5 Energy Efficiency Financing Options for Businesses

By Al Gaspari

Embarking on an energy efficiency project is a smart investment that can reduce costs and provide operational benefits for California businesses. Once a business owner or manager has chosen where to make improvements, whether it is an upgrade, a retrofit or a replacement, the next decision is choosing how to pay for the project.

There are numerous energy efficiency financing options available to California businesses to support businesses that are cash strapped or want to retain cash for other purposes.

Key considerations to factor in when determining which financing option is right for you include the business's energy efficiency goals, eligible technologies for financing programs, timing on installation, project size, loan interest rate, payback period terms and credit check requirements.

Businesses have much more options for their projects when they take such factors into consideration ahead of time. Energy efficiency financing options can be much more limited when a business is confronted with an emergency repair.

Here are six types of energy efficiency financing available to California businesses for energy efficiency projects, along with some factors to consider with each.

1. Loan
A conventional loan obtained through a financial institution, such as your local bank, or a specialty lender can finance the entire cost of the installation. Depending on the lender and your credit, payback periods and interest rates will vary. Bank loans generally require a credit check and analysis, which may involve a detailed underwriting process. Businesses may benefit by working with their local bank or a bank that they have an existing relationship with (checking accounts). Banks are more likely to provide a loan for larger projects, as small to medium-size projects are often harder to serve.

2. Lease
An equipment lease is another form of financing that is typically for a project involving the replacement of a piece of equipment. Leases offer up to 100% financing via capital or operating lease and have varying payback repayment periods and underlying interest rates. Equipment lease options may provide more flexibility as compared to loans in terms of the underwriting and origination process.

3. Property Assessed Clean Energy (PACE)
PACE is financing via a loan obtained through a financial institution. It offers up to 100% financing and the project is off the business's balance sheet. Payback periods and interest rates vary with PACE financing, and the loan is repaid as a property tax assessment. It requires the mortgage holder's consent and is secured by priority lien on property.

4. Energy Savings Agreements/Managed Energy Savings Agreement
An ESA is a financing contract that permits energy efficiency to be packaged as a service that building owners pay for through savings. It offers up to 100% financing and the project is off the business's balance sheet. ESAs have varying payback periods and interest rates. They generally require minimal or no upfront cost and therefore can be an attractive alternative to using equity or a traditional loan. However, ESAs place additional responsibility on the business and require payments to both the third-party financier and its energy supplier.

A MESA is a form of financing that involves the sale of energy savings as a service. It offers up to 100% financing and the project is off the business's balance sheet. Payback periods and interest rates vary with MESAs and approval requires a strong customer credit profile. Under a MESA, the business makes one bundled payment to the third-party financier (MESA provider), who then pays the utility bill. The payment includes the shared savings, service fee and energy purchase.

5. Energy Efficiency Financing from PG&E
Pacific Gas and Electric Company’s Energy Efficiency Financing involves no upfront out-of-pocket investment. It offers California business customers 0% interest loans between $5,000 and $100,000 and it is repaid monthly on the business's PG&E energy bill. California businesses have up to five years for repayment. No commercial credit check or pledging of personal assets is required. Loan terms and monthly payment amounts are determined based on estimated monthly savings from the project. This financing is available to fund many technologies, including lighting; heating, ventilation and air conditioning (HVAC); electric motors; refrigeration; food service equipment; and water pumps.

To learn more about energy efficiency financing for commercial projects, download the "Insider's Guide to Financing Energy Efficiency Projects" from PG&E. This guide contains actionable information and proven resources to help California businesses plan, finance and successfully complete energy efficiency upgrades, retrofits, repairs and replacements.

How to choose the right financing option for your energy efficiency project:
  • SMB Blog Author
    Al Gaspari
    Principal Program Manager for Energy Efficiency Finance for PG&E. Oversees the On-Bill Financing (OBF) Revolving Loan Program, and the upcoming energy efficiency finance pilots, including the On-Bill Repayment option. Al works with PG&E’s Account Managers and Channel Partners to help customers overcome investment hurdles for energy efficiency. Formerly, Al was Finance Director for the Greater Cincinnati Energy Alliance, a nonprofit that helped homes and businesses invest in energy efficiency, and a Senior Manager with KPMG LLP, advising large utilities, IPPs and industrial conglomerates. Al can be reached at

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