Overcome cost pass-through resistance

Buildings with tenants can overcome the split incentive by passing the costs of energy efficiency through to tenants through higher rents. Higher rent costs may drive away tenants in Class C buildings. Some financing mechanisms eliminate the need for the building owner to make an upfront investment, including outsourcing or innovative financing.

Solution Summary

Outsourcing energy efficiency

  • ESCO – An energy services company (ESCO) will assess the energy efficiency opportunity, purchase the equipment necessary to improve performance and install the equipment
  • Energy Service Agreements – Agreements are developed where third parties are paid for achieved savings at a property

Other Options

  • Lease financing – Owner leases equipment rather than purchasing to avoid upfront costs
  • On bill financing / on bill repayment – The utility or some other third-party source loans money to the owner, and the owner in turn repays that money through a charge on the utility bill
  • PACE financing – Property Assessed Clean Energy (PACE) Programs allow for local governments to provide energy efficiency financing in return for adding an assessment on the tax bill

Additional Resources

  • Green Lease Library – Green leases (also known as aligned leases, high performance leases, or energy efficient leases) align the financial and energy incentives of building owners and tenants so they can work together to save money, conserve resources, and ensure the efficient operation of buildings.