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Finance Options
Financial resources may be used to finance CHP systems singly or CHP systems as part of a larger facility upgrade, expansion or new construction.

Private Funding Options
  1. Cash purchase (self-financed)1,8
    • Company must have sufficient financial resources.
    • Return-on-Investment often higher because there are no interest payments, transaction fees, or environmental testing costs.
    • Purchase considered a capital investment for book and tax purposes.
  2. Debt purchase (commercial loan)1,8
    • Federal or state guarantees may facilitate loan approval process.
    • Down payment usually required.
    • Lenders often deeply discount collateral value of equipment and/or require different types of collateral to secure loan.
    • Lenders typically require an environmental study or insurance to limit their environmental liability.
    • Borrower owns equipment for tax purposes and may take tax deductions for depreciation and interest payments.
    • Considered a capital investment for book purposes.
  3. Lease-purchase/capital lease (installment purchases)1,8
    • Typically 100% financing; no down payment.
    • For tax purposes, lessee owns equipment and may take tax deductions for depreciation and interest payments.
    • For book purposes, considered to be a capital investment.
    • After lease-purchase term, lessee owns equipment.
  4. Operating Lease1,8
    • Lessee does not own the equipment during the lease period, but typically has an option to purchase at the end.
    • Typically lower monthly cost than ownership options.
    • For book and tax purposes, equipment is treated as an operating expense rather than a capital investment.
    • Leases generally have cancellation penalties.
    • Equipment removal costs commonly borne by lessee.
  5. Energy Savings Performance Contracts9,3
    • This is an agreement with an Energy Service Company (ESCO) that may include CHP, but is not limited to CHP. ESCO's perform a total energy audit of your operation.
    • An energy savings performance contract commonly includes design and integration of a host of energy efficiency measures; maintenance of energy-related equipment; and monitoring of energy savings during the life of the contact.
    • Occasionally, an ESCO will independently finance a project, but the trend in recent years is toward third party financing
    • The company's cost is tied to the amount of actual energy savings.
    • The ESCO assumes technical and economic risk for the project.
(See the State of Hawaii's Guide to Energy Performance Contracting (External Link) for an example.)

State Funding Resources

Federal Funding Resources (Bonds, Loan guarantees, Incentives, Grants)

Federal Bond Opportunities
Gulf Opportunity Zone Bonds (GOZONE)2
Bonds are available to businesses in hurricane ravaged counties in Alabama, Louisiana and Mississippi. Qualified project costs include "the cost of acquisition, construction, reconstruction, and renovation of nonresidential real property (including buildings, their structural components, and associated fixed improvements)".4 Facility improvement costs may be permitted as long as they are chargeable to the capital account of that facility.4 (For full explanation, see Revenue Provisions of the Gulf Opportunity Zone Act.)
Empowerment Zone Facility Bond (EZ)2
These bonds provide low interest loans to businesses willing to expand within or relocate to designated Empowerment Zones. These loans are contingent upon businesses employing substantial numbers of zone residents in their operations. State by state listing of empowerment zones, with links to zone-specific information can be found at Tour RC/EZ/EC's by State.
Revenue Bond10
A loan issued to finance construction or improvement of a public revenue-generating entity such as a hospital, waste-water treatment facility or municipal power plant. Revenues are used to pay back principal and interest.
Clean Renewable Energy Bond (CREB)
A tax credit bond for renewable energy facilities available to municipalities and other tax-exempt entities (e.g. schools, colleges, municipal hospitals, JPA members).8 Bond application deadline was April 2006; however bonds may become available again. Senate Bill 2401 "Alternative Energy Extender Act' proposes to increase funding and extend the deadline for these bonds.5,6 For an overview of the program visit Understanding the Clean Renewable Energy Bond Program.
Industrial Development Bonds (IDB)2,7
These bonds provide below market loans to private companies wanting to update and expand their manufacturing facilities. At one time, California had a provision in their IDB program specifically for energy efficiency upgrades.

Loan Guarantees
This federal program makes capital available to small businesses to, among other purposes, incorporate new technologies and efficiency improvements into their work flow. To determine if your business fits SBA's business size and other criteria, go to Small Business Size Standards and The Small Business Act.
Loans and loan guarantees are two types of assistance listed in the database.

Tax Incentives
Empowerment Zone tax incentives - Zones are listed by state, and tax incentives are found in zone-specific links

Grants
US Department of Energy funds CHP-related projects.
Federal clearinghouse for identifying grant opportunities. Website includes general grant information and a searchable database of all grant opportunities, not just CHP grants.
Searchable catalog includes grants, direct payments, and programs that provide government specialists who consult, advise, or counsel. Includes more than just CHP monies.

Other Incentives
CHP-related funding opportunities. Check periodically as opportunities are updated twice a month.
Federal and state links to energy incentives that may apply to CHP systems. Don't overlook the link to federal incentives located above big US map on the first page.

References
Bartsch, C. (2000)
2 - R.S. Crawford, personal communication
GE Public Finance (July 2006)
3 - T. Singer, personal communication
National Association of Energy Service Companies (July 18, 2006)
Staff of the Joint Committee on Taxation (2005)
5 - C. Boudrais, personal communication
American Public Power Association (July 2006)
United States Senate Committee on Finance (2006)
Apollo Alliance (2003)
8 - W.J. Garnett, personal communication
National City Energy Capital (July 2006)
US Department of Energy (2006)
Wikipedia (2006)
Page Updated/Reviewed: 08/15/2007 11:49 AM