The Limits of Financing for Energy Efficiency - eScholarship

The Limits of Financing for Energy Efficiency Merrian Borgeson, Mark Zimring, Charles Goldman Lawrence Berkeley National Laboratory ABSTRACT Financing is an appealing concept when efficiency program budgets are a small fraction of the overall level of efficiency investment needed to achieve our public policy goals – but that does not mean financing is always the solution, and it is certainly not the only solution. We show that financing can, in some cases, increase the leverage of public dollars. In most cases, however, it is not able to drive demand to the same degree as direct incentives like rebates and so cannot be expected to replace other incentives in the current marketplace. We also show that subsidized financing for those who already have access to capital may be a poor use of public funds, and that increasing access for those who are currently underserved will likely require ongoing subsidy. This is not to say that financing is unimportant – financing is one of many important tools for scaling efficiency and should be employed thoughtfully with the questions outlined in this paper in mind. Key words: Energy Efficiency Financing, Energy Efficiency Programs, Financial Incentives for Energy Efficiency, Retrofits, Efficiency Programs, Incentives ACKNOWLEDGEMENTS The work described in this report was funded by the Permitting, Siting and Analysis Division of the U.S. Department of Energy’s Office of Electricity Delivery and Energy Reliability under Lawrence Berkeley National Laboratory Contract No. DE-AC02-05CH11231. Introduction States and utility regulators are increasingly adopting aggressive energy efficiency targets for existing buildings. To achieve those goals, utilities and governments are increasing their reliance on programs that improve the energy efficiency of the entire building, instead of focusing on single measures or end uses (e.g., lighting). These more comprehensive programs typically require customers to pay a significant portion of the improvement costs. In this environment, financing has been put forward as a tool that can drive investment in comprehensive improvements where the energy savings yield cash flows in excess of loan interest and principal payments. This “financing is the solution” view is reinforced by the negative cost bars for many efficiency improvements on the McKinsey cost of carbon abatement curve, and the refrain that efficiency is the “low hanging fruit” or even the “fruit on the ground”. The narrative is attractive to program administrators and state regulators concerned about the potential short-term impact