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Efficiency & Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

Contract No. DE-AC36-08GO28308

 

Using Revolving Loan Funds to 

Finance Energy Savings 

Performance Contracts in State 

and Local Agency Applications 

S. Booth, E. Doris, D. Knutson, and 

S. Regenthal

Technical Report 

NREL/TP-7A30-51399 

Revised July 2011 
NREL is a national laboratory of the U.S. Department of Energy, Office of Energy 

Efficiency & Renewable Energy, operated by the Alliance for Sustainable Energy, LLC. 

National Renewable Energy Laboratory 

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303-275-3000 • www.nrel.gov

Contract No. DE-AC36-08GO28308 

 

Using Revolving Loan Funds to 

Finance Energy Savings 

Performance Contracts in State 

and Local Agency Applications 

S. Booth, E. Doris, D. Knutson, and 

S. Regenthal

Prepared under Task No. ARIG.3010 

Technical Report 

NREL/TP-7A30-51399 

Revised July 2011 
NOTICE

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Purpose 

This document is meant to assist state and local decision makers in understanding how the 

financing of energy savings performance contract projects can effectively fit into the structure of 

a revolving loan fund. 

Acknowledgements 

This work is made possible by the U.S. Department of Energy’s (DOE’s) Office of Energy 

Efficiency and Renewable Energy, Weatherization and Intergovernmental Program, through the 

Technical Assistance Program. 

The authors would like to thank Chani Vines (DOE) for her direction and comments on various 

drafts. The authors would also like to thank the following individuals for their input and 

feedback: Karen Clifton (Alabama Department of Economic and Community Affairs), Dale 

Hahs (Energy Services Coalition), Eric Havelock (Alaska Housing Finance Corporation), Paul 

Kaplan (Kentucky Finance and Administration Cabinet), Linda Smith (9K Foot Strategies in 

Energy), and Eddy Trevino (Texas State Energy Conservation Office). 

A Note on the Revisions: 

Table 1 on page 4 has been revised. 
iv 

Table of Contents

Purpose ....................................................................................................................................................... iii

Acknowledgements ................................................................................................................................... iii

List of Figures ............................................................................................................................................ iv

List of Tables .............................................................................................................................................. iv

Introduction ................................................................................................................................................. 1

Overview of ESPC State and Local Financial Model ............................................................................... 1

Overview of Revolving Loan Funds .......................................................................................................... 2

Options for Using an RLF to Finance an ESPC ....................................................................................... 3

Considerations for Including ESPCs as an Allowed Use of Funds in RLFs......................................... 4

Program Development Questions ..............................................................................................5

Case Studies................................................................................................................................................ 6

Green Bank of Kentucky—ESPC Revolving Loan Program ....................................................7

Structure ...............................................................................................................................8

Outcomes .............................................................................................................................8

Alabama Local Government Energy Loan Program ................................................................9

Structure ...............................................................................................................................9

Outcomes .............................................................................................................................9

Texas LoanSTAR Revolving Loan Program ...........................................................................10

Structure .............................................................................................................................11

Outcomes ...........................................................................................................................11

Alaska—Energy Efficiency Revolving Loan Program ............................................................11

Structure .............................................................................................................................12

Outcomes ...........................................................................................................................12

List of Figures

Figure 1. ESPC cash flow diagram ............................................................................................1

Figure 2. RLF cash flow diagram ..............................................................................................2

List of Tables

Table 1. Comparison of ESPC, RLF, and Combined Options...................................................4

Table 2. Overview Comparison of Profiled State RLF Programs .............................................7
1 

Introduction 

Numerous pre-existing and newly emerging state- and locally-managed revolving loan funds 

(RLFs) are being used in conjunction with energy savings performance contracts (ESPCs) as an 

option for financing of energy efficiency projects. This document presents an overview of ESPCs 

and how they fit within the RLF framework. There are a variety of options available to state and 

local governments to catalyze the disbursement of available capital from RLFs and increase the 

number of ESPC projects within their jurisdictions. To demonstrate the implementation of this 

type of financing program in action, this report concludes with four program case studies of 

state-sponsored RLFs where ESPCs are an allowed use of funds. 

