Energy Efficiency Loan Financing Is Low-Risk With Large Potential

Giving people loans to finance energy efficiency improvements?is proving to be a stable, low risk investment with low default rates and large-scale potential, according to a study released by the American Council for an Energy-Efficient Economy (ACEEE).

ACEEE?analyzed?24 energy efficiency loan programs and found?extremely low default rates, ranging from 0-3% throughout the life of the loans.

Default rates?have also remained largely unchanged, even during the near collapse of the real estate market over the past few years.

"Energy efficiency loans are proving to be a winning investment in a time of economic uncertainty. Based on these findings, now is the time to scale-up to serve many more homeowners and businesses," says ACEEE Executive Director Steven Nadel.

Energy efficiency loans finance building upgrades by providing funding directly to building owners or managers. These projects lower energy bills and reduce annual energy costs by an average of 12-17%. Small commercial banks and credit unions have led in offering these?loans, often working with utilities as well as local and state governments.

The programs?ACEEE evaluated?have loaned over $1.5 billion at interest rates averaging 3-5%, through the use of subsidies and energy program funds.

These?loan programs barely?scratch the surface of the potential market even though they?represent the largest energy efficiency financing efforts to date in the US.?Less than?0.5% of those who could apply for these loans do so.?

"These low participation rates indicate there is a vast untapped customer base still available in this market. I think we'll see increased private investment as big banks adopt the model that community banks and credit unions have found so profitable," observes Sara Hayes, lead author of the report.

Large banks haven't invested?because of the?lack of centralized information on how the loans are performing and their inability to evaluate default risks.

Furthermore, each loan tends to be small, averaging?$9,000 for residential projects and $73,000 for commercial/industrial/public projects. To?attract the interest of large financial institutions,? loans would need to be bundled?for resale on the secondary market.

"The financial sector has shown itself to be extremely adept at scaling programs that serve customer needs well. Consider, for example, the growth in the performance contracting and green building finance markets," says Joel Freehling, Senior Energy Finance Consultant at Shaw Environmental & Infrastructure and author of the first paper in ACEEE's series on energy efficiency financing. "It's finding the right place to start and locating the right partners that often stymy further growth in the energy finance field. If these hurdles can be overcome, we could see huge growth in these programs."

Read the report, "What Have We Learned from Energy Efficiency Financing Programs?":

Source: http://www.sustainablebusiness.com/index.cfm/go/news.display/id/22920

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