Choosing the Right Financing 75A good place to find a list of energy efficiency incentives is the Database
of State Incentives for Renewables and Efficiency (www.dsireusa.org).
VISION OF THE FUTURE
In the United States, energy efficiency is big business. A recent
Lawrence Berkeley National Laboratory-National Association of Energy
Service Companies (LBNL-NAESCO) survey* has ESCOs projecting their
2008 revenues at more than $5 billion and growing at an annual rate of
22% since 2006.
The survey went on to confirm that “MUSH” markets—municipal
and state governments, universities and colleges, K-12 schools, and hos-
pitals—have historically represented the largest share of ESCO indus-
try activity, which was 58% of industry revenues in 2006. The federal
market represented 22% and public housing represented 2% of industry
revenues, while the industrial sector represented 6% and the commer-
cial section 9%. Energy is the single largest operating expense in an of-
fice building, representing about 30% of a typical building’s costs. This
means that the commercial sector represents a growth opportunity for
ESCOs.
Historically, however, the commercial real estate sector has faced
numerous barriers to increasing their energy efficiency efforts, including:
- Split incentives (when the tenant and not the building owner pays
the utility bills). - Properties are held under complex legal structures that make it dif-
ficult and time-consuming to obtain financing (limited liability com-
panies, limited partnerships, etc.). - Non-recourse financing may already be in place, but new lenders
want recourse on traditional energy efficiency project financings, es-
pecially when the equity in the property is highly leveraged. - Difficulty in obtaining a security interest in the new energy assets
being installed unless the entire building is refinanced. - Tenants not wanting to take on debt for long-term leasehold im-
provements. - Lenders not wanting to provide secondary financing to building own-
ers for terms longer than the remaining lease term for key tenants.