Assessment of Revolving Loan Funds

Features favourable for municipalities

Features NOT favourable for municipalities

Financial savings through energy efficiency measures are returned to a dedicated part of the municipality budget (Revolving fund) from which new measures can then be financed.
When municipalities do not have access to other types of loans from financial institutions, or for those that can’t get loans with acceptable rate of interest.
Preferential interest rate on the loan (for public buildings)
Municipality can reuse capital with designing a self-sustaining and long-time oriented fund
Involvement of private investors
merging funds if municipalities are small

After the initial pool is lent out the lending activity slows down as the repayments that replenish the pool of capital come in over many years.
Additional administrative costs related to sourcing funds and administering loans.
In the event that the municipality is not able to directly manage the risks associated with the intervention
Tensions resulting from merging private and public capital

Types of EE projects or EE services suitable to be financed this way

Revolving funds at city/municipality level can be a sustainable solution for providing long-term financing of EE investments in public buildings and infrastructure. Under typical revolving EE funds, loans are provided to cities/municipalities to cover the initial investment costs of EE projects. The savings resulting from reduced energy consumption and improved EE are then used to repay the loan to the fund until the original investment is recovered, plus interest and any fees or service charges. The repayments can then be utilized to finance additional investments in EE, thereby leading to the revolving fund. Such funds can often offer lower cost financing with longer tenors and reduced security requirements than commercial loans, since both the borrower and lender are publicly owned.
The loan can be designed to permit only the purchase of certain technologies or products, or to fund projects with explicit goals but it can also be designed to fund entire portfolio—such as greenhouse gas (GHG) emissions reduction in public buildings—and may target specific building types to reach that goal.
In general, suitable for multi-aimed orientated EE projects and generating savings for repayment of loans.

Recommendations for deployment

Utilities, state and local governments, nonprofits, state energy offices, and universities can operate revolving funds. Programmes can be administered entirely by one agency or operated in conjunction with a third party.
Another option is a loan-participation model, where a third party (such as a state energy office) lends part of a loan at a below-market rate and a private lender provides the rest. The two thus lend in partnership, resulting in a loan that offers more attractive funds than would be possible with private financing alone.
Creation of a platform for exchange of information on available options revolving loan funds
To establish a revolving fund, it may involve the municipality’s own funds (from the budget), government allocations or grants/loans from donors or other external sources. Such funds may be established and managed by a single city/municipality, but often they are established also at regional or even national level offering financing to multiple cities/municipalities.

Examples

KAWKA - regional financing scheme in Jelenia Góra, Poland
Energy Fund - Multyscope Regional Fund of public financing in Emilia-Romagna, Italy