Recent headlines touting grants and incentives for green jobs, green tech and green energy may lead some to believe all you need are five little letters and an eco-friendly logo and free money falls out of the sky and into developers’ and homeowners’ pockets.

But even though programs designed to accelerate adoption of green construction and alternative energy sources abound, for all the hype the projects themselves can still be challenging to finance.

A major hurdle – at all levels, but particularly with larger-scale projects – lies in finding a standard way to project energy and resource consumption. Installing solar panels or a groundwater heating system, even for one unit, requires a substantial investment. And before loaning or granting money for such capital improvements, private investors and nonprofit grant organizations want to ensure that future savings on energy bills will make up for high upfront costs – and will continue for the life of the new equipment.

Risk, Reward

But these calculations are far from simple, sources told Banker & Tradesman – standard utility rates vary widely over time and from place to place, making it difficult to reliably estimate total costs over long periods. And many green technologies, new and innovative as they are, lack the decades’ worth of reliable data on wear rates and repair and replacement costs enjoyed by their conventional peers that might make projecting long-term operating costs easier.

Some private companies are hoping to step into the breech and offer solutions for individual homeowners. According to Grayson Morris, director of sales operations for San Francisco-based SunRun, a home solar financing company, there are now about 20 markets nationwide where solar power can be provided more cheaply than standard utility rates.

But the $20,000 upfront price tag often carried by a home solar installation is enough to put many homeowners off.

SunRun’s solution is to offer solar power purchase agreements – a contract in which the homeowner agrees to purchase the power produced by the panels installed on his roof from SunRun at a fixed rate. In return, the firm covers all installation and maintenance costs.

“It’s a win-win for the customer and us – we obviously have a profitable business and they get a solar system on the roof for next to nothing,” said Morris.

But there are challenges.

The SunRun contract runs for 20 years. If a homeowner wants to move within that timeframe, they must either purchase the equipment from the company or convince the new homeowner to take on the contract. Additionally, under SunRun’s contract, the homeowner’s cost is fixed. If energy costs were to decrease, or subsidies to increase, the low-cost benefits of green energy might begin to fade.

Economies Of Scale

But the problems inherent in amortizing green improvements for single-family homes pale in comparison to those facing multifamily developments.

Boston-based WinnCompanies, with a multifamily management portfolio of more than 80,000 residences nationwide, has successfully used weatherization grants from the federal Department of Energy to add energy–saving improvements to many of its buildings.

But according to Darien Crimmin, vice president of energy and sustainability for the group, grants sometimes aren’t the ideal vehicle for financing projects when it comes to multi-family residential.

“One of the big issues that we’re having with the weatherization funds that we’ve been awarded, is that they’re treated as grants to the property, so they’re treated as taxable income,” Crimmin said. “So the energy benefits and the savings go to the tenant, but the tax liability remains with the limited partnership. [So] there’s an inherent disincentive [to perform green upgrades].”

Winn has submitted a proposal as part of the Department of Energy’s Innovation Pilot Program to create a program that would enable limited partnerships to convert grants into loans, changing their tax status and potentially attracting private capital into the market, increasing the pool of funds available.

Partly because of the difficulties in projecting utility savings, private capital has so far been reluctant to enter the market, making it more challenging to finance large projects.

“It’s very, very hard to show data,” said Gail Wisner, a sustainability advisor and associate director with national brokerage firm Holliday Fenoglio Fowler, which has an office in Boston. “You can’t even compare one unit to another of a similar size because so much depends on the tenants’ [energy consumption]. Metrics are difficult. And a lot of people are waiting, [saying] ‘Prove it to me, prove it to me, prove it to me.’”

That hesitation is a shame, Crimmin said, because economies of scale often mean recipients get more bang for their per-unit buck when it comes to multi-family developments. If the maximum amount of a weatherization grant is $6,500 per unit, “with a 100-unit apartment building you can use that [$650,000 total] to replace the heating system, whereas with a single-family unit that’s probably not going to be enough.”