Overview of ESPC State and Local Financial Model1

An ESPC is a negotiated contract between an entity and an energy service company (ESCO), 

whereby the two parties partner to work toward a common goal of energy and water savings 

and/or renewable energy production. After an ESCO is selected through a competitive process, 

they provide a detailed energy audit or investment grade audit resulting in a final proposal that 

includes a baseline for savings, proposed energy savings, total cost of the project, and other 

financial and proposed savings data. After negotiation and acceptance of a final proposal, the 

ESCO designs and constructs an energy savings project in consultation with the entity, and may 

or may not arrange the necessary financing. The ESCO guarantees that the improvements will 

generate energy cost savings sufficient to pay for the total cost of the project over the term of the 

contract. Interest rates can make a significant difference in the total amount of debt service paid 

over the life of the contract and the project’s return on investment. Lower cost of financing 

allows for flexibility in adding additional energy conservation measures (ECMs) to fit within the 

maximum allowable term or can reduce the years required to pay off the investment through 

savings. If privately financed, the interest rate obtained in the state and local ESPC model is 

typically dependent on the credit rating and worthiness of the agency undertaking the contract. 

The interest cost and lender fees are passed through to the government entity in an ESPC. 

However, state and local ESPCs are more commonly financed through municipal leases, bonds, 

or some combination thereof. The figure below demonstrates the cash flow in a state and/or local 

government ESPC. 

Figure 1. ESPC cash flow diagram 

 

1

 U.S. Department of Energy Federal Energy Management Program. “Financing Mechanisms.” 

http://www1.eere.energy.gov/femp/financing/mechanisms.html. Accessed December 2010. 
2 

Among the advantages provided by an ESPC when compared with a standard construction RFP 

project are the savings guarantee provided by the ESCO, the ability to complete a large-scale 

comprehensive project in all facilities to begin capturing savings immediately, and optionally the 

ability to secure the financing required for the project. If the savings guarantee is not of high 

value to the government entity, and financing is available in full through other financing options, 

an ESPC contract may not be the optimal implementation mechanism; although local 

government units that prefer comprehensive measures be delivered by a single company might 

still find an ESPC attractive. In some RLFs, the savings guarantee is required to secure the 

loan—Alaska’s Energy Efficiency Revolving Loan Program is an example. 

Overview of Revolving Loan Funds 

An RLF is a source of money from which loans are made. Loans are made to borrowers 

consistent with standard, prudent lending practices. Most RLF programs have a maximum 

allowable payback period for projects and explicitly state what types of projects are eligible for 

funding. As the borrowers repay loans, the money is returned to the RLF to make additional 

loans. In that manner, the RLF becomes an ongoing or "revolving" financial tool. In most cases 

the interest and fees paid by the RLF borrowers support program administration so that the 

fund’s capital base remains intact. Typically, RLFs lend money with specific goals or borrowers 

in mind. The range of RLF programs varies widely targeting such diverse areas as affordable 

housing, historical preservation, energy efficiency, safe drinking water, and small business 

development. RLFs are usually administered by government agencies or nonprofits with the goal 

of creating positive change within their community or target-lending group. Figure 2 shows the 

cash flow in an RLF. 

Figure 2. RLF cash flow diagram 

Revolving Loan 

Fund

Loans

Initial capitalization

Other

funding 

sources

Administrative costs

Disbursements

(Loans for EE/RE)

Principal, interest, and fees

(From energy savings)
3 

Options for Using an RLF to Finance an ESPC

A revolving loan fund could be used to provide project financing of an ESPC contract. An RLF 

could finance the ESPC either in part or in full. Benefits afforded by an RLF compared to a 

typical ESPC loan might be a potentially lower interest rate for the financing (e.g., 3% compared 

to 5%) and lower financing procurement costs. Having a lower interest rate for project financing 

reduces the overall project cost over the lifetime of the ESPC. The reduced project cost is 

manifested in lower interest rate payments over the term of the contract. The lower interest rates 

can also increase the scope of the project to capture additional savings or increase the long-term 

energy savings of the agency’s budget because the energy loan is paid back more quickly. The 

RLF is simply capital for project financing that is often available at a lower than market rate. An 

RLF could be used to fund a portion of an ESPC project such as the investment-grade audit or an 

energy manager, with the rest of the financing coming from the standard ESPC project 

financiers. The benefit of such an arrangement would be a lower overall total interest rate for the 

project. However, this benefit would be limited by a tradeoff between the decreased cost of 

project financing partially provided by the RLF and a potential increase in transaction costs 

caused by having two separate financing sources. Additionally, this type of arrangement would 

raise questions about senior and junior loan status that would need to be addressed in the event of 

default. 

