Energy Efficiency Financing

What is energy efficiency financing?

Buildings can be retrofitted to use less energy and save money for the owners. Green bonds or a Green Revolving Fund (GRF) are two ways of paying for building insulation, replacing boilers and windows, etc.

Could institutions issue their own green bonds?

Because bonds are safe assets, in the wake of the financial crisis institutions with excellent credit ratings, like large universities, are able to borrow very cheaply. Universities could issue tens or hundreds of millions of pounds in green bonds, which would represent one of the largest green bond issuances in the history of the UK and would measurably increase the supply of green bonds in the country (green bonds are currently oversubscribed many times over). The resulting energy savings would make such an endeavour extremely lucrative, yet low-risk.

Are green revolving funds (GRFs) a good investment?

Yes. The savings from GRFs become profit that can then be re-invested in further building projects. Energy efficiency produces, by far, the best return on investment of any energy source, conventional or renewable.1 GRFs at Harvard, Stanford, and elsewhere have generated returns ranging from 20% to 59%, with an average of 28%2 – much higher than any other low-risk investments they make, and higher than many high-risk ventures. Another analysis of large corporations’ energy efficiency measures found that they got an average 33% return on investment,3 substantially better than typical endowment returns.4 Projects financed by these funds also help protect institutions from future increases in energy costs. It is more efficient and cost effective to improve building energy efficiency all at once rather than piecemeal over time; green bonds and GRFs therefore result in greater profits for investors.

While the GRF model is particularly suited to North American projects, labelled green bond issuances should appeal to institutions in both the UK/Europe and North America, especially in the current low-yield environment.



1. Lazard. 2013. “Lazard’s Levelized Cost of Energy Analysis — Version 7.0.”
2. Indvik, Joe, Robert Foley, and Mark Orlowski. 2013. “Green Revolving Funds: A Guide to Implementation & Management.”
3. Carbon Disclosure Project. 2012. “Carbon Reductions Generate Positive ROI: Carbon Action Report 2012”. Vol. 44. 4. Acharya, S. and Dimson, E. 2007. Endowment asset management. Oxford: Oxford University Press.