The purpose of this white paper is to discuss key concepts in energy efficiency finance, with a focus on emerging solutions to long-standing barriers to financing projects in the United States, as well as the specific challenges posed by energy efficiency projects, and the potentially scalable solutions that have recently gained some market traction. Although this primer is principally written for readers not yet familiar with the details of energy efficiency finance who would like to achieve a working knowledge of the main concepts, issues, and developing solutions, this paper also presents a useful précis for readers already steeped in the details of energy efficiency finance.

Energy efficiency has long been recognized as the “low-hanging fruit” in delivering a clean energy economy, especially when compared to investments in capital-intensive energy generation technologies. According to the U.S. Department of Energy, buildings account for approximately 40 percent of total U.S. energy costs, which amounts to $400 billion each year for residential and commercial buildings alone. Reducing energy use in U.S. buildings by 20 percent would save approximately $80 billion annually on energy bills, and savings from commercial buildings would account for half of this amount, or $40 billion.

Tapping into this enormous potential for energy efficiency projects to cost-effectively lower energy consumption would help create new investment opportunities, drive economic growth, reduce air pollution and greenhouse gas emissions, increase economic efficiency and productivity, create jobs, and advance energy security. Despite these benefits, advanced energy efficiency improvements and technologies have not yet been widely adopted.

This is changing now.

Recent innovations in energy efficiency finance and the development of new business models to address the first-time cost issue and other historical market barriers have begun to accelerate this sector’s growth, and billions of dollars in project opportunities are being driven by renewed investor interest and important legislative changes. Federal mandates, state-level regulatory proceedings, and state-level financing support, in concert with innovative financing methods, are mobilizing capital for energy efficiency projects and further mitigating project-level risks.

An expanding menu of energy efficiency finance strategies is also encouraging more rapid adoption of cutting-edge technologies related to energy efficiency, such as smart grid hardware and software, energy information management and sensor controls, demand response, energy storage, super efficient lighting, and other building mechanical and electrical equipment, as well as distributed renewable generation technologies. These technologies, in turn, can facilitate more solutions to existing challenges in implementing energy efficiency projects on a larger scale.