This document discusses various strategies for financing industrial energy efficiency and combined heat and power projects. It outlines conventional financing options like operating funds, company cash, and bank loans. It also describes non-conventional options such as loans from community banks and utilities, government lending programs, public bonds, and third-party financing like performance contracting. Specific programs are highlighted from the USDA, state governments, and other sources. Challenges with different financing strategies are also noted.

1. Financing Industrial Energy
Efficiency & CHP
National Governors Association
Policy Academy
Philadelphia, Pennsylvania
March 6th, 2013
Ethan Rogers, Senior Program Manager

2. Strategies for Financing Projects
Conventional Financing
• Operating Funds
• Company Cash
• Conventional Bank
Financing
• Equity Financing
Non-Conventional
• Community Banks
• Utility/Energy
Efficiency Programs
• Government Lending
Programs
• Public Bond
Financing
• Third-Party
Financing

3. Opportunity with
Community Banks
• BancAlliance – lending “club” that allows
member banks to turn to the alliance for
fast-growing customers who require
loans too large or too complex for the
community bank to underwrite on its
own

4. Utility/Energy Efficiency Programs
• Incentives and rebates
• Revolving loan funds
• Conventional loans
• On-bill financing
• ACEEE report: http://aceee.org/research-report/ie121
• 2010, >$1B spent on IEE deployment;
• ~75% spent by utilities

5. On-Bill Financing
• Public Utility Commission (PUC)
allows/requires the creation of a utility-
based financing program that allows for
repayment through an on-bill tariff
• States with legislation in place: Illinois,
Hawaii, Oregon, California, Kentucky,
Georgia, South Carolina, Michigan, and
New York

6. USDA Rural Small Business Lending
• Business and Industry Guaranteed Loan
(B&I) Program
• Intermediary Relending Program (IRP)
• Biorefinery Assistance Program/Biorefinery
Assistance Loan Guarantees (Section 9003)
• Rural Energy for America Program
Guaranteed Loan Program (REAP Loans—
Section 9007)
• Rural Economic Development Loan and
Grant (REDLG)

7. Examples of State Loan Programs
• Alabama Saves uses ARRA money to
subsidize loans via a loan loss reserve and
interest rate buy down that result in loans of
$50,000 to $4 million for 1% for projects with
payback from energy cost savings of ten years
or less. (www.alabamasave.com)

8. Examples (continued)
• Colorado Housing and Finance Authority provides
financing to manufacturers for a variety of projects that
could include distributed generation using the
proceeds of a “manufacturing mini bonds”.
(www.chfainfo.com/business/manufacturers/manufacturers.icm)
• Pennsylvania Pollution Prevention Assistance
Account (PPAA) offers low-interest loans to help
small businesses (<100 FTE) to implement energy
efficiency and pollution prevention projects. Loans
may be up to 75% of the project costs or $100,000,
whichever is less, with terms of up to ten years. This
program is funded through the agency’s budget.
(www.portal.state.pa.us/portal/server.pt/community/financial_assistance/10495/ppaa_loan/553
247)

9. Examples (continued)
Tennessee: Pathway Lending, Community
Development Financial Institution (CDFI)
• Borrows from conventional financial
institutions (who receive a tax credit for
doing so) at lower than normal rates and
relend the money.
• TVA loan, EPA settlement funds,
government grants, other

10. Public Bond Financing
• Communities financing assistance to local
companies include loans, loan guarantees,
loan collateral, gap funding, credit
enhancement, equity, tax abatements, grants,
and tax credits.
• Funded through bonds sold to the investing
public and then paid off with the future tax
revenues from the increased tax base that
results from the investments.

11. Public Bond Financing
Development Bond Funding, including:
• 501 c-3 bonds for not-for-profits;
• Exempt facility bonds for municipal facilities, which
can include energy generating facilities;
• Enterprise Zone Bonds (EZBs);
• Clean Renewable Energy Bonds (CREBs) that can
fund renewable energy public power producers
(PPPs); and
• Qualified Energy Conservation Bonds (QECBs) that
enable the issuers to provide tax credits from the
federal government for qualified conservation
purposes.

12. Third-Party Financing
• Private equity/venture capital (VC)
• Lease-purchase agreements
• Performance contracting (e.g., Energy
Service Companies and Energy Savings
Performance Contracts)
• Service outsourcing (e.g., compressed
air or steam system)

13. State Tax Incentives
• Arizona property tax exemption for renewable energy
systems in 2006 and expanded it to include CHP and
energy efficient building components in 2009.
• New Mexico, a corporate tax credit for sustainable
buildings that have been registered and certified
LEED Silver by the US Green Building Council
(USGBC)
• Kentucky offers a corporate energy efficiency tax
credit of 30% up to $500 for energy-efficient heating,
ventilating, and air conditioning (HVAC), hot water,
and interior lighting systems.
EXAMPLES

14. Master Limited Partnerships
Master Limited Partnerships (MLPs) are business
structures that are taxed as partnerships, but whose
ownership interests are traded like corporate stock.
This enables investors to lower their tax liability and
improves the cash flow of such investments.
Currently, certain oil, gas, and some biofuel projects
qualify as MLPs, but clean energy projects do not.
Expanding the definition MLPs could provide efficiency
and CHP projects access to a $350 billion market that
lowers project costs and provides investors with a
desirable rate of return.

15. Limitations of Financing Strategies
All financing strategies have different strengths
and limitations, all of which can change over
time with the firm, economy, and market.
• Many have higher transaction costs than
conventional financing
• Increased uncertainty in eligibility & future
availability of lending program
• Some only work for certain size projects
• Some sources have size & scope limitations (Eg.,
REDLG loans are constrained & can only apply for
them every few years)

16. Contact Information:
R. Neal Elliott, Ph.D., P.E.
rnelliott@aceee.org 202-507-4009
Ethan A. Rogers
erogers@acee.org 202-507-4751
Anna Chittum
achittum@aceee.org 206-938-7585
Daniel Trombley
dtrombley@aceee.org 202-507-4008
Chris Russell
crussell@aceee.org 202-507-4749