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Emerging Best Practice for Underwriting Commercially-Attractive Energy Efficiency Loans

Clean Energy Finance Center, Sustainable Real Estate Solutions, Pace Now | April 2012

In the United States, there are nearly 4.8 million buildings that represent the commercial real estate (CRE) market. Building owners are beginning to see that energy efficient retrofits can increase property values. Small-scale retrofits in the CRE market have paved the way for deep (large scale) retrofits that reduce a buildings energy usage by a minimum of 30 percent. Deep retrofits require a longer payback time, typically ten to twenty years, and also require a larger investment. In order to find financing that is commercially attractive; the financing must come without any capital expense, cover the project in full, and must have a low interest rate. A long pay off period is also beneficial so that monthly payments can be offset by monthly energy savings.

This report focuses on several EE financing options, namely: PACE financing, Energy Service Companies (ESCO) financing, Energy Service Agreements (ESA), and ESA with PACE. Regardless of the method of financing, the entire building must undergo an analysis and multiple energy conservation measures (ECMs) must be processed. The following industry protocols are used in underwriting: (1) The ASTM E2797-11 Building Energy Performance Assessment (BEPA) Standard, (2) The American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) Level II and Level III Energy Audit Guidelines, (3) The International Performance Measurement and Verification Protocol (IPMVP).

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Financing Options
Financing Program Overview