RLFs could potentially increase interest and availability of ESPCs, enabling state and/or local 

government units to more easily meet energy efficiency, renewable energy, water conservation, 

and emissions reduction goals. Use of an RLF could increase ESPC availability by providing 

financing to entities that would otherwise have issues qualifying for credit. The interest rate for 

state and local ESPCs is primarily determined by the government entity’s credit rating and taxexempt status. An RLF could expand project financing to agencies with lower credit ratings. For 

example, in Kentucky, with the collapse of the lending sector in 2008, the financing market for 

ESPCs was frozen, and the ESPC Revolving Loan Program provided a financing mechanism to 

keep ESPCs alive in the state. However, there are two potential pitfalls (in addition to the 

expansion of the pipeline of ESPC projects) and these should be considered in the development 

of programs. The first is an increase in the risk of loan defaults. Additionally, RLFs could 

increase interest in ESPCs through joint marketing with ESCOs or government programs that 

support ESPCs. Table 1 shows a comparison of the ESPC financing options. 
4 

Table 1. Comparison of ESPC, RLF, and Combined Options 

ESPC with 

Traditional 

Financing 

ESPC with RLF 

Financing 

ESPC with 

Combined RLF / 

Traditional 

Financing 

RLF Financing of 

Standard 

Construction 

Interest Rate Market RLF Rate Market Rate less 

RLF portion

RLF Rate 

ESCO Markup YES YES YES *Not Applicable 

Savings 

Guarantee 

YES, Negotiated 

M&V 

YES, Negotiated 

M&V 

YES, Negotiated 

M&V 

Not typical – only 

if negotiated 

Equipment 

Standard 

Manufacturer’s 

Warranty 

Varies by 

equipment, 

typically 1 year 

Varies by 

equipment, 

typically 1 year 

Varies by 

equipment, 

typically 1 year 

Varies by 

equipment, 

typically 1 year 

Equipment 

“Repair and 

Replacement” 

Negotiated Negotiated Negotiated Agency 

Responsibility 

Equipment 

Commissioning 

(Cx) 

Highly 

recommended 

Highly 

recommended 

Highly 

recommended 

Highly 

recommended 

Energy Manager/ 

Continuous Cx 

Agent 

As a Potential 

ECM/ Negotiable 

As a Potential 

ECM/ Negotiable 

As a Potential 

ECM/ Negotiable 

Recommended 

Maximum EE/RE 

Projects Available 

As fit within terms 

of ESPC 

As fit within RLF 

financing 

As fit within terms 

of ESPC and RLF 

As fit within RLF 

financing 

*Note: Construction costs may be higher or lower in standard construction than ESPC but ESCO markup 

is not a consideration of this category (column). 

Considerations for Including ESPCs as an Allowed Use of Funds 

in RLFs 

Generally, the guidelines of an RLF will determine upfront what projects are financeable and if 

ESPCs are an allowed use of funds. RLF administrators must consider several factors before 

deciding if using an RLF for financing of ESPCs is desirable, such as: 

Is the RLF loan rate lower than the ESPC financing rates available? 

Is the RLF loan term acceptable to fit within the allowable term of an ESPC? 

Is the RLF capital base large enough to fund numerous ESPCs that cost several million 

dollars and that may require several years to reach required payback? 

How does the RLF administrator value the potentially reduced risk of loan default that a 

savings guarantee from the ESCO provides? 
5 

Will financing ESPCs increase the use of the RLF? If the RLF is new or undersubscribed, 

allowing for ESPC financing could increase or accelerate the number of loans an RLF 

is able to make. 

How does the financing of ESPCs fit within the mission and goals of the RLF? 

Once allowed and not-allowed use of funds is determined, an RLF will typically leave the 

implementation mechanism decision up to the government entity. If the RLF is willing to finance 

ESPC projects, the decision on whether or not to use an ESPC is left to the customer. 

Following are some crucial questions state and local program developers should consider when 

planning to expand or develop an RLF program for use in conjunction with ESPCs. 

