New Lessons on Driving Demand for Energy Efficiency Financing

Recent months have seen some exciting developments in energy efficiency finance. Investment funds, capitalized at about $200 million, are set to break into the potentially extensive market for energy efficiency projects in the buildings sector. While capital flowing into the market is important, the critical next step is to drive demand for energy efficiency improvements and connect this demand with available capital.

In October, we reported on initial lessons learned from the Small Lender Energy Efficiency Convening (SLEEC), organized by ACEEE and Energi. We have now released a more detailed report that profiles successful, integrated efficiency lending programs, highlights perspectives on increasing lender participation, and explores substantive barriers to growing the market to its full potential.

We note that a lack of customers actively seeking financing for energy efficiency improvements is the number one barrier to participation in the market for small to mid-size lenders. At the convening, participating lenders also identified uncertainty around best practice methods for validating and underwriting energy savings as substantive key barriers. And while we are witnessing a growing number of innovative products, and lenders willing to lend for energy efficiency, we still need to make more progress developing the customer base.

Developing that base will require a better understanding of how to serve those customers better. The report contains recommendations from the small lender network that focus on opportunities to better understand customer demand for energy efficiency. One example is exploring randomized controlled trials, an approach leveraged by nonprofits such as Innovations for Poverty Action to evaluate the effectiveness of poverty alleviation interventions. Similar approaches could be used to explore the effectiveness of energy efficiency loan programs and product components.

We also found that several programs such as the Energy Savers Program were able to serve customers in the multifamily market, considered by some to be hard to reach, by adopting an integrated approach. This approach provides a seamless transaction process for customers, where every activity from energy audit to financing, incentives, and project execution is simplified and consistent.

Armed with the technical assistance and policy and research support outlined in the report, small to mid-size lenders could serve an important role in facilitating investment in energy efficiency at the local, state, and regional levels. Given their strong relationships with customers, these lenders, both mission-driven and non-mission driven, could potentially leverage local knowledge to connect their customers with energy efficiency contractors. These lenders can also connect customers with members of the community who have undertaken similar projects in the past.

So it is no coincidence that we chose “Building Momentum and Driving Demand” as the theme of this year’s ACEEE Energy Efficiency Finance Forum. The forum, designed for investors, financiers, utilities, and policymakers, is scheduled for May 11-13 at the Capital Hilton in Washington, D.C. One program highlight will be a keynote address by Suzanne Shelton, President and CEO of the Shelton Group, who will provide insights from customer segmentation studies on demand for energy efficiency improvements. For more information about the Energy Efficiency Finance Forum, please visit our website. Registration is now open!

Finally, if you are a lender who is interested in engaging with like-minded institutions as a part of SLEEC, please reach out to Casey Bell at cbell@aceee.org.