Posted by Bruce Sullivan and Joe Emerson, Guest Colum
Would you consider making your next home or building project a zero energy project? If the net added cost to you was also zero, would you be more interested? Most people would.
It’s possible to have the added costs rolled into a mortgage or long-term loan. The monthly payments are then covered by the resulting energy earnings. One mission of the Zero Energy Project is to educate others about the widely available technology and plans for constructing zero energy homes and buildings as well as for renovating existing buildings to get on the path to zero. The only missing piece is favorable financing that takes advantage of the buying power of zero so that a zero energy project costs about the same as owning a similar conventional building project.
codewatcher.iecc2024When estimating the construction cost of a home, building, or renovation project, you should always include the cost of the energy needed to operate it. With a zero energy project the monthly cost savings can be turned into an investment that provides a better home or building at no additional expense. In other words, with careful planning, you can end up with a zero net energy building with zero net added cost.
Well thought out design and construction will keep costs down. The next step is to finance the up-front added cost over a long enough period of time so that the monthly debt service (principal and interest on the loan) is lower than the amount you earn on energy savings each month.
In order to tap into the buying power of investing in energy-saving measures, you must know how much will be saved. This requires an energy analysis of the existing building, sometimes called an energy assessment or energy audit. For new construction, a computerized energy model can be performed based on building plans. In either case, designers and building owners can identify appropriate energy efficiency measures, approximate how much they will save and estimate their cost. The analysis must be conducted by a qualified professional. Many engineering firms offer this service for commercial buildings. For residential buildings, an energy rater certified by the Building Performance Institute or RESNET can conduct the analysis.
The next step is to identify and select an appropriate option for “energy aware” financing. Many of these options can be used to improve the energy efficiency of an existing home or commercial building. They may also be used for new construction by financing the entire project or for simply supplementing the energy efficiency related elements. Here are some possibilities.
Conventional Loans
In many cases, conventional loans from a standard bank or mortgage broker may be suitable, provided the upfront costs, the value of the property, your financial status (income, downpayment, etc.) and other factors allow the loan amount to fit conventional lending guidelines.
Federal Loan Programs
Even if the upfront cost pushes your loan outside conventional loan parameters, traditional lenders can use programs within the secondary lending market to support higher debt-to-income ratios and lower down payments within a typical 30-year mortgage. HomeStyle Energy loans allow you to pay for the purchase of an existing home and for making water and energy efficiency improvements, including solar panels. Up to $3,500 worth of weatherization work can be made without an energy report with this program. Freddie Mac offers a similar program called GreenChoice Mortgage with a higher no-analysis loan limit of $6,500. Both programs permit larger investments with an approved energy report and allow the mortgage to close before the improvements are completed. Improvements to existing buildings and new energy efficient construction are both eligible for financing.
Active duty military personnel are eligible for a Veteran’s Administration Mortgage with additional funds for energy efficiency. The US Department of Agriculture also has an energy efficiency element to their rural development program. If your building is in a rural area, the USDA Energy Efficiency and Conservation Loan Program can finance energy improvements for up to 15 years for commercial, industrial, or residential buildings.
On-bill Financing
Many energy utilities offer their customers an easy way to pay for energy improvements to existing buildings by adding the monthly loan payments to their regular monthly utility bill. With a reduced energy charge each month, customers will see a total bill that is very similar or perhaps less than they paid before the improvement. On-bill financing can open opportunities for people in underserved markets such as renters, because the payments pass to the next occupant of that unit along with the benefits of the improvement, such as greater comfort and lower bills.
Shared Savings
The “shared savings” approach, also called energy savings performance contracting, is most often used in commercial and institutional buildings because it requires little or no up-front capital. It captures the buying power of energy savings to pay for the improvements. A contractor conducts a detailed energy assessment to identify savings opportunities. Based on the results, the client, the contractor and an Energy Service Company (ESCO) lender agree on a package of efficiency measures to be installed. The client pays the contractor with loan funds from the ESCO based on the calculated proceeds from the investment in energy efficiency. Lower energy bills compensate for a large portion or perhaps all of the payment so the client’s total cost is the same or similar to the previous energy bills. It’s a win-win for installers and clients. A potential drawback is that sometimes only the most profitable measures are pursued, leaving some cost-effective measures out of the mix.
State PACE Programs
Another approach that taps into the buying power of energy savings is called Property Assessed Clean Energy (PACE). In states where it is available, this loan program is rooted in local governments, such as cities or counties that have authority to levy property taxes. A good example of PACE offerings can be seen in Broward County, Florida. Funds from a special bond sale or grants are loaned out to property owners to pay for up to 100% of a clean energy project’s cost. The loan is paid back through an additional assessment on the owner’s property tax bill. Because the loan is tied to the property and not an individual borrower, the loan term can be 15 or 20 years. If the current owner sells the property, the new owner picks up the payments. And like the utility on-bill financing approach, subsequent owners enjoy the benefits of the improvements as well as the efficiency earnings. PACE programs are available in 20 states and the District of Columbia.
Green Banks
Although they don’t take deposits, green banks lend money for clean energy and other environmentally beneficial projects. Funding comes from both private and government sources with the goal of increasing private investment in clean energy markets. Projects that aim to reduce the impacts of climate change are a major focus. Two examples of this approach in the US are the Connecticut Green Bank and the New York Green Bank.
Clean Energy Credit Union
Loans are also available from the Clean Energy Federal Credit Union. This relatively new organization uses money in members’ savings accounts and IRAs to finance consumer loans for many types of big-ticket clean energy consumer goods. These include new and used electric vehicles, home improvements, solar electric systems, and even electric bikes. Becoming a member allows regular folks to have their small account balances put to good use.
Government Loan Programs
Most state governments offer some form of energy improvement loan along with other financial incentives. Two examples would be the California Lending for Energy and Environmental Needs (CLEEN) Center and the Nebraska Dollar & Energy Saving Loan Program. Check your state’s website to see if it offers energy improvement loans.
Government and Utility Incentives
The federal government’s solar investment tax credit is set at 30% until the end of 2019. Then it gradually steps down. The residential credit is set to expire at the end of 2022, but the credit for commercial solar installations will continue indefinitely at 20%. This credit applies to battery storage systems, too. Utility programs fund a variety of energy efficiency and renewable energy projects that vary widely around the US. DSIREUSA.org is a good source for information about state and federal credits, rebates, and other incentives.
FOR MORE INFORMATION contact Cosmic Solar
Private Lenders
Some lenders offer loans for specific energy efficiency measures, especially for solar electric systems. Sunrun installs solar systems nationwide and offers in-house financing through loans or power purchase agreements, which are essentially equipment leases. Another is Mosaic which lends for solar energy systems. EnergySage offers a long list of these specialty lenders.
If you can afford to buy or build a building, you can afford to make it zero energy or at least well on the path to zero by using one of these financing approaches. The secret is to keep the up-front costs low and finance them over a long period of time. In almost all cases, your total cost of ownership for the zero energy, or near zero building will be the same or lower than the cost of a conventional building. Long-term financing coupled with well planned and documented energy savings is the key to zero energy homes and buildings that cost no more to own than similar standard homes and buildings.
This article was republished with permission and originally appeared here.
The Zero Energy Project is a non-profit educational organization whose goal is to help home buyers, builders, designers, and real estate professionals take meaningful steps towards radically reducing carbon emissions and energy bills by building zero net energy homes and near zero energy homes. We envision the day when positive energy homes, which produce more energy than they consume, will power electric vehicles as well as homes, so that everyone can live well with less expense and without fear of energy price spikes, while greatly reducing our carbon emissions.
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