Upgrade now, pay later
New financing programs help homes become more energy-efficient without high upfront costs.
An insulation contractor works on a Portland, Ore., home getting energy-efficiency upgrades with help from a municipal-loan program. // © Energy Trust of Oregon
Champions of energy efficiency argue that upgrading homes and other buildings saves billions in the long run. But who will pay for it now?
The upfront cost of energy efficiency can be a stumbling block to more efficient lighting, insulation, air conditioning and other equipment. Entrepreneurs, utility companies and governments are experimenting fervently with financing arrangements that attempt to show property-owners that some energy upgrades are not only feasible but also economically smart. (Bing: Are you eligible for energy-efficiency rebates?)
There are more than 220 energy-efficiency loan programs offered in 48 states by utilities and federal, state and local governments, according to the Database of State Incentives for Renewables and Efficiency, which the Department of Energy funds. Meanwhile, utilities and startup companies are expanding financing programs and rolling out their own models.
Here's a look at some of the methods nationwide.
For years, homeowners paid for energy-efficiency improvements by using local-government funding known as Property Assessed Clean Energy, or P.A.C.E., loans.
Loan payments were attached to property-tax bills, ensuring repayment even if the borrower were to sell the property. By September 2009, 17 states had P.A.C.E. programs, according to a February 2010 report by an arm of the California Clean Energy Fund.
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Many P.A.C.E. programs came under fire last summer because they often use liens that give local governments priority in getting repaid. The Federal Housing Finance Agency, which oversees Fannie Mae, Freddie Mac and the Federal Home Loan Banks, said in July that P.A.C.E. loans with priority liens over outstanding mortgages "present significant risk to lenders." Fannie and Freddie, government-sponsored enterprises that purchase mortgages from private lenders, said they would stop buying new mortgages with first-lien P.A.C.E. loans.
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But not all municipal loan programs operate the same way, and some are unaffected. This month, Maine started making loans under a new P.A.C.E. program that will feature loans secured by a subordinate lien.
Also, through a Federal Housing Administration pilot program called PowerSaver that launched this month, homeowners with qualifying credit soon can borrow up to $25,000 to finance selected energy-related improvements.
For owners of apartment buildings and commercial properties, the problem isn't finding the money to pay for upgrades. It's losing the opportunity to use that cash for their core business.
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Metrus Energy Inc, a San Francisco energy-efficiency company that started in 2009, is testing a new efficiency-services agreement that gets around this issue. For the life of the deal, Metrus, not the building owner, owns the new energy-efficiency equipment.
Metrus has struck two such deals in the past year with BAE Systems PLC for facilities BAE owns in New Hampshire and New York. Metrus pays attention to big-ticket items, such as boilers and furnaces.
Under the agreements, BAE continues to pay the utility bills. But as the facilities become more energy-efficient and the bills shrink, BAE will pay Metrus an increasing fee that is slightly less than the energy savings.
"It becomes very much like their utility bill," says Bob Hinkle, Metrus' founder and chief executive, of the impact on building owners.
Metrus contracts with a third party to install the equipment; in the BAE buildings, its partner has been Siemens AG, the German electrical-services giant. Siemens promises to pay Metrus if the energy savings don't materialize as expected.
The deals are in their infancy, but the annual energy savings at BAE's Merrimack, N.H., facility are projected to exceed 1 million kilowatt-hours — reducing greenhouse-gas emissions by an equivalent of taking 137 cars off the road for a year, the Environmental Protection Agency says.
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Other companies are rolling out similar deals. Green Campus Partners has four projects under development, says Jim Thoma, a managing director.