Background: Addressing The First-Cost Problem inherent in Energy Efficiency and Renewable Building Upgrades
As cities and states continue to tackle the many challenges created as a result of global warming, the problem of emissions from existing buildings ranks high in priorities. Nationally, nearly 41 percent of all emissions come from existing buildings, with more than half of them from residential buildings. While the energy efficiency of new buildings is typically handled through the establishment of new building codes and incentives, the more complicated energy upgrade of existing buildings remains a quandary. State and local governments — in addition to business and philanthropy — now lead efforts to solve the challenge of existing building emissions, including tactics to address an owner’s needed upfront investment (referred to as the “first-cost problem”) in improving a building’s energy performance. In particular, state and local governments are deploying their own funds into financial structures to reduce first-cost problems by attracting patient, relatively low-cost private capital. The newest of efforts champion financial structures capable of significantly improving the affordability of building upgrades, extending the reach of upgrades and financing to ever broader consumer markets. These innovations will also catalyze demand across a diverse set of commercial and residential building owners.
While the early days of energy financing primarily looked to government and utility ratepayer dollars to serve as loan capital, today’s complex structures recognize that subsidized financing is insufficient to meet the long-term challenge. Now, finite sources of public and ratepayer funds are more frequently deployed to attract and leverage private capital to energy and solar financing. By allocating these scarce public-and-ratepayer funds as credit enhancement, both for primary financing and to support new secondary market structures, state and local governments are building the capacity to transform the energy efficiency marketplace for all asset classes, including residential (both single-family and multifamily), commercial, municipal and industrial.