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Community Energy Financing

Budget reductions, resource constraints, and other restrictions often make financing energy efficiency projects a challenge for municipalities. The information below outlines some financing approaches that your community might investigate.

Federal Resources

USDA Conservation Security Program
The U.S. Department of Agriculture (USDA) has announced that its Conservation Security Program (CSP) will start accepting sign-ups from farmer and ranchers on March 28, 2004. Although the program is primarily meant to support ongoing stewardship of private agricultural lands, this year's program sign-up includes a renewable energy and energy efficiency component. Eligible producers will receive compensation for conducting energy audits, for cutting their energy use, for converting to renewable energy fuels (such as biodiesel or ethanol), and for implementing renewable energy production, including methane production as well as wind, solar, hydroelectric and geothermal energy.

Congress approved a bill in September 2004 that will extend the wind energy Production Tax Credit (PTC) through the end of next year. The PTC was included in a major tax package that President Bush is expected to sign. The PTC provides a tax credit of 1.5 cents per kilowatt-hour (in 1992 dollars, adjusted for inflation) for power produced by wind turbines. According to the American Wind Energy Association, the PTC extension will allow wind energy investments of about $3 billion to move ahead over the next several years.

National Industrial Competitiveness Through Energy, Environment, and Economics (NICE3)
A joint cost-sharing program of DOE and the U.S. Environmental Protection Agency (EPA) that strives to improve industrial energy efficiency, reduce industry's costs, and promote clean production. The NICE3 grants program funds up to 40 percent of total project cost for up to three years in support of technology development that can improve industrial cost competitiveness, prevent pollution, conserve energy, and reduce industrial wastes. Since 1991, NICE3 has sponsored 58 projects, totaling $17.9 million of DOE funding. For more information and the location of the nearest NICE3 regional office, contact the Energy Efficiency and Renewable Energy Clearinghouse toll-free at (800) DOE-EREC.

The USDA's High Energy Cost Grant Program provides grants for improvement of energy generation, transmission, and distribution facilities serving communities with extremely high energy costs.

State Resources

State energy offices can be a source of funding for energy-efficiency projects. Available programs vary by state. The National Association of State Energy Officials (NASEO) offers a State Energy Office Directory, which includes links to state energy office Web sites.

Utility companies often offer rebates, low-interest loans, and other incentives for energy-efficiency improvements. For more information, contact your utility company.

The NEAAP Residential Energy Efficiency Database is an resource feature designed to help residential energy consumers save energy and money. Using the database, residential electric and natural gas customers can find out what programs their utilities offer, such as home energy audits, rebates for energy efficient appliances, and zero- or low-interest loans to upgrade insulation or replace old heating and cooling equipment. The extensive, regularly updated database lists residential energy efficiency programs offered by public and private utilities, rural electric cooperatives, and state agencies in all 50 states and the District of Columbia.

Clean Energy States Alliance is a new non-profit organization established in early 2004, comprised of 17 "clean energy" public funds from 12 states. CESA expects the clean energy funds from the 12 states—California, Connecticut, Illinois, Massachusetts, Minnesota, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, and Wisconsin—to total $3.5 billion over the next decade. CESA will launch a number of joint initiatives to promote solar energy, wind power, fuel cells, and other clean energy technologies, combining the power of many states for more effective strategies while reducing the costs of individual state programs.

The Connecticut Clean Energy Fund (CCEF) announced in October 2004 that it is offering rebates on solar power systems to cut in half the cost of installing them. CCEF has $1.8 million available for solar power rebates, which can go as high as $25,000 per home.

In March 2004, New Mexico passed House Bill 251, which sets up a fund to invest in hydrogen and other cutting-edge energy technologies.

The Arizona Public Service, the state's largest electric utility, offers financial assistance, including incentives, for solar energy installations. APS doubled its incentives for solar electric and solar water-heating systems, starting in 2004.

Also in Arizona, Tucson Electric Power (TEP) has expanded its solar power incentives to provide a subsidy of up to $3,000 per kilowatt of rated direct-current capacity for a limited number of solar power systems, and $2,000 per kilowatt of rated alternating-current capacity. According to TEP, solar power systems could also qualify for up to $1,000 in state tax credits. UniSource Energy Services (UES), TEP's sister company, is offering the same incentives. UES has also started a voluntary program for customers to add $2 to their monthly electric bill to support solar power projects in the UES service territory.

