Upfront costs of efficiency retrofits present a significant hurdle for many building owners, even when upgrades would provide a clear return. Energy upgrades may have payback periods that are too long for self-financing, and building owners can be hesitant to pay for upgrades if they are uncertain whether they will own the property for the entire payback period of an investment.

Lien-based financing structures are an innovative means of overcoming owners’ concerns about upfront costs and about selling a property before the end of a loan term.  A lien-based financing structure allows a building owner to repay an energy upgrade loan through property taxes via a new lien on the building. Green Banks can use liens as a means of securing energy efficiency loan repayment streams. It works like this:

  • A lender provides capital to a building owner to implement energy efficiency
  • The owner uses the loan to pay for the energy efficiency upgrades
  • The tax-collecting agency puts a lien on the building equal to the loan repayment
  • That repayment is collected by the taxing agency and remitted to the lender

Both property owners and project investors benefit from lien-based financing. This structure allows building owners to pay back loans for energy upgrades over a longer period of time, and repayment obligations travel with the building (where savings from energy upgrades are actually realized) rather than an individual or company. Liens for commercial building upgrades typically sit senior to all other non-tax liens on a building, including the mortgage, significantly reducing repayment risk for investors.

Thanks to the lien, the obligation to repay the loan is attached to the property, not the owner, so owners retain the flexibility to sell their properties. Investors like lien-based financing because the repayment mechanism is embedded in the property taxes, which reduces the risk of default.

Lien-based financing in the United States is generally known as property-assessed clean energy (PACE) financing, and is rapidly increasing in popularity.

Below are two examples of lien-based commercial energy efficiency financing products.

Connecticut Green Bank’s Commercial PACE

Property-assessed clean energy (PACE) financing is the primary lien-based financing structure in the United States. Though the concept is relatively simple, in practice it has been difficult to execute and has struggled to attract private lenders in many markets where commercial PACE is legally authorized. However, Connecticut has found that the Green Bank is an ideal PACE program administrator and lender.

Through Commercial PACE (C-PACE), CT offers whole-building commercial upgrade loans that cover roof-top solar and multi-measure efficiency installations. PACE is authorized in over 30 states, but Connecticut is one of only a two states to achieve significant scale with the program, with over $100 million financed to date. Unlike in most states where each local government is charged with creating their own PACE program, the Connecticut Green Bank is tasked with administering the program across the entire state. Through central administration, the Connecticut Green Bank implements programmatic consistency and standardization, which are critical for private investment. And the Connecticut Green Bank also ensures that every loan offered can be paid back entirely through the savings generated by the project. The Connecticut Green Bank uses a standardized and rigorous technical underwriting method to ensure that every project has a savings-to-investment ratio (“SIR”) greater than 1. In other words, every financed project is cashflow positive for end-users from the beginning.


Many commercial PACE programs have largely failed to attract private capital because of program complexity and small investment scale. But the Connecticut Green Bank was able to kick-start the market by originating and underwriting PACE loans itself using public dollars and build scale by aggregating projects. Loans are offered at approximately 6%, which is low enough to expand the addressable market and make projects cash flow positive, but high enough to attract private investors who want to buy the loans from the Green Bank.

After building a portfolio large enough to attract private investment, the Green Bank sold 80% of the PACE loan portfolio through an auction, drawing in $24 millions of private investment.[1] This was the first commercial efficiency securitization in the United States. This initial success proved the viability of the market to private investors, and the Green Bank found a private partner to seed an even larger warehouse to make PACE loans. Hannon Armstrong committed $100 million to finance C-PACE projects in Connecticut, which can bring the market to scale relying primarily on private investment.[2]


[1] Lombardi, Nick, “In a ‘Watershed’ Deal, Securitization Comes to Commercial Efficiency,” Greentech Media, May 19, 2014

[2] http://www.prnewswire.com/news-releases/green-bank-and-hannon-armstrong-partner-for-commercial-clean-energy-financing-300194976.html

Additional Resources

C-PACE Program Home Page: http://www.cpace.com/

C-PACE Program Guidelines: http://www.cpace.com/assets/pdf/C-PACE_Program_Guidelines_v5.pdf

C-PACE Projects: http://www.cpace.com/projects/all

CEFC and Environmental Upgrade Agreements (EUA)

Environmental Upgrade Agreements, or “EUAs,” are a lien-based financing structure used for financing clean energy upgrades in Australia (and are similar to Property Assessed Clean Energy (PACE) in the United States). Like PACE, an EUA is secured and tied to the property rather than an owner, which gives the owner the freedom to sell the property (and transfer EUA payments) to a new owner. Loan repayments are made as an agreed environmental upgrade charge which is paid to the local council along with the rates charges for the land, and the council passes the repayments on to the lender.[3]

Benefits of EUA structure include:[4]

  • Savings pay for benefits
  • Owners and tenants share the benefits
  • Longer term loans through secured financing: up to 15 years
  • EUAs are attached to the land, meaning that repayment is transferred with the land upon sale
  • EUA loans do not usually affect a building owner’s borrowing capacity



CEFC and the National Australia Bank are providing $80 million for financing eligible energy and water efficiency projects through the Australian Environmental Upgrade Fund (TAEUF), a partnership between CEFC, NAB and Eureka Funds Management. EUA deals are structured to include a fixed and competitive interest rate. Energy cost savings pay for the cost of financing the efficiency upgrades, ensuring that EUA projects cash flow positive.


[3] CEFC Fact Sheet on EUAs

[4] Office of Environment NSW and CEFC Fact Sheet on EUAs

Additional Resources

Better Building Finance Australia