Program Development Questions

a) What department manages the RLF? If not the state energy office, how do the separate 

entities interact?

b) Why was the RLF established?

c) What problems was the RLF attempting to solve? 

d) What entities will the program serve (e.g., state government, state higher education, 

cities, counties, school districts, non-profits)? 

e) What market share of the funds will serve ESPC projects? What other projects will be 

funded? 

f) How will ESCOs be engaged to participate in: i) helping a client seek funding, 

ii) marketing the RLF? 

g) How will it be determined if the RLF is meeting the needs it set out to solve? 

h) What will the expected benefits be for: i) the customer, ii) the state, iii) the ESCO? 

i) How will the program support or compete with the local financing industry or the 

ESCO’s ability to seek alternative funding? 

j) What will the starting fund amount be and how long will it be expected to last? How will 

it be sustained?

k) Will there be a cap on the loan amount for any applicant? For any project?

l) Will leveraging of the RLF be encouraged with other funding sources? How will 

leveraging work? 

Answers to the previous questions can help guide program development, setting out clear 

objectives for implementing and administering program success. It is important to note that 

circumstances will differ by state and locality. The following case studies are presented to offer 

insight into the range of possible approaches to program development. Insight can be gained 

from how these other jurisdictions have structured their RLFs, including the indicators of 

program success, and lessons learned. 
6 

Case Studies 

This section provides four brief case studies of state revolving loan programs in which ESPCs 

qualify. These case studies were developed through a process of web-based research and 

interviews with program directors and staff. Program maturity ranges from the Texas LoanSTAR 

example, which was initiated in 1988 and began qualifying ESPCs in 2001, Alabama’s Local 

Government Energy Loan Program (LGELP), which began in 1997 and was opened up to ESPCs 

in 2009, the Green Bank of Kentucky, which began financing ESPCs from its 2009 inception, 

and finally, the Alaska revolving loan program (AEERLF), which began lending in September 

2010. 

While these four programs offer only a limited representation of all existing loan programs that 

qualify ESPCs, they characterize a broad range of varying program structures and styles from 

which several observations can be drawn on a number of distinguishing features: 

Management: Programs are managed by a wide variety of agencies within the state. 

Origin: Younger programs are initially established to allow ESPCs to qualify. More 

mature programs evolved to qualify ESPCs later in their development. Both types of 

programs (of those that have been in place long enough to lend funds) have found 

success in financing ESPCs to promote energy efficiency. 

Funding: Initial funding for the profiled loan programs is attributed to a number of 

different sources.

Applicability: The Kentucky program has realized initial success by keeping a narrow 

focus on state buildings with plans of expanding to city and county programs as the 

program grows. Alternatively, the Alabama program is broadly applicable to different 

types of buildings. The programs profiled target projects in those sectors that private 

funding agencies are not currently funding. Therefore, these programs can be credited 

with filling a gap in financing energy efficiency efforts. 

Marketing: Alabama provides an example of how loan programs can leverage ESPCs 

marketing ability through ESCO participation to provide no cost marketing for the 

loan program. 

Evaluation: The evaluation of program effectiveness varies widely, resulting in 

challenges comparing multiple programs as well as parsing out the impacts of 

integrating ESPC financing into the loan portfolio. 

Sustainability: Revolving loan fund programs are designed to be self-sustaining as loan 

repayments replenish depleted funds. Kentucky’s plan to expand their program with 

additional capital is a result of a large enough fund base and successful lending. 

Alabama’s budget and loan ceiling will have to be increased in order for the program 

to experience similar growth.

While the four case studies provide a range of state experiences with revolving loan programs 

that qualify ESPCs, a number of additional programs have recently been established with 

funding provided by the American Recovery and Reinvestment Act (ARRA) of 2009. 
7 

Experiences garnered by profiled programs going forward can inform the effective development 

of present and future programs. Table 2 presents a comparison of components characteristic to 

each state’s RLF program. 

