Alternative Financing Decision Trees for Common Clean Energy Projects

To support state and local governments looking to sponsor a range of clean energy projects, RMI created step-by-step decision trees for a:

Generic clean energy project,
Fleet electrification plus charging infrastructure,
Public and low-income building efficiency accelerator, and
Community solar.

These frameworks help identify and assess various funding sources and financing mechanisms to realize a project’s capital stack. Most projects employ blended finance, layering a mix of public and private sources:

Equity – capital in exchange for ownership and profit shares;
Debt – bonds and loans whose value and interest must be repaid; and
Grants – non-repayable funds, usually awarded to support projects in high-risk or underserved markets that generate environmental, social, or economic value other than direct revenue.

There are a variety of ways project sponsors can complete a clean energy project’s capital stack. Funding sources at the bottom of the stack are repaid first.

Before identifying potential funding and financing, it helps to gauge the project’s bankability –the degree to which the project can attract funding from equity investors or lenders based on its capacity to generate a reasonable return on investment. This is determined by:

How much revenue is the project expected to generate?
How predictable is that revenue?
How long will it take to repay the upfront investment?
How likely are the project sponsors to repay investors or lenders?
How credit worthy are the sponsors?
Can the sponsor raise revenue outside the project, such as through taxes?

Exhibit 1 helps build on these questions.

Exhibit 1: Key characteristics of different project payback profiles

Payback Profile	Likely to:	Examples
Project offers a short-term, self-sustaining payback.	Attract favorable loan terms given predictable returns can cover commercial financing. Attract public-private partnerships and energy service agreements where vendors can front capital under shared-savings or lease models.	Energy-as-a-service (EaaS) models LED replacement funded via utility bill savings
Project generates low but stable revenue over longer terms.	Require blended financing like concessional loans, subordinated debt, and federal and state clean energy funding. Require de-risking through guarantees, public co-investment, and pulling from loan loss reserves. Require risk-sharing since investors will not see immediate return on their investment.	Building retrofits Water reuse Distributed/community solar
Project bears little or no direct revenue.	Require public budget allocations or bond measures to realize its environmental, social, and indirect economic benefits. Emphasize its health, resilience, and equity outcomes to secure federal or philanthropic grants.	Urban tree planting Free public EV charging

Decision Trees

A Decision Tree for Financing a Generic Clean Energy Project

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Whether a state or local government is looking to sponsor the purchase or production of a clean energy technology or infrastructure, the below decision tree is designed to identify where the sponsor may: