This section of the guide is designed to help grantees assess the potential risks of lending products and the clean energy financing programs based on them. It highlights a set of issues that grantees should carefully consider, with the goal of helping them assess and anticipate solutions for some worst case or unfortunate case scenarios as they develop lending programs.
In the design phase, grantees and their partners will find it helpful to consider what could go wrong with a program as it rolls out and gets implemented. They can strategize as to which actions at the front end of the program they could take to address or mitigate each issue.
The table below presents a set of program risks, defines them, and offers a brief perspective on potential ways to resolve the risks.
|General Risk Category||Definition||Potential Resolution|
|Legal Issues/ Failure to Comply with Program Rules|
Fraud: Lender partners abuse the loan loss reserve fund, drawing on the reserve for loans that have not met the strict definition of default, per the loss reserve agreement.
Installation of nonqualified measures: Contractors use funds to install nonenergy efficiency or nonrenewable energy measures. Examples might be the use of funds to install a swimming pool or a residential room addition.
Litigation: Poor installations, injury, or other problems result in a lawsuit against a grantee.
|Complaints from Borrowers and Consumers|
Complaints against contractors: Contractors associated with the program perform substandard work that does not yield energy savings or simply does not work. Contractors carry out the work, but damage the property.
Note: Many lenders will choose to participate in a clean energy lending program not because they see great potential for profitability from the clean energy loans, but because they hope to cross-sell other products such as home equity loans to customers.
|Little or No Take-Up of Loans|
No loans or very few loans are extended to homeowners or businesses: A grantee establishes a loan program, but no loans are made.
|Poor Lender/ Contractor Participation|
Contractor refusal to participate: Contractors find the program too cumbersome because of large amounts of paperwork or higher costs than they would incur outside the program.
Lenders refuse to loan: A loan loss reserve fund is made available to lenders, but the lenders do not make any loans or make very few loans on the basis of that loss reserve. Lenders may sign up for a loan loss reserve program and not make loans, or they may simply decline to sign up for the reserve program.
Excessive loan defaults: Loan defaults, while projected to be low, turn out to far exceed projections.
You can download the guide’s entire chapter on Risk Assessment.