Not sure where to start on financing energy reduction or onsite generation projects? Use this page to explore financing options and see how they compare to each other. Anywhere on the page, click on a Financing Option button to learn more about that option, including how to connect with providers who can finance your organization’s projects.
Ready to take the next step? Start by briefly reviewing the information below. Click on any financing option button for a simple fact sheet about that option.
- Review and fill out the External Financing for Energy Projects worksheet
- Then answer a few questions that will help you find financing options and providers that are right for your organization
- Begin connecting with Financial Allies
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Financing Fact Sheets
What is Internal Funding?
Internal funding refers to the use of an organization’s existing financial resources to pay for energy saving or onsite generation projects, rather than seeking external financing. This is often the most simple and direct method for funding projects, and it allows the organization to capture the full financial benefits of energy projects rather than paying a portion to a financing provider. Some methods for internal funding include operating or capital budget expenditures, self-funded energy savings performance contracts (ESPCs), capital investment funds, and revolving loan funds.
What is a Power Purchase Agreement?
A power purchase agreement (PPA) is an arrangement in which a third-party developer installs, owns, and operates an energy system on a customer’s property. The customer then purchases the system's electric output for a predetermined period. A PPA allows the customer to receive stable and often low-cost electricity with no upfront cost, while also enabling the owner of the system to receive income from the sale of electricity.
What is Lease Financing?
A lease is a simple financing structure that allows a customer to use energy reduction or onsite generation equipment without purchasing it outright. The two most common types are on-balance sheet capital leases and off-balance sheet operating leases. Public sector organizations can take advantage of tax-exempt leases. At the end of the lease, the customer may have the option to purchase the equipment, return the equipment, or extend the contract, depending on the type of lease used. Lease financing is offered by many equipment manufacturers and vendors as well as third-party lessors. (Note that operating leases must be reported on balance sheet as of 2019-2020.)
What is Loan or Debt Financing?
Customers can borrow money directly from banks or other lenders to pay for energy reduction and onsite generation projects. The customer must then arrange the purchase, installation, and management of equipment by a third-party contractor or in-house staff. Loan financing is offered by many equipment manufacturers, vendors, and contractors as well as third-party banks and lenders. Loan terms and availability may be affected by the creditworthiness of the customer, limitations on debt that can be taken on the balance sheet, or current debts held by the customer.
What is Energy-As-A-Service?
Energy-as-a-service is a pay-for-performance, off-balance sheet financing solution that allows customers to implement energy and water savings projects with no upfront capital expenditure. The provider pays for project development, construction, and maintenance costs. Once a project is operational, the customer makes service payments that are based on actual energy savings or other equipment performance metrics, resulting in immediate reduced operating expenses. The energy services agreement (ESA) is the most common type of arrangement, but other models such as lumens-as-a-service and energy subscription agreements are also in use.
What is Commercial Property Assessed Clean Energy?
Commercial property assessed clean energy (C-PACE) is a financing structure in which building owners borrow money for energy reduction, onsite generation, or other projects and make repayments via an assessment on their property tax bill. The financing arrangement then remains with the property even if it is sold, facilitating long-term investments in building performance. C-PACE may be funded by private investors or government programs, but it is only available in states with enabling legislation and active programs.
What is an Energy Savings Performance Contract?
Under an energy savings performance contract (ESPC), an energy service company (ESCO) coordinates installation and maintenance of energy upgrade equipment in a customer’s facilities and is paid from the associated energy savings. The ESCO typically provides a savings guarantee. The improvements are usually owned by the customer and may be installed with little or no upfront cost if the ESPC is financed. ESPCs are suited for larger ($1 million+), more complex projects with high upfront costs, though they have sometimes been used for smaller projects. ESPCs are also called energy performance contracts (EPCs). For an additional comprehensive resource, visit DOE’s Performance Contracting National Resource Center for best practices, resources, and solutions related to ESPCs.
A revolving loan fund is an internal capital pool that is dedicated to funding energy reduction or onsite generation projects that generate cost savings. A portion of those savings are then used to replenish the fund (i.e. revolved) allowing for reinvestment in future projects of similar value. This establishes an ongoing funding vehicle that helps drive energy reduction and onsite generation projects over time, while generating cost savings and ensuring capital is available for important projects.