State energy efficiency and renewable energy Revolving Loan Funds (RLFs) enable State and Territory Energy Offices and their partners to use an initial capital fund to offer long-term, low-interest financing for a variety of uses. Because principal and interest repayments are used to reseed and revolve the fund, and because clean energy loans typically outperform conventional financing with minimal default rates, many RLFs around the country have supported designated clean energy activities successfully for decades, maximizing and leveraging the impact of the initial funding source.
States have used RLFs to successfully catalyze the deployment of millions of dollars for clean energy projects over the past four decades beginning when early pioneers, such as the states of Nebraska and Texas, used petroleum violation escrow and oil overcharge funds to launch financing programs. Today, the majority of states operate at least one energy RLF, with many using federal and state funds, greenhouse gas auction revenues, bond issuances, and private capital to establish and grow their loan programs. Loan portfolio performance data across many states showcase the “investibility” of energy efficiency and renewable energy technology adoption; several programs in New York, Nebraska, Texas, and California are currently operating with near-zero default rates. These programs can also be used to “co-lend” with the private sector, drawing private capital into energy projects at reasonable rates of return.
Credit enhancement mechanisms, such as Loan Loss Reserves (LLRs) and Interest Rate Buydowns (IRBs), encourage private capital to invest in clean energy projects by guaranteeing a portion of any potential losses (typically 10%) to be recouped by the lender in the event of a default in loan payments. LLRs and IRBs have been successful in promoting the use of private capital for clean energy upgrades at lower interest rates than would otherwise occur.
State Energy Offices are important to the development and execution of many kinds of credit enhancement mechanisms. Many State Energy Offices utilize capital to support LLRs for a variety of energy efficiency and renewable energy retrofits. Others have utilized IRBs as a way to make private capital more affordable, although in recent years more Offices have switched from IRBs to utilizing LLRs due to LLRs typically utilizing less capital then IRBs to operate and provide similar results.
State Energy Loan Fund Map
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