Why Financing Energy Efficiency Improvements Is Important
Financing for energy efficiency improvements can supplement utility incentives, such as grants or rebates and allow owners to undertake more comprehensive retrofits and achieve greater energy savings. Owners of affordable multifamily housing often do not have cash available to pay for energy efficiency improvements. And, most owners will face significant barriers to financing efficiency measures, even if the improvements will pay for themselves from savings. Complicated existing financing arrangements with or obligations to lenders and investors frequently make it difficult to add new debt to a building. There are, however, steps program administrators can take to overcome these challenges.
Our Priorities for Financing Efficiency
- Plan incentives to correspond with conventional building financing events. Owners and lenders will be more open to incorporating energy efficiency measures into their construction plans at the time of purchase, refinancing, or rehabilitation financing. Program administrators should seek to reach owners anticipating these events.
- Partner with lenders active in the local market. Program administrators should keep lenders informed about available incentives to fund repairs and improvements. Integrating utility incentives into a retrofit will reduce the overall construction costs for the owner, thereby reducing the amount of debt the owner must take on to complete the project.
- Explore off-balance sheet financing options like on-bill payment arrangements. On-bill financing can attract building owners’ participation because loan payments are offset by utility savings and may not be treated as debt.
Examples of How to Finance Efficiency
- Fannie Mae’s Green Preservation Plus loan program increases refinancing levels and offers more attractive terms to fund efficiency improvements, premised on the expected enhanced property value.
- Public Service Enterprise Group of New Jersey (PSEG) offers its Residential Multifamily Housing Program to multifamily building owners. PSEG will pay the full cost of efficiency projects up front and collect the customer’s share through monthly installments billed as an additional charge on regular utility bills.
- The Maryland Department of Housing and Community Development (DHCD) administers the state’s utility-funded low-income efficiency programs. DHCD coordinates the program with its affordable housing rehabilitation financing programs, incorporating energy efficiency improvements into the overall construction project.