State and local governments will need to carefully define what projects are eligible for financing and decide how to verify compliance with the eligibility standards. Eligible measures will vary from program to program. If funds to support these projects are received from federal programs such as SEP or EECBG, those programs specify what projects are eligible for funding. Most programs have a list of approved efficiency measures. Some programs only finance one measure, while others have an extensive list that includes a wide range of improvements to the building along with new appliances and equipment. A few programs also finance solar electric systems, small-scale wind, and geothermal heat pumps.
Three Questions to Address when Designing Eligibility Requirements
- What are the requirements for participating installers, contractors, or ESCOs?
- What specific measures or projects are eligible?
- What is the approval process, including any quality assurance?
Programs typically choose one of two paths to identify which measures are eligible for financing:
- An energy audit identifies cost-effective measures for each property.
- A list of prescribed qualifying measures is used (and sometimes both options are given).
In some cases borrowers can choose which path they want to pursue and may qualify for a lower interest rate if they choose the audit approach.
Programs that provide financing for a list of prescribed measures are simpler and less costly to administer than programs that require an audit, but typically result in lower energy savings than audit-based programs because the prescribed measure approach does not focus on the interaction of the different systems in a home or business. For example, an energy audit that takes into account the level of insulation in a building, sealing heating or cooling ducts, and operating the system with a programmable thermostat or computerized building control system may make the overall system more efficient and therefore diminish the required size of a furnace or air conditioner. A program based on prescribed measures would simply finance the replacement of the existing furnace or air conditioner with a more efficient unit. An energy audit can also identify measures that may not be cost effective on a stand-alone basis, but could be cost effective if combined with other measures. The disadvantage of an audit is that it takes time and money. Typical costs range from $250 to $750 for a comprehensive home energy audit to $.10 to $.20 per square foot for a commercial or public building. In some areas, utility energy efficiency programs defray all or part of these audit costs, and financing programs can also allow customers to roll the cost of the audit into the financing package.