California's Pacific Gas & Electric Company (PG&E) reopened its popular program of residential energy efficiency rebates in summer 2004. The utility has an additional $6.5 million in funds to keep the rebates flowing until the end of the year. PG&E closed the program in early July for lack of funds, but recently earned approval from the California Public Utilities Commission to redirect some unspent funds toward the rebate program.

Pennsylvania's Energy Harvest grant program funds projects that promote and build markets for advanced or renewable energy technologies. The second round of funding is expected in July 2004.

The Hawaiian Electric Company (HECO) is involved in a number of efforts to advance renewable energy, energy efficiency, and fuel cells in Hawaii, including low-interest loans and rebates for solar hot water systems in Honolulu and the opening of the Hawaii Fuel Cell Test Facility, also in Honolulu. And in late May, HECO announced that its subsidiary, Renewable Hawaii, Inc., is requesting proposals for renewable energy projects on the island of Oahu. The company has approval to invest up to $10 million in grid-connected power projects that draw on renewable energy. Read the HECO press releases.

In Minnesota, the Renewable Development Fund was created by legislation in May 1999. Xcel Energy is currently required by legislation to put $16 million annually into the fund. Funding for renewable energy projects will be available for various sized-projects in two categories: Energy Production, and Research and Development. Read more about the upcoming 2004 RFP.

The Pennsylvania Department of Environmental Protection (DEP) announced in May 2003 a new $5-million initiative to fund renewable energy projects throughout the state. A DOE grant helped kick off the new initiative, called Pennsylvania Energy Harvest, which will provide funds for wind installations, small-scale solar power systems, and biomass projects.

The Renewable Energy Mitigation Program is an innovative program of the city of Aspen and Pitkin County, Colorado, that taxes energy consumption. Launched in 2000, the program requires homeowners who wish to exceed the city's strict energy "budget" for new buildings either to install a renewable energy system or to pay a renewable energy mitigation fee.The funds--more than $2 million--are used for for local energy efficiency and renewable energy projects.

Comunities also are encouraging the use of renewable energy through funding opportunities and other incentives. For example, in July 2002, the California Power Authority launched its Public Leadership Solutions for Energy (PULSE) program, a low-interest loan fund for California public agencies installing energy efficiency improvements or clean on-site power generation.

The Energy Trust of Oregon strives to change how Oregonians produce and use energy by investing in efficient technologies and renewable energy resources. The organization also offers services and incentives to Oregon businesses and homeowners who invest in energy-efficient equipment and materials.

Massachusetts established its $15-million Green Energy Fund in January 2003 to provide equity capital, loans, and management assistance to the state's renewable energy businesses.

The New Jersey Board of Public Utilities launched the New Jersey Clean Energy Program in early January 2003 by approving $2.7 million to develop renewable energy markets, businesses, and technologies within the state. The program will award the funds by a competitive solicitation.

New Jersey also will soon have a $60 million package of initiatives to encourage business owners to install renewable energy equipment and make energy efficiency modifications. Some $45 million will be available for long-term loans to encourage the development of large-scale renewable energy production that will feed directly into the grid--$10 million for low-interest loans for renewable energy and energy efficiency projects that will be below market rate to encourage businesses to install renewable energy by providing the up front capital costs, and $5 million for an innovations fund to enable renewable energy companies to bring their products and technologies to market.

Among the incentives are those for combined heat and power (CHP) systems. The program offers qualifying customers, contractors, and energy service companies incentives to purchase and install various types of combined heat and power CHP units. Rebates of 30 to 40 percent may be available, depending on a decision by the Board of Public Utilities.

To qualify, the facility must be located in New Jersey, the customer must purchase electricity from the utility grid, and the distributed generation unit capacity must be 5 MW or less and must be an electric or gas customer served by an eligible tariff. Proposals must be submitted by August 2, 2004.

