The American Council for an Energy-Efficient Economy (ACEEE) recently published a detailed report on types of funding for municipal energy efficiency programs from around the country. Eric Mackres and Sara Hayes, the authors of the report, not only do a great job explaining the fundamentals of these financial models but also provide a wide range of real-world community examples. I definitely recommend reading Keeping it in the Community: Sustainable Funding for Local Energy Efficiency Initiatives.
But, if you don't have time for a deep-dive into community project financing, you should at least be aware of the basics. So, here’s a summary of the prominent types of funding sources–both seed and recurring:
Grants
The most significant grant in the home performance category is the Energy Efficiency Conservation and Block Grant (EECBG), which was part of the American and Recovery Reinvestment Act of 2009. To date, more than $2.7 billion has been dolled out to large cities and counties to pay for a range of activities and services--from planning programs to seeding revolving loan funds.
Bonds
Bonds are a way for towns and counties to borrow money from investors at fairly low interest rates, usually for long periods of time. They are particularly attractive for local efficiency initiatives, as the Federal Government offers the Qualified Energy Conservation Bonds tax credit. This credit allows local governments to reduce their tax liability by a percentage of total amount paid out to investors in bond interest, so long as the bond was issued to fund efficiency initiatives.
Taxes
The most common practice is for municipal governments to impose a tax on certain energy-related activities, such as consuming energy or emitting carbon dioxide, and to use the revenue to pay for efficiency programing. However, Mackres and Hayes note that some towns are looking beyond “energy-related” activities and are considering taxing casinos as a way to pay for energy efficiency programs.
Fees
Local governments may impose fees on waste, recycling, water, rights-of-way, etc. Similar to taxes, the revenues from fees may be allocated to energy efficiency initiatives. Mackres and Hayes note that the two types of fees most often used are "franchise fees" and "systems benefit charges."
A “franchise fee” is paid by a private company to a local government in exchange for its use of a public-right of way or other type of infrastructure. A “systems benefit charge” is an extra fee added to a consumer's utility bill, the proceeds of which go to funding local efficiency programs.
There are a few different arrangements with regard to systems benefit charges. One common practice is for investor-owned utilities to collaborate with local governments to offer energy efficiency programs. An alternative is for a utilities simply give the proceeds derived from the systems benefit charge to local governments who in turn establish an efficiency trust.
Benefit Districts
A benefit district is an agreement among neighbors that each will pay a fee to an association-like entity that will provide services exclusively within the neighborhood. Common services offered in a benefit district include things like removing graffiti or cleaning streets. With regard to energy efficiency services, though, communities have created “ecodistricts.” Rather than revenues going to things like the removal of graffiti, ecodistrict fees apply to things like setting energy reduction goals, subsidizing audits and retrofits, and/or tracking performance across the district.
Conclusion
Mackres and Hayes did a wonderful job aggregating and explaining all of the funding options used for local energy efficiency initiatives. It’s important to keep these options in mind when you think about what you can do in your own town or neighborhood. You have the power to start something great that will not only improve our housing stock, reduce greenhouse gasses, but increase our energy security. Feel free to share your thoughts in the comments below!
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