Global Study of Energy Efficiency Project Finance: Innovation Shown Moving to Asia

Milton Bevington, a UMass Boston lecturer affiliated with the Center for Sustainable Enterprise and Regional Competitiveness (SERC), recently released a study of innovation in energy efficiency project finance, the culmination of five years effort in over twenty global capitals on more than a hundred projects. The report describes successful pilots, lessons learned, and implications for a broad acceleration in energy efficiency investment worldwide. Significantly, the report confirms the recent emergence of a new Asian center of innovation in energy efficiency project finance. The paper, Making Energy Efficiency Bankable: Lessons Learned from a Global Market Transformation Effort, is coauthored with Christopher Seeley of the William J. Clinton Foundation, and will be presented at the 2012 ACEEE Summer Conference on Energy Efficiency in Buildings

The report's key findings demonstrate that:

o    Performance-based savings guarantees can be an effective credit enhancement when properly structured and linked to loan underwriting processes.

o    Subordinated lending for retrofit projects is possible on mortgaged buildings with the help of an innovative project finance template.

o    A special entity structure can eliminate misaligned incentives between owners and leaseholders in tenanted buildings.

o    Aspects of existing U.S. public finance can mitigate capital budget competition and local government concerns over borrowing limits.

o    A new type of project funding that is not subject to normal borrowing limits is available to U.S. non-profit institutions.

During the study period, the authors provided pro bono advisory services to a range of public and private building owners, negotiating technical and financial performance terms on their behalf. Summarizing the report's significance, lead author Milton Bevington observes, "The twenty-first century requires new underwriting models to meet the challenge of low-carbon economic development. Scalable commercial finance structures are emerging in this century that can do for efficiency in the built environment what the 30-year mortgage and standardized contracts did for home ownership in the last."