The Florida Department of Community Affairs/Florida Energy Office (DCA/FEO) is currently offering $600,000 in hardware funds toward the installation of photovoltaic (PV) solar systems on Florida schools. Rebates are expected to be in the range of $20,000 per installation or $5 per watt based on system nameplate rating. An additional rebate of $1 per watt is available for systems that include a battery back up component and can be used to provide electricity to a school disaster relief shelter. Learn more.

The California Energy Commission's Solar Schools Program encourages the installation of solar photovoltaic (PV) systems at California public schools by offering a rebate of up to 90 percent of the purchase and installation cost. School districts may also arrange for a loan from the California Energy Commission's Energy Efficiency Financing (Bright Schools) Program to cover the remaining 10 percent of project cost.

The Massachusetts Technology Collaborative (MTC), which manages the state's $150-million Renewable Energy Trust, announced the launch of thetrust's new $10-million Solar-to-Market Initiative. As a first step, the initiative is awarding $2.6 million in grants to six organizations that will install roughly 250 solar power systems on homes, businesses, farms, institutions, and local government buildings throughout the state. The new initiative also includes a $5.3 million loan fund to support solar photovoltaic (PV) businesses in the state. In addition, MTC intends to award $600,000 to support public education programs; training programs for solar installers, inspectors, and utility representatives; and metering and evaluation programs to document solar power system performance.

As well, MTC announced in September 2003 a $4 million initiative to help cities and towns throughout the state tap into wind power. MTC is holding a series of meetings across the state to gauge interest and to determine what resources are needed for developing successful local wind installations.

The Connecticut Clean Energy Fund (CCEF) launched its Solar PV Program with $1 million in funds. The program aims to install photovoltaic systems on commercial, industrial, and institutional buildings in the state.

In California, San Diego's Self-Generation Incentive Program provides cash incentives for residential and business customers to produce their own energy through "self-generation" of electricity. "Self-generation" refers to clean distributed generation technologies installed on the customer's side of the utility meter to provide electricity for a part or all of customer's electric load. The California Public Utilities Commission approved program funding of $15.5 million annually for the San Diego Region through December 31, 2004.

Community Office for Resource Efficiency (CORE) promotes renewable energy and energy efficiency in western Colorado, primarily within the Roaring Fork Valley. CORE offers several financial incentives, including Solar Power Incentives, Climate Change Mini Grant Program, Energy-Efficient Clothes Washer Rebate Program, and Energy-Efficient Lighting Retrofits.

Michigan announced in 2002 its new Next Energy Initiative, which includes a number of components aimed at making the state a leader in the renewable energy arena. One component is the NextEnergy Tax Incentives, which allow "exemptions from the SBT and personal property tax for companies, or activities within companies, whose primary focus is alternative energy research, development or manufacturing."

Homes in southeastern Pennsylvania may feature a growing number of solar electric installations through an incentive program launched in June 2002 by the Energy Cooperative. The Philadelphia-based company is offering to pay consumers 20 cents per kilowatt-hour for power produced by solar electric systems installed on their homes. The Cooperative's goal is to purchase 100,000 kilowatt-hours of solar power by the end of this year. To take advantage of the program, customers must be members of the Energy Cooperative and must purchase the Co-op's "EcoChoice 100" brand of 100 percent renewable energy. The system must meet specific criteria and must include a separate meter to measure its output. Read more.

Minnesota's State Energy Office is offering a rebate program that pays up to 25 percent of installation costs for a photovoltaic system. The program provides a rebate of $2,000 per kilowatt for 1 to 4 kilowatts of grid-connected solar-electric installations. During the four-year program, approximately $1 million will be spent to install 400 kilowatts of grid-connected solar-electric systems. Additionally, solar panels purchased before August 1, 2005, are exempt from state sales tax. Learn more (pdf).

The Long Island Power Authority's (LIPA) Solar Pioneer Program is, in its second phase, offering a higher rebate for solar power systems installed on homes and businesses. For systems installed and operating by July 31, 2002, the rebate is $6 per watt up to a maximum of 10 kilowatts, which wouldearn the maximum rebate of $60,000. After July 31st, the rebate drops to $4 per watt. LIPA is also giving away 30 solar electric systems, each with a capacity of 500 to 600 watts. Learn more.

