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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.

If the property ever goes to foreclosure, investors who buy the securities are still likely to get repaid because any new buyer must pay off the tax lien as part of purchasing the property.

It is this last feature that has drawn concern from those who deal with mortgages.

On the residential side, federal housing officials have refused to underwrite new loans on properties with the liens, arguing they add risk to mortgages. Sonoma County and other groups are suing to overturn the federal policy, but in the interim the number of new program applicants has dropped sharply.

Similarly, Hunter said commercial lenders have refused to cooperate with PACE programs in San Francisco and Southern California that sought their permission before awarding contracts for energy upgrades on buildings with their mortgages.

Many commercial lenders have concerns with a program where a default would mean that the green investors get paid before the mortgage lenders.

"It's not that dissimilar from how the single-family guys look at it," said Tup Fisher, a director of real estate in San Francisco for Washington Capital Management.

Fisher, whose company advises pension funds on commercial mortgages and other investments, suggested that commercial property owners with PACE tax liens may find if they refinance that "more risk equals higher rates" of interest charged for their mortgages.

Despite such concerns, Ygrene leaders expressed confidence that building owners will sign up because the improvements will save them money.

Ygrene Vice President Alan Strachan said those who enter the program will receive a financial guarantee that "your utility bill has to go down more than your tax bill goes up."

State Writer Robert Digitale and the New York Times contributed to this story.