Energy & Development Finance

Overview

The energy finance sector has rapidly grown in the 21st century. The clean energy, or energy-efficient sector was characterized as risky, fragmented, and ill-defined. Measuring the reciprocal risk in relation to the relative reward of investing in this sector was difficult due to a lack of data, impact metrics, and portfolio performance. Investors viewed this as a questionable investment and avoided the clean energy sector, contributing to a lack of overall investment in the industry.

As innovative financing programs and tools for the energy sector were generated, the energy sector was redefined and has matured into one of the most sought-out investment classes in the development finance spectrum. This sector has blossomed into one of the strongest investment classes, as a result of collaboration and the development of risk reducers, metrics, and performing investments.

Today, there are a vast amount of financing tools available to assist with the high price of employing energy efficiency and clean energy projects. From federal financing tools to state and local financing tools, there are a variety of options to sustainably finance energy projects on every scale.

Federal Programs

U.S. Department of Energy

Loan Guarantee Program - Section 1703 of Title XVII of the Energy Policy Act of 2005 authorizes the U.S. Department of Energy (DOE) to support innovative clean energy technologies that are typically unable to obtain conventional private financing due to high technology risks. In addition, the technologies must avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases. Technologies considered for Section 1703 loans include:

Biomass;

Hydrogen;

Solar;

Wind/hydropower;

Nuclear;

Advanced fossil energy coal;

Carbon sequestration practices/technologies;

Electricity delivery and energy reliability;

Alternative fuel vehicles;

Industrial energy efficiency projects; and

Pollution control equipment.

Technologies with over three implementations active for more than five years are excluded.

Efficiency and Conservation Block Grant (EECBG) Program -The U.S. Department of Energy's (DOE's) Energy Efficiency and Conservation Block Grant (EECBG) Program, funded for the first time by the Recovery Act of 2009, represents a Presidential priority to deploy the cheapest, cleanest, and most reliable energy technologies we have--energy efficiency and conservation--across the country.

The Program, modeled after the Department of Housing and Urban Development's Community Development Block Grant program, is intended to assist local communities to develop, promote, implement, and manage energy efficiency and conservation projects and programs that:

Reduce fossil fuel emissions;

Reduce the total energy use of the eligible entities;

Improve energy efficiency in transportation, building, and other appropriate sectors; and

Create and retain jobs.

Through formula and competitive grants, the EECBG Program empowers local communities to make strategic investments to meet the nation's long-term goals for energy independence and leadership on climate change.

U.S. Department of Agriculture

Rural Energy for America Program (REAP):

Grants - REAP Audit & REDA Grantees assist rural small businesses and agricultural producers by conducting and promoting energy audits, and providing renewable energy development assistance. Applicants must submit separate applications, limited to one energy audit and one REDA per fiscal year. The maximum aggregate amount of an energy audit and REDA grant in a Federal fiscal year is $100,000.

Loans - This program can provide grants and/or loan guarantees for rural businesses and farmers to install renewable energy systems or install energy efficiency improvements to their operations. These types of improvements can help them control energy input costs and improve the overall profitability of their operation. The grant program can cover 25% of the eligible project costs while the loan guarantee can cover up to 75% of the eligible project costs. Grants can range from $1,500 to $500,000 with loan guarantees up to $10,000,000. Previously, we have helped farmers replace grain dryers; fans and lights for livestock operations; and install solar PV arrays to help offset electrical consumption. Small businesses have been assisted through high-efficiency lighting; improvements to their HVAC systems; and installation of a renewable energy system to help offset electrical consumption.