Table 2. Overview Comparison of Profiled State RLF Programs

Green Bank (KY) LGELP (AL) LoanSTAR (TX) AEERLF (AK)

Initial Fund 

Amount $14 million $2 million $127 million Up to $250 million 

ESPC Initiated 

Date July 2009 2009 2001 Sept. 2010

Source of Funds ARRA Funds Oil Overcharge 

Funds

Petroleum Violation 

Escrow Funds

General Obligation 

Bonds

Management 

Fee Assessed - 3% - - 

Loan Fee - - - 0.5% to 0.1%

Maximum Loan 

Amount $2.6 million $350,000/$500,000 $5 million - 

Minimum Loan 

Amount $600,000 - - - 

Loan Interest 

Rate 2.25% 0% 3% Variable

Maximum Loan 

Term 15 years 10 years 10 years 15 years

Sectors Served State Government Schools, Local 

Government

Schools, State & 

Local Government, 

Hospitals

Schools, State & 

Local Government, 

Institutional

Number of 

Loans 5 2 20 0 

Amount Loaned 

to Date $8 million $812,253 $63 million $0

Green Bank of Kentucky—ESPC Revolving Loan Program2

Established in July 2009, the Green Bank of Kentucky is committed to promoting energy 

efficiency in the state. The ESPC Revolving Loan Program is available to all state agencies 

seeking to make energy efficiency improvements to their buildings or facilities. Initial funding 

for the program was provided by Recovery Act dollars with a starting program budget of just 

over $14 million. In a signed agreement with the state energy office, the Finance Administration 

Cabinet is responsible for operating and managing the Green Bank. 

Motivation for developing the program was in an attempt to solve the need for improving energy 

performance of Kentucky’s public buildings. In response to the shutdown of lending in the 

private tax-exempt market, one of the program’s main objectives is to drive ESPC projects. With 

the tightening of credit standards and an otherwise-volatile private financing market, public 

financing for ESPC projects may be the only stable and secure way to ensure money is available 

for investments in energy efficiency improvements.

 

2

 Kaplan, P. Correspondence. Director, Green Bank of Kentucky, Finance & Administration Cabinet. 
8 

Structure

Presently, only state buildings are served by the program, however, with additional resources, 

public buildings in cities and counties could also receive funding. There is no specific portion or 

amount of program funds allocated to financing ESPC projects. Neither is there a cap on the 

maximum loan amount. 

Projects that cost over $600,000 are eligible to apply for ESPC loans. The process requires a 

detailed investment grade energy audit and cost-benefit analysis, the costs of which may be 

rolled into the loan. The merits of submitted loan applications are considered based on 

feasibility, estimated energy usage reduction, savings, risk of default, size of loan requested, 

availability of funds, eligible uses of funds, and other factors. As a means for comparing 

effectiveness of implemented ECMs, borrowing agencies must submit status reports that include 

actual energy usage and costs. Measurement and verification may be done by the ESCO; 

however, no more than 5% of the cost of ECMs may be used for monitoring purposes. 

Stipulated in the loan agreement is that the repayment period may not exceed the estimated life 

of the energy savings generated by the implemented ECMs, and the loan term is not to exceed 15 

years. State agencies awarded loans sign an agreement allowing direct withdrawals of loan 

payments from utility operating accounts. 

ESCOs are free to accept any source of funding utilized by their customers, so the state loan 

program is only providing one possible option. As such, the program is not considered to be in 

direct competition with the local financing industry. In fact, it was determined that local financial 

institutions were not servicing an identified unmet need of city and county ESPC funding. 

Outcomes

To date, over $8 million of program funds have been invested in ESPC projects. Customers have 

benefited as a direct result of available financing for energy projects that allows them to make 

capital improvements paid for by energy savings. The program not only finances energy 

performance improvements of state buildings, but, as more buildings pursue upgrades, it is also 

seen as a mechanism to increase economic development and create new jobs as well. 

Additionally, Green Bank monitors total energy reduction and costs avoided for each project. It 

is currently developing a way to display data that will publically highlight program performance. 

Although the program has not been broadly marketed, Green Bank has been fully engaged with 

state ESCOs in helping applicants seek available financing. As a result of the program, it is 

determined that ESCOs benefit from more work opportunities. 

In addition to ESPCs, loan funds from Green Bank program can also be used for a number of 

other energy conservation measures. From its initial $14 million base, the fund has a little over 
9 

$5 million remaining. It is expected that the remainder will be lent out by June 30, 2011. As a 

way to serve cities and counties who wish to improve energy efficiency measures in their public 

facilities, Green Bank is looking into securitizing a secondary market for its ESPC loans and is 

seeking additional capital to expand the program. 