Congress approved in March 2002 the Job Creation and Worker Assistance Act -- commonly known as the economic stimulus bill -- and in the process provided a two-year extension of the production tax credit (PTC). The PTC provides renewable power producers with a tax break of 1.5 cents per kilowatt-hour (in 1992 dollars, adjusted for inflation) and applies to electricity produced from wind power, poultry waste, and biomass power produced from dedicated energy crops. The credit now applies retroactively to installations placed in service since the beginning of this year, and extends through the end of 2003. The PTC is crucial for wind energy development in the United States, and its extension was hailed by the American Wind Energy Association (AWEA). Read more.


DOE's Financing Solution Center
Provides useful links to energy efficiency and renewable energy financing resources for homeowners, small business, industry, utilities, state and local programs, federal building, and international projects.

Database of State Incentives for Renewable Energy (DSIRE)
This searchable online database catalogs state, utility, and local incentives, including tax incentives, grants, loans, rebates and industrial recruitment, and provides an overview of the renewable energy activities of 45 communities in 22 states.

DOE's Toolbook for Financing Energy Efficiency and Pollution Prevention Technologies
Helps manufacturers work through key issues and alternatives relating to financing manufacturing modernization. Includes the following sections: 1) Financing options, techniques, and strategies; 2) Case studies; 3) Federal programs; and 4) State programs.

National Association of Energy Service Companies
Promotes the delivery by ESCOs of comprehensive energy services to maximize customer benefits and environmental sustainability. The site provides an excellent definition of Energy Service Companies and their role in financing energy efficiency. Also provides a list of accredited member companies.

DOE's Federal Energy Management Program (FEMP)
FEMP's Financing Team provides policy guidance and technical and contracting assistance related to private-sector funding for Federal energy efficiency, renewable energy, and water-conservation projects. FEMP also offers an Alternative Financing Action Kit, which describes financing tools available to Federal agencies, states, energy service companies, utilities, industry, manufacturers, and others interested in implementing ESPC projects. The kit can be ordered on-line.


California Energy Commission's Energy Efficiency Financing Program
Makes low-interest loans to schools, hospitals, and local governments for feasibility studies and the installation of energy-efficiency measures.

Other Resources

Alliance to Save Energy -- Resources for Energy Efficiency Financing
Identifies a number of avenues for financing energy efficiency improvements in the United States and globally.

The Center for Energy and Environment has developed the One-Stop Efficiency Shop, a full-service lighting rebate program designed to save energy in the small business sector, working with Xcel Energy. The One-Stop program offers qualified business owners a free audit, lighting rebates, and below-market-rate financing that is paid on the owner's utility bill, with loan payments structured to match the owner's monthly savings so that a neutral cash flow is maintained. The program captured 2,418 kW in energy savings in 2002.

Articles and Publications

Briefing Paper on Energy Services Companies (ESCOs)
Describes briefly the concept and practices of energy services companies, performance contracting, and third-party financing.

Energy Retrofits: History and Future of ESCOs in the Age of Deregulation
Explains how the Building Energy Measurement and Verification Protocol (formerly the North American Energy Measurement and Verification Protocol) will increase the reliability and quality of estimated efficiency savings and improve realized savings.

The Borrower's Guide to Financing Solar Energy Systems: A Federal Overview (pdf)
Provides information that can assist both lenders and consumers in financing solar energy systems, which include both solar electric (photovoltaic) and solar thermal systems. The guide also includes information about other ways to make solar energy systems more affordable, as well as descriptions of special mortgage programs for energy-efficient homes. To order, contact: Patrina Eiffert, Ph.D., National Renewable Energy Laboratory, 1617 Cole Boulevard, Golden, CO 80401-3393; e-mail.

How will we get the money to finance energy efficiency?
Provides tips on getting city and county energy efficiency projects financed.

The Business Side of Urban CO2 Reduction: Money for Energy Efficiency
Answers questions that municipal finance departments might have about financing city energy efficiency projects. Covers municipal source revenues, direct borrowing, and alternative financing. Discusse performance contracts, using energy savings to pay for energy efficiency retrofits, and lease purchase agreements.

Investing in Energy Efficiency: Financing Strategies for Municipalities
Introduces the main approaches to financing energy efficiency for municipalities.

Last updated: March 25, 2005

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