Chapter 10

Basics of

Energy Project Financing

The main job of the chief financial officer of your organization is to
reduce risks. The risk analysis of an energy project is not complete unless
all technical and financial options are explored and understood.
For the purposes of this chapter, it is assumed that an energy ser-
vices company (ESCO) will be responsible for providing the energy con-
servation measures (ECMs) and managing your project. These ECMs may
include audits, design, construction, installation, monitoring, and mainte-
nance.
It is also assumed that a separate party, such as a bank or invest-
ment company, is providing the capital to purchase the equipment.
Sometimes ESCOs market themselves as being financiers, but most of-
ten they have a financing source such as a corporate parent or bank in
the background. For simplicity’s sake, the ultimate source of capital for
the project will be considered a separate lender with its own guidelines
and its own decision-making process.
Some of the most common financing alternatives are:

COMMERCIAL BANK LOAN

The obvious first alternative is approaching your local business
bank and applying for a loan. The bank will review your company’s cred-
it history and financial statements in order to make a decision. Interest
rates are usually based on the prime rate (the rate offered by the largest
U.S. banks to their best customers) plus a margin. For example, as of this
writing, a company with established, above-average credit can expect to
pay 1% over prime. Most banks prefer to lend to businesses in the form of
credit lines which can be used by the company as needed, paid back, and

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