The biggest barrier to undertaking energy efficiency projects is usually the substantial capital outlay involved in almost all significant projects.

Some firms contemplating a major investment will simply wait until they’ve accumulated enough capital to trigger the project, while others are prepared to use financing from their own bank or funding source, or perhaps from a government source.

Is there a right answer?Neither approach is necessarily the “right” one. If you wait a year or two until you’ve accumulated enough capital of your own, you’ve sent 12-24 checks to the utility company that could have been a lot smaller and could easily have paid for your project. If you borrow money, either on-balance sheet (a loan or LOC) or off-balance sheet (certain types of leases), you may restrict your future borrowing capability for other purposes.

External Resources: There are other sources of financing that can help too, including Federal and State tax credits, tax deductions and State loans, as well as various grants, rebates and incentives from utilities, often backed by State funds. In combination, these incentives are usually very attractive, but they are often (severely) limited to certain projects, certain types of borrowers, certain dollar values and short timeframes. In many locations, these incentives have either dwindled or lapsed altogether.

A New Option: There’s a relatively new option, however, that can also be very attractive “On-bill Financing”. This type of financing is typically offered by a utility company for energy efficiency improvements to a facility, repaid by the facility owner (or possibly tenant) on their monthly utility bill.Sometimes the customer has to pay back the full cost of the project in this way, but sometimes the utility will absorb part of the cost and the customer repays the balance. No two programs are identical.

At a minimum, on-bill financing solves the problem of waiting until you have enough capital to launch a project. In almost all cases, savings in energy consumed will pay for the capital costs in a relatively short period, including installation and removal of old (sometimes toxic) equipment.

One potential benefit from these programs is a solution to the ongoing problem of tenants who want their utility costs reduced, and landlords who don’t want to make the capital investment, since they don’t directly benefit from the savings. In principle, on-bill financing from the utility company solves this problem.

Where is it available?Utilities in about 20 states offer on-bill financing or are looking into it, supported (and sometimes pushed) by their Public Utility Councils.In the Mid-Atlantic States, we’ve seen the first few programs starting in New Jersey, but there are none in Pennsylvania yet. Nevertheless, this trend is spreading steadily across the country (generally from West to East) and, over time, can transform the nation’s ability to get energy efficiency projects done sooner rather than later.  We’ll keep you posted.

To learn more about onbill financing and other Sources of Energy Efficiency Project Financing contact us through http://www.appenergy.com/appenergy/ or email Thomas Dufraine at tdufraine@appenergy.com.