Mobilizing Funding for Deep Building Retrofits: Part 1
In our last blog, we looked at the positive conditions that support Nova Scotians to be climate leaders. One area that is ripe for a concerted and collaborative effort is deep building retrofits: lowering the carbon emissions used in building operations, while making buildings more climate resilient.
If Canada is to meet its climate target of net zero emissions by 2050, accelerating the pace of building retrofits is a critical element to success. It is the first priority in the Canada Green Building Strategy.
In Nova Scotia, we have a growing ecosystem dedicated to deep retrofits. The Building to Zero Exchange was launched in 2023 with a mandate to increase Nova Scotia’s building sector capacity for net-zero energy buildings. HCi3 provided seed funding, and a group of seven founding organizations supported the design and launch. In 2024, Halifax-based ReCover Initiative secured federal and philanthropic investment to establish a Deep Retrofit Accelerator for Atlantic Canada. HCi3 is an investor in, and partner on, the retrofit accelerator. The Building to Zero Exchange and the Union of Nova Scotia Mi’kmaq are also key partners. HCi3’s role is focused on the challenge of retrofit financing. In Part 1 of this blog, we will share information on current challenges, common financial tools and alternative financing strategies for deep retrofits. In Part 2, we will look at measures that could help accelerate deep retrofit financing.
Financing Deep Retrofits
Financing is one of the main barriers to undertaking retrofits. Through a survey, interviews and literature reviews conducted last year, HCi3 confirmed that Atlantic Canadian building owners face similar challenges to other building owners nationally in financing upgrades. The survey included over 60 participants from across Atlantic Canada and a variety of roles, including building owners, architects, policy makers, and other building professionals. Cited barriers to implementing deep retrofits include capital costs, cost of debt, debt ceilings, labour shortages, technology adoption, retrofit complexity, competing goals, lack of simple and harmonized regulation and policy and granting challenges.
Our goal is to increase understanding of, and access to, funding and financing for building owners and managers of commercial, municipal, provincial and multi-unit residential buildings. This starts with understanding the financial tools they are using, and other approaches that they could also employ.
Common Financial Tools
The most common revenue financing and funding strategies cited in our survey included organizational revenue parsed into facilities renewal budgets, along with external loans, grants and rebates. Without question, grants, rebates, and preferential loans help make the business case for deep retrofits and are needed. However, we heard through our interviews and surveys that these mechanisms can have their own challenges. Not all building owners are eligible for the same loan or grant programs. Some programs are only open at certain times of the year and owners need to be ready with a project proposal to meet the application window. Grant programs are often over-subscribed, mostly uncoordinated between funders, and may sunset with little notice. What is funded by loans and grants may not match what is needed for a compelling business case. Expanding and coordinating programs to be more comprehensive in their continual support for more building owners would make a difference.
Alternative Financing Mechanisms
Survey participants were less familiar with other financing mechanisms that could provide additional opportunities beyond self-financing, grants, loans, and rebates. The table below provides a summary of some of these possibilities.
| 1. Green rental agreements (GRAs) | GRAs integrate the utility costs into the rental agreement and provide an incentive for landlords and tenants to improve energy efficiency |
| 2. Energy performance contracts (EPCs) | EPCs are performance-based agreements where building owners can utilize the technical and financial capacity of an energy service company (ESCO) to design, build, and secure financing if needed to retrofit a building or group of buildings.iii The ESCO is repaid based on utility savings and in some cases grants and facilities renewal contributions |
| 3. Energy service agreements (ESAs) | ESAs are agreements where a company will provide a service, such as a piece of energy efficient equipment, with no upfront capital costs and/or maintenance costs. The owner pays a regular fee for using the equipment using the energy savings.iv |
| 4. Green revolving funds (GRFs) | A GRF is an internal fund dedicated to financing climate and sustainability projects that generate savings. A percentage of savings are used to replenish the fund.v |
| 5. Internal utility or carbon funding mechanisms | Organizations can create internal accounts where utility savings help to fund projects on their own or in collaboration with other funding streams, such as facilities renewal, strategic initiatives and grants. Some organizations apply a carbon or climate fee on departmental travel, parking or other tax revenue. |
| 6. Power purchase agreements (PPAs) | PPAs are agreements between electricity generators and buyers (building owners). In a PPA, the electricity generator agrees to sell a specified amount of renewable electricity to the owner.vi Energy-dense buildings