Alabama Local Government Energy Loan Program3

Established in 1997, the LGELP is a public-private partnership between the Alabama 

Department of Economic and Community Affairs (ADECA), which houses the state energy 

office, and Alabama’s PowerSouth Energy Cooperative. The program’s objective is to provide 

low-cost revolving loans for energy efficiency projects. The program has a $2 million budget, 

funded by oil overcharge funds. Administration of the program is provided by PowerSouth 

Energy Cooperative. 

Originally the program was created in partnership with U.S. Department of Agriculture Rural 

Development as a way to encourage energy efficiency upgrades in local government buildings 

and public schools in rural areas where little funding was available for needed energy 

improvements. The program was expanded to fund ESPCs in 2009. 

Structure

LGELP was established to serve Alabama’s public school districts and government facilities, 

including higher education campuses, as well as city, state, and county buildings. Program 

funding amounts are not allocated by energy efficiency project type, thus there is no limit on 

how much can be associated with ESPC projects, only that loans are capped at a maximum 

incentive of $350,000 per local government or school campus, and $500,000 per school system. 

Terms of the loan are 0% interest for up to 10 years, in addition to a 3% management fee. For 

applicants to qualify estimated simple payback of ECMs must be less than ten years. 

In addition to an energy audit required prior to loan approval, an annual energy-use report must 

be submitted following the installation of energy conservation equipment. This requirement 

provides ease of tracking program performance by LGELP’s administrators. 

Outcomes

Despite the fact that entities are reluctant to take on any projects or loans that they perceive to 

tie-up needed funds, it is anticipated that with 0% interest loans, the energy savings from 

implemented ECMs will repay the loan amount in a short amount of time. Customers benefit 

from the low-cost financing available for energy retrofits that save money, which can then be 

used for other expenses, such as staff, supplies, etc. States, on the other hand, benefit from 

reduced energy demand and greenhouse gas emissions. 

 

3 Clifton, K. Correspondence. Energy Program Manager, Alabama Department of Economic & Community Affairs. 
10

Of those ESCOs that ADECA is in contact with, marketing of the program to clients who are 

considering energy upgrades is encouraged. Interest levels have increased as a result of ESCOs 

promoting the program. It is anticipated that LGELP will help ESCOs better market ESPCs 

because program funding enables the borrower to cover a portion of the upgrades with zero 

percent interest loan funds in a short period of time. 

To date, the program has approved over $800,000 in loans for ESPC projects. Although only a 

few loans have been approved, applications and interest is steadily increasing. Despite the fact 

that funds may be used to pay back a portion of an ESPC, the capped amount may not be 

substantial enough to finance an entire ESPC. Nonetheless, it is possible that additional funds 

could be obligated in the future, allowing the program and loan amounts to expand. If LGELP is 

to be sustainable financing ECPCs, it will have to increase its budget and the maximum 

allowable loan amount. 

LGELP is an example of an existing loan program whose lending portfolio has evolved to 

include the financing of ESPCs in addition to other energy-savings projects. It has also 

demonstrated how instrumental ESCOs can be in the effective marketing of ESPC loan programs 

to their customers.

 

Texas LoanSTAR Revolving Loan Program4

Initiated by the Texas Energy Office in 1988, the Texas LoanSTAR (Saving Taxes and 

Resources) Program was approved by the U.S. Department of Energy (DOE) to be a statewide 

loan demonstration program targeted at improving the energy efficiency in the state’s public 

buildings. Petroleum violation escrow funds received from the federal government were the sole 

source of funding at the initiation of the program. Statute requires that the loan fund be selfsustaining. In the case of LoanSTAR, it is the Texas State Energy Conservation Office (SECO) 

who is responsible for managing the fund. With a current balance of approximately $126 million, 

LoanSTAR is the largest state-run building conservation program in the United States. In 2001, 

SECO received DOE approval for LoanSTAR to begin financing Energy Savings Performance 

Contracts (ESPCs). 

As a revolving loan fund, the intent is that the base fund continues growing through interest 

payment receipts and lasts indefinitely. Low interest rate loans provided through the fund assist 

public institutions in financing energy cost-reduction efforts on their facility or facilities. The 

revolving loan mechanism allows the borrower to repay loans through the stream of cost savings 

realized from energy-efficiency retrofit projects.

