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Financial Strategies for Renewable Energy

Taking the first steps to renewable energy can be daunting, looking at different financial strategies is a great start.

| February 2018

Power from the People (Chelsea Green Publishing, 2012) explores how homeowners, co-ops, nonprofit institutions, governments, and businesses are putting power in the hands of local communities through distributed energy programs and energy-efficiency measures. Over 90 percent of US power generation comes from large, centralized, highly polluting, nonrenewable sources of energy. It is delivered through long, brittle transmission lines, and then is squandered through inefficiency and waste. But it doesn't have to be that way. Communities can indeed produce their own local, renewable energy.

One of the biggest issues for most projects is how to finance them. Renewable energy technology tends to be fairly expensive and usually requires a lot of upfront equity and debt financing as well as seed capital to cover early development costs. This can be a daunting challenge for most communities or local organizations, depending upon who is actually organizing the project. Nevertheless, there are a number of financial tools available. You will probably want to take advantage of as many as possible. For additional ideas on local financial strategies, see the first book in the Community Resilience Guides series, Local Dollars, Local Sense by Michael Shuman.

Traditional Funding

One of the first places to look for financing for small, locally owned projects is a local bank. Local bankers have an obvious interest in their community and in establishing or maintaining financial relationships with local residents. They may not be familiar with the latest renewable energy technologies, but if the benefits to the local community are carefully explained, some bankers may be persuadable. If there is no local bank in your community, a regional bank is the next possible source. There are also a number of commercial finance companies that specialize in renewable or green energy projects.

It is also possible that a local business or cooperative might be willing to be an equity investor or participant in a local renewable energy project, depending on their appetite for federal or state tax credits. Some states also offer low-interest loan programs for renewable energy projects. Admittedly, obtaining a loan of any kind has been a challenge for most small businesses since 2008. But if your project is well conceived and structured, and if you are able to take advantage of some of the incentives or tax credits that are often available, you should be able to arrange financing.



Property Assessed Clean Energy Programs (PACE)

Another potential tool is a local Property Assessed Clean Energy program. These programs enable local governments to finance renewable energy and energy-efficiency projects on residential, commercial, and industrial properties, eliminating the main barrier to these projects: the large upfront cost. The local government does this by creating an improvement district and issuing a bond secured by real property in the district; the bond proceeds are then available for funding renewable energy or energy-efficiency projects. The property owners who take advantage of this funding then repay the debt service on the bond in fixed payments as part of their property tax bills. If the property is sold, the debt stays with the property and is assumed by the new owner, who will also benefit from the improvement. Participation is completely voluntary, and only those who choose to participate in the program pay the costs of the additional assessment.

PACE programs have begun to spread across the nation, although they were suspended in July 2010 due to regulatory issues with the Federal Housing Finance Agency and mortgage giants Fannie Mae and Freddie Mac. Some states, however, have since enacted recent PACE legislation enabling the commercial portions of the program to continue unaffected, and there is now an active bipartisan national effort to allow the programs to continue. While PACE programs may not be useful for collaborative community-scale projects, they can be extremely helpful for private residential and commercial projects in the community.






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