Financing Risk Assessment
In December 2012, the Alliance completed a Class B office building whitepaper on energy efficiency financing performance risk. This whitepaper documents information for lenders and building owners to assess performance risks associated with energy efficiency retrofit projects, the current types of commercial energy efficiency financing vehicles, performance risk assessment frameworks, data requirements, procedures, and best practices. The whitepaper also includes a case study for an energy efficiency retrofit project in a Class B office building located in the SoCalGas® service territory.
Widespread interest of commercial energy efficiency lending from financial institutions is currently limited by undefined risks associated with energy efficiency projects. The lack of data and information on energy efficiency retrofit project performance risk remains as one of the biggest challenges with loan underwriting. Improvements in presenting data that captures the level of uncertainty in energy performance is a critical step towards stimulating greater deal flows in the commercial energy efficiency financing field.
Class B office buildings retrofit projects represent solid investment opportunities for lenders due to:
- Project sizes, on average, are large enough to capture the interest of lenders
- Building owners tend to be more financially constrained and many do not have enough capital or liquidity to fully fund their own projects
- Many projects have attractive return on investment (ROI) or payback period.
However, Class B building owners often have limited resources and knowledge regarding their financing options. The whitepaper provides specific guidance for Class B building owners on developing a project specific cash flow analysis and financial report that sufficiently captures performance risk. The five general steps are:
- Conduct an onsite audit
- Develop baseline and project savings estimates
- Prepare a financial report
- Measurement and verification.
Key study conclusions include:
- Industry standards are available to help guide the data collection and analysis process to ensure the validity of the energy savings projections
- Once project data is collected and analyzed, the range of expected savings should be estimated through building simulation modeling to capture performance uncertainty
- Cash flow analysis should be performed on the high, expected, and low energy savings scenarios to capture financial risk associated with the retrofit project.
As part of the study, the Alliance developed an Energy Efficiency Calculator – a tool designed to provide the cash flow analysis and financial reports that capture the performance risk of a proposed energy efficiency retrofit project. The financial reports are formatted such that they can be easily printed as supporting documentation for a loan application. Download the whitepaper and Energy Efficiency Financial calculator.