Partnering ESCOs are generally active in maintaining open lines of communication with SECO 

in order to be aware of funding opportunities as they become available. 

 

4 Trevino, E. Correspondence. Program Manager, State Energy Conservation Office. 
11

Structure

Program financing for energy-related cost reduction retrofits specifically targets public buildings, 

including state agencies, public K-12 schools, public higher education institutions, tax-district 

supported public hospitals, and local governments. Borrowers secure financing from LoanSTAR 

through a competitive process. Twice a year, SECO publishes a notice of loan fund availability 

(NOLFA) and request for application announcement. In each NOLFA, the available funds, loan 

interest rate, and maximum loan amounts are announced. Historically, the maximum loan size 

has not exceeded $5 million. 

The application process enables the potential borrowers to self score their applications. Once the 

potential borrowers submit their applications, those applications are independently scored and 

ranked. The highest scoring applications are funded first. 

It is possible for the borrower to use alternative funding sources in addition to LoanSTAR to buy 

down portions of a project that do not meet the program’s funding criterion. The decision to 

leverage financing with other funding sources is made by the borrower. 

Outcomes

LoanSTAR has been very successful in meeting its objectives. The LoanSTAR program has 

originated 208 loans. Since June 2003, 18 borrowers have utilized the ESPC structure. Twenty 

loans have been originated to these 18 borrowers, at a volume totaling $63 million.

The LoanSTAR program has enabled the state to continue helping public entities improve the 

energy efficiency of buildings. LoanSTAR program borrowers benefit from the energy savings 

and capital improvements made to their facilities, using the resulting energy cost savings to pay 

for the principal and interest of installed energy conservation measures. ESCOs benefit because 

they can promote low-interest loans to prospective public entity borrowers. 

The LoanSTAR program has also had a significant impact on mitigating environmental 

pollutants released into the atmosphere. As of December 2010, reported LoanSTAR funded 

projects have prevented the release of 10,119 tons of nitrogen oxides, 3,244,440 tons of carbon 

dioxide, and 7,188 tons of sulfur dioxide. Additionally, cumulative energy savings amounted to 

$316,366,310. 

Alaska—Energy Efficiency Revolving Loan Program5

Alaska’s Energy Efficiency Revolving Loan Program (AEERLF) was authorized by the state 

legislature and established with $250 million in general obligation bonds, issued and managed by 

the Alaska Housing Finance Corporation (AHFC). AHFC was able to use Recovery Act funding 

 

5 Havelock, E. Correspondence. Multi-Family Underwriting Supervisor, Alaska Housing Finance Corporation. 
12

for some of the start-up costs, but the AEERLF itself is funded by AHFC’s ability to sell bonds. 

The program began in November 2010. To date, no loans have yet been closed under the 

program. 

Structure

Funds are made available through loans to any public facility owned by the state, school district, 

municipality, or University of Alaska. Loans are structured so that the payments will be less than 

the savings estimated through investment grade audits (IGAs). The facility’s legal governing 

body must authorize loan applications. 

Audits must be performed by a certified energy auditor or certified energy manager, accredited 

through the Association of Energy Engineers. The IGA includes cost estimates needed to 

incorporate the ECMs. The AHFC Research and Rural Development Department (R2D2) 

contracted with five technical service providers to oversee the implementation of the IGAs. The 

AHFC mortgage department accepts the loan package, with the recommendations of R2D2 staff 

as to the integrity of the audits and cost estimates. 

Current guidelines require an ESPC, with energy savings guarantees, to be implemented on any 

project in excess of $250,000. There is no maximum loan amount, other than the program’s $250 

million budget. Any performance guarantee will be assigned to AHFC as collateral. 

Outcomes

AHFC will provide stable, predictable financing for energy efficiency retrofits that are based on 

IGAs, with performance guarantees or rigorous review. Data collection of before-and-after 

energy use, establishment of an energy use index, inventory of buildings, and construction type 

are all considered part of the measurement of success.

As the program is relatively new, there are no data yet on increased interest in ESPCs, other than 

an increased number of phone calls. AHFC has begun collecting benchmark data, including twoyear histories of energy use, and is conducting outreach to educate public entities of the potential 

benefits of the program. 

Initial data have been collected on several hundred buildings, and in the early stages of the 

program, it appears there is a high interest in moving through the audit stage. More data will be 

made available as the program matures