U.S. Department of Energy Energy Efficiency and Renewable Energy

Arrange Additional Sources of Funds for the Loan Loss Reserve Fund Program

Another path for scaling up the clean energy lending program is to find additional sources of funds to supplement the loan loss reserve fund (LRF). Use of American Recovery and Reinvestment Act funds can seed a process and structure that can then be expanded by others. If the LRF can grow, the financial institution lending facilities can expand commensurately.

Other potential sources of funds for the LRF include the following:

  • Vendors/Contractors: It is a common commercial finance practice for equipment vendors and contractors to contribute a fee to an financial institution partner when it finances the vendor/contractor’s sales. This fee could be 1% to 2% of the total sale or energy efficiency project amount. Although that increases the costs to the end-user (the property owner), which is a deterrent to program uptake, it also facilitates the financing. The fee can be contributed directly to the LRF, so it can scale with volume.

  • Utilities: Many utilities have efficiency demand side management (DSM) programs. DSM is a term that utilities and utility regulatory commissions often use for funding energy efficiency programs. It typically means that utilities are allowed to collect funds from ratepayers to help pay for efficiency improvements in homes and businesses across the utility’s service area. DSM programs offer financial incentives, rebates, funding for home or business energy audits, and other project development services. If the energy efficiency finance program proves effective in helping utility customers implement energy-saving projects, the utilities may consider contributing a portion of their DSM budgets to a loan loss reserve fund. 

  • Emissions Allowance Revenues: Some states, such as those participating in the Regional Greenhouse Gas Initiative (RGGI), have or are developing greenhouse gas emissions allowance auction programs. Revenues from those programs can also be devoted to clean energy finance programs, including those with LRFs. Delaware is one example of a state taking this action.

  • Other Donors: Foundations, community investment funds, and not-for-profit organizations may also be willing to contribute funds to an LRF program; grantees should actively investigate all local and regional sources of extra funding for the LRF.