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

Leverage Existing Utility Rebate and Incentive Programs for Property-Assessed Clean Energy Financing

Step nine in the process to launch a commercial property-assessed clean energy (PACE) financing program involves investigating local utility rebate/incentive programs and how best to leverage them.

Project Reviews

Commercial PACE financing is available only for measures that will save energy or produce renewable energy (see Assemble Eligible Project Measures for more detail). In some cases, water conservation may be included as well. Program staff must review each submitted project at time of application to verify that it includes eligible measures and that those measures will save energy in the context where they are being deployed.

The level of rigor of this project review and the extent to which the local government wants to validate the projected savings is a key consideration for program planners. The rigor of validating energy saving projections could be anything from merely checking that all measures are on the program’s eligible measures list, to requiring energy audits and accepting their recommended measures’ estimated savings, to having expert program staff or external consultants review each project or a subset of projects. Determining what method(s) will be used will depend on local government goals and stakeholder feedback—especially from existing lenders and investors/underwriters. Conducting more rigorous project reviews often requires a certain amount of energy engineering knowledge, experience, and professional judgment.

One option for ensuring proper project reviews (and reducing program costs) is to channel the reviews through existing utility rebate or incentive programs that reward customers for reducing energy usage. Rebate and incentive programs typically are structured to incentivize applicants to exceed the minimum performance criteria required in current building code requirements for the equipment and materials being installed.

Grantees should note that sometimes the terms rebate and incentive are used interchangeably to describe utility programs; but there can be significant differences between the two, depending on what a local utility offers and how such offerings are structured. The programs and their typical differences can be summed up as follows:

  • Prescriptive measures/payments wherein there is a set payment amount per measure/unit that is on a fixed list of eligible measures. An application to a rebate program is generally made after the measures have been installed. For example, a customer installs a high-efficiency furnace and then receives a $500 payment from the utility.

  • Customized payments wherein the payment amount is calculated for each measure based on a combination of kW and kWh reductions achieved in the specific context of deployment. An application to an incentive program is typically made before the measures have been installed and pre-approval (or approval) must be obtained before proceeding with the measures. An example of this type of program is the PG&E Customized Retrofit Incentive, also known as the Statewide Customized Offering for Business. (Note that an applicant will receive approval from the incentive program that also includes estimated payment amounts, but the final payment amounts may differ from the original approval estimates for a number of reasons.)

Both types of utility programs already build in expert project review and do not typically charge for participation, although when that project review happens can vary by program type. For rebate programs, a determination is made up front that a certain measure will usually result in energy savings for all projects, so anyone who implements that measure will receive the same payment amount. For incentive programs, each submitted measure and its context undergo expert review by program staff, and they determine its ability to save energy. Payment is relative to the savings, so different customers may receive different payment amounts for the same measure.

Benefits and Drawbacks of Leveraging

There are several good reasons for grantees to leverage existing utility rebate and incentive programs:

  • They act as an outside, independent confirmation that the covered measures will likely result in energy savings and that the measures are cost-effective.

  • The incentive (as opposed to rebate) programs tend to have a rigorous technical/engineering project review process that further guarantees the approved measures will, indeed, achieve energy savings and provides an estimate of how much.

  • These programs tend to have inspection, verification, and quality assurance (QA) processes that cover installed measures (with incentive programs usually having more rigorous processes than rebate programs).

  • They reduce the amount of financing that applicants need to complete their clean energy projects.

Given those reasons, channeling PACE projects through existing utility rebate and incentive programs is a good practice that can shift some or perhaps a majority of the commercial PACE effort and cost of:

  • Reviewing projects to confirm the included measures are eligible and will save energy

  • Verifying contractor/auditor energy saving estimates for the measures

  • Verifying installation and QA of measures, possibly including onsite postinstallation inspections.

The potential drawbacks of participating in utility incentive programs (as opposed to rebate programs, which tend to be simpler) are as follows:

  • The application process can be long and onerous.

  • The review and approval can introduce significant time delays (could be as much as 30 to 45 days, although given the long lead time of many commercial projects, this may not be an issue).

  • The PACE program does not have direct control over but depends on third-party programs (if there are capacity issues, the PACE program cannot necessarily do anything about them).

  • The utility program might not cover all of a project’s measures, in which case separate review, approval, QA, and/or inspection processes would be required for different measures (i.e., those measures covered by the utility program versus those that are not). And coordination would be required between those separate processes for a single project.

A commercial PACE program could greatly benefit from leveraging existing utility rebate and incentive programs when a project’s measures are eligible for participation in those utility programs. Therefore, a key thing for local governments to determine is the amount of overlap between PACE program eligible measures and the utility rebate/incentive program eligible measures.

The PACE program can then be designed either to (a) require PACE applicants to also participate in any applicable utility rebate/incentive program, or (b) make it optional but then charge applicants additional fees for project review if they choose not to participate in the utility programs. An example of effectively leveraging an existing utility program is the Sonoma County Energy Independence Program. It requires commercial properties to obtain a free onsite PG&E energy audit to determine the most effective route to maximizing their investment.