State and local governments commonly find that lack of up front capital is a barrier to clean energy initiatives. Governments can tackle this challenge–whether they are looking to pay for improvements in their own buildings or drive action in the residential, commercial, and/or industrial sectors of their communities–by using financing. Financing approaches may be offered as a comprehensive financing program that will support many projects, or may be project based (i.e. arranged on a project-by-project basis).
This overview section provides a general introduction to financing programs, including characteristics of strong programs, pitfalls to avoid, and the major components of financing programs. More detail is provided in sections focused on particular financing program structure options, financing program design and implementation considerations, and specific market segments.
For information on project-based financing for government buildings, visit the public sector portion of the market segments section, where particularly relevant structure options are reviewed.
For definitions of financing terms used throughout this website, view the glossary.
If your financing approach includes, or may include, U.S. Department of Energy funding, visit the Weatherization and Intergovernmental Program Office Program Guidance page for information regarding reporting and other requirements, such as the Davis-Bacon Act and National Environmental Policy Act.
Financing is One of Many Tools
It is important to stress that financing cannot be offered in isolation. It must be combined with other activities such as outreach, education, technical assistance, standardized performance measurement tools, and workforce development. Financing is only useful once building owners decide they want to make improvements and know how to go about it, and when there is a workforce ready to respond. It would be rare for someone to make a clean energy investment simply because he or she found affordable financing, but a lack of affordable financing might prevent someone from making the investment once he or she is interested.
Why Offer Financing Programs
It is also worth asking why state and local governments should consider offering financing programs for energy improvements over other options. Financing programs are almost always more complex to operate than grants, rebates, or tax credits. They usually require a long-term commitment of financial and human resources to administer the program, and they also require a credit evaluation process that is not necessary for a rebate program. However, there are a few reasons that financing programs are compelling tools for encouraging clean energy improvements:
Financing programs may increase the impact of limited government funds. A rebate or grant program by definition provides funding at no cost. Once it is spent, it is gone. A financing program can leverage government funds to attract additional private capital and can allow funds to be continually recycled as loans are repaid.
Financing programs can complement rebate or tax credit programs to eliminate the first cost barrier. Most incentive programs do not cover the full upfront cost. A financing program can operate in tandem with a rebate program to help the customer fund the balance after taking a rebate, so the two are not mutually exclusive. In fact, a rebate or other incentive can further lower the cost of the project and shorten the payback time for financing.
Financing means customers have investment interest. Financing requires customers to pay back the money that they borrow to install clean energy measures. This may encourage them to operate and maintain equipment better than if the improvements were fully paid for by a grant.