Paying for green retrofits: the Ygrene approach

Santa Rosa's Ygrene Energy Fund offers cities and counties a comprehensive program to fund green energy upgrades at homes and businesses.

Some say the program could unlock an unprecedented wave of private investment to make buildings more energy efficient and create construction jobs, while others say the financing plan has flaws that could turn off some borrowers and lenders.

Ygrene worked with the nonprofit Carbon War Room this year to develop a consortium of multinational giants willing to fund, insure and engineer energy retrofit projects. Ygrene, which is administering the program, is now marketing the concept to cities and counties across the United States.

The New York Times published details of how it will work in Florida and Sacramento, the first two markets to adopt the Ygrene program:

Ygrene and its partners will gain exclusive rights for five years to offer energy upgrades to businesses in a particular community. They will promote the plan aggressively, helping property owners sort through options and determine what types of upgrades make sense.

The retrofits might include new windows and doors, insulation, and more efficient lights and mechanical systems. In some cases, solar panels or other renewable power might be included. For factories, the retrofits might include new motors or other equipment.

Lockheed Martin, the U.S. defense contractor, is expected to do the engineering work on many larger projects.

Barclays Capital will provide short-term loans to pay for the upgrades. Contractors will offer a warranty guaranteeing the utility savings they promised will actually materialize, and an insurance underwriter, Energi, of Peabody, Mass., will back up that warranty. Those insurance contracts, in turn, will be backed by Hannover Re, one of the world's largest reinsurance companies.

As projects are completed, the upgrade loans, typically carrying interest rates of 7 percent, will be bundled into long-term bonds resembling those routinely issued by governmental taxing districts. Barclays will market the bonds. Retirement funds have expressed interest in buying these bonds, which will be repaid by tax surcharges on each property that undergoes a retrofit.

Property owners will pay no upfront costs for the work, and they will pay back the money with their regular property tax bills over a period as long as 20 years.

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