Funding can include:

Loan guarantees on loans up to 75% of total eligible project costs

Grants for up to 25% of total eligible project costs

Combined grant and loan guarantee funding up to 75% of total eligible project costs

Loan guarantee terms include:

$5,000 minimum loan amount

$25 million maximum loan amount

Up to 85% loan guarantee

Rates and terms negotiated with the lender and subject to USDA approval

Maximum term of 30 years for real estate

Maximum term of 15 years for machinery and equipment

Maximum term of 7 years for capital loans

Maximum term of 30 years for combined real estate and equipment loans

Renewable Energy System Grants:

$2,500 minimum

$500,000 maximum

Energy Efficiency Grants:

$1,500 minimum

$250,000 maximum

State and Local Programs

Property Assessed Clean Energy (PACE) - Property Assessed Clean Energy (PACE) financing is a mechanism for achieving energy retrofit or energy generation of existing privately-owned buildings by utilizing special assessment district financing techniques to finance projects, with private capital, via property owners’ property tax bills. PACE programs are administered by state and local governments and can exist for both residential properties (R-PACE) and commercial properties (C-PACE). PACE programs can be established to address a single property, a district, a region, or an entire state. This proves PACE to be a flexible and easily implementable financing tool.

State Energy Program (SEP) - The Department of Energy's (DOE) State Energy Program (SEP) provides financial and technical assistance to states through formula and competitive grants. States use their formula grants to develop state strategies and goals to address their energy priorities. Competitive grant solicitations for the adoption of energy efficiency/renewable energy products and technologies are issued annually based on available funding.

States provide a 20% match under SEP annual formula allocations. SEP emphasizes the state's role as the decision maker and administrator for the program activities within the state. The energy offices in each state and territory are a vital resource for delivering energy benefits, addressing national energy goals, and coordinating energy-related emergency preparedness across the nation.

Case Studies

The St. Clair Inn

Michigan’s historic St. Clair Inn received a $35 million revival in 2018. The 106-room hotel includes an outdoor pool with a swim-up bar and an amphitheater. The project utilized $5.5 million in PACE financing to implement LED lights, energy-efficient appliances, and water-saving measures. The 20-year PACE term will save nearly $2 million in energy costs. The environmental impacts are equivalent to taking 243 cars off the road and saving drinking water for 14,980 people.

Florida Clean Energy Investment Program

The Florida Opportunity Fund’s Clean Energy Investment Program was created to promote the adoption of energy-efficient and/or renewable energy (EE/RE) products and technologies in Florida. This program accomplishes this by providing funding to businesses to increase the use of EE/RE technologies, equipment, and materials in the State. Funding for the program was provided by the US Department of Energy through the American Recovery and Reinvestment Act of 2009 (ARRA) and is administered by the Department of Agriculture and Consumer Services’ Office of Energy. Funding opportunities afforded under the Program may consist of debt and other instruments, so long as the proposed activities are consistent with the Focus Areas described below. Examples of possible structures for funding opportunities include project financing, asset-based lending, mezzanine financing, and equity investments. The Program may invest alongside additional private capital that will allow funding for activities beyond those permitted by the Program. The Program will target funding opportunities ranging from $500,000 to $5 million.

Iowa Alternate Energy Revolving Loan Program

The Alternate Energy Revolving Loan Program (AERLP), administered by the Iowa Energy Center, provides low-interest loans to individuals and organizations that seek to build renewable energy production facilities in Iowa. Successful applicants receive a low-interest loan that consists of a combination of AERLP and lender-provided funds. The AERLP provides 50% of the total loan at 0% interest rate up to a maximum of $1,000,000. Rural electric cooperatives and municipal utilities are limited to one loan every 2 years with a maximum loan of $500,000. The remainder of the loan is provided by a lender at market rate. Eligible technologies include solar, biomass, wind, and small hydro.

Arizona Commercial/Industrial Solar Tax Credit

The primary goal of the Commercial/Industrial Solar Energy Tax Credit Program is to stimulate the use of solar energy in commercial, industrial, and other non-residential applications by subsidizing the cost of solar energy devices. The Solar Program achieves this goal by providing an Arizona income tax credit to offset the cost of installation of a qualifying solar energy device at an Arizona business facility. The Solar Program is administered by the Arizona Commerce Authority (ACA). Tax credits generally equal 10% of the installed cost of the solar energy device up to $25,000 in tax credits for one facility in a single tax year and up to $50,000 in total tax credits for one business in a single tax year. Tax credits can be used to offset Arizona income tax liability; any unused credit amounts can be carried forward for up to five tax years.