfast meeting—getting on their Home Performance with ENERGY STAR contractors’ schedules before they were out in the field for the day—to discuss the plans and collect feedback from the contactors. Contractors provided feedback on the launch plans, received sample forms, and were trained on how to use them. The contractors were also candid about their involvement in implementing the offer. Most contractors had not actively marketed financing options before, so Austin Energy walked the group through each party’s role and responsibility in the loan process. Austin Energy also scheduled the promotion during the fall and winter, which is typically a slow season for building contractors in otherwise sunny and hot Texas—increasing the likelihood that projects would be completed in a timely manner while also helping contractors avoid seasonal layoffs. As a result of the promotion, a total of 568 participants received Home Performance with ENERGY STAR upgrades through 47 contractors in six months—more than 10 times Austin Energy's typical participation rate.
- As part of the ShopSmart with JEA program, Jax Metro Credit Union (JMCU) worked closely with contractors by holding regular meetings (monthly or quarterly) as well as lunch and learn opportunities to educate contractors on the loan options available. The credit union also did outreach to contractors or contractor associations in the community recognizing that the contractors would play an important role in selling benefits of the loan product. It was a long process, nearly 14 months, before the relationship between the credit union and the contractors was fully developed. From 2010-2012, ShopSmart with JEA completed 206 residential upgrades. JMCU members completed more than $1.2 million worth of energy upgrades on 183 homes in the community, and JEA and JMCU financed nearly 90 percent of completed upgrades.
The following resources provide topical information related to this handbook. The resources include a variety of information ranging from case studies and examples to presentations and webcasts. The U.S. Department of Energy does not endorse these materials.
This case study features New York City Energy Efficiency Corporation (NYCEEC), a member that focuses on financing energy efficiency and clean energy upgrades for multifamily buildings in the city and surrounding communities.
Ivy Knoll Senior Retirement Community used PACE financing to make significant building improvements of systems that were outdated or energy inefficient. Through PACE financing, Ivy Knoll management was able to select improvements that had the highest energy savings but also came with higher upfront costs for the 7-story, all-electric building.
With project funding from Energize NY PACE and incentives from NYSERDA's Multifamily program, Natlew Corporation was able to make energy efficiency upgrades to their multifamily affordable housing complex in Mount Vernon, NY.
PACE Equity worked closely with CRE Investment Financing to develop and fund a new construction, micro-apartment project in the Sloans Lake area of Denver. This project is the first new construction PACE project in Colorado, as well as the first PACE project completed in Denver.
This case study highlights the Help My House Pilot Program conducted in South Carolina by Central Electric Power Cooperative that included on-bill financing.
Discusses innovative financing options designed to expand the accessibility of energy efficiency financing to households that typically do not qualify for traditional loans.
This case study highlights Clean Energy Works Oregon's (now Enhabit) low interest, on-bill financing and alternative underwriting practices which have achieved a low rejection rate while also maintaining a low loan default rate.
This policy brief provides insight into the transaction of an on-bill energy efficiency loan portfolio between two mission-oriented lenders, Craft3 in Oregon and Self Help in North Carolina.
This case study features New York City Energy Efficiency Corporation (NYCEEC), a member that focuses on financing energy efficiency and clean energy upgrades for multifamily buildings in the city and surrounding communities.
A sample competitive procurement procedure to award loan loss reserve funds to a financial institution partner.
Because of its potential to reduce customers’ first costs and leverage private funds, financing has been increasing in importance as a strategy for facilitating energy upgrades as program administrators seek to meet ambitious goals in a shifting energy efficiency landscape. This paper evaluates the experience of BBNP grantees to identify how programs can most effectively integrate loan offerings into their broader efforts to promote energy efficiency upgrades. The paper also identifies best practices from grantees’ experience related to integrating financing into program outreach and trade ally interactions.
This presentation provides an overview of the Energy Savers program for affordable rental housing, its loan structure, and lessons learned.
This presentation provides an overview of PSE&G's Multifamily Housing Program, highlighting drivers, incentive structure, results, and lessons learned.
Presentation describing NYSERDA's alternative underwriting approach for its target market.
This presentation provides an overview of energy efficiency financing for low- and moderate-income households, including a sector overview, consumer protections, financing products, and lessons learned.
This presentation introduces the Energy Programs Consortium report, Residential Property Assessed Clean Energy (R-PACE) - A Primer for State and Local Energy Officials. It also covers R-PACE statistics, program details, comparisons with other financing options, and consumer protections.
This presentation describes how PG&E is using advanced metering infrastructure (AMI) to enhance their advanced home upgrade whole-house retrofit program, on-bill financing, and residential pay for performance (P4P) program.
This presentation covers lesson learned for PACE from the Toledo Port Authority, innovative real estate finance solutions from the Ygrene Energy Fund, and financing energy improvements on utility bills.
Presentation that provides a summary of the role financing plays within energy efficiency programs.
Presentation on the key programmatic elements of financing initiatives.
Presentation providing an overview of financing programs, a strategy for continuous improvement, tools for program management, a risk management strategy, and common risks associated with financing programs.
This summary from a Better Buildings Residential Network peer exchange call focused on innovative financing approaches programs are using to support residential energy efficiency.
The Financing Implementation Plan Template will help you develop a strategy for planning, operating, and evaluating your financing activities.
A template competitive procurement procedure to award loan loss reserve funds to a financial institution partner.
A template agreement demonstrating how to address the deposit and use of loan loss reserve funds.
A template agreement that addresses the full energy efficiency or renewable energy loan origination cycle.
A sample for defining and elaborating on the specifics of a clean energy loan program.
The Better Buildings Financing Navigator is a web-based tool designed to help private and public sector organizations discover financing solutions for energy efficiency projects that meet their unique needs. Through the Financing Navigator, multi-family building owners, facility and energy managers, and other decision-makers can connect with financiers, including banks and financial institutions, to pursue energy-saving measures.
The Financing Program Decision Tool is for state and local governments just starting their clean energy financing programs. The tool provides information on the different types of financing available and helps users identify the best options for their program.
Financial Program Management for Continuous Improvement
Tools for Designing & Implementing Better Finance Programs
Managing Financing Programs: Spreadsheet Models
This website provides an overview of financing as it pertains to state, local, and tribal governments who are designing and implementing clean energy financing programs. Residential financing tools include residential PACE (R-PACE), on-bill financing and repayment, loan loss reserves and other credit enhancements, revolving loan funds, and energy efficient mortgages.
This document provides updated best practice guidelines to help implement the Policy Framework for PACE Financing Programs, initially announced on October 18, 2009. DOE has developed these revisions to the original “Guidelines for Pilot PACE Financing Programs,” initially issued on May 7, 2010, to reflect the evolving structure of the PACE market and incorporate lessons learned from various PACE programs that have been successfully implemented. The revised and updated guidelines focus specifically on best practices and guidelines for residential PACE financing programs.
This U.S. Environmental Protection Agency resource is intended to help state and local governments design finance programs for their jurisdiction. It describes financing program options, key components of these programs, and factors to consider as they make decisions about getting started or updating their programs.
This report presents results, recommendations, and case studies of energy efficiency financing programs.
This paper establishes the size of the potential retrofit market in the United States, and examines the emergence of new financing models that offer the promise of overcoming historical barriers to energy efficiency.
This publication outlines capital leveraging models and examples from across the country in which public funds were used to influence energy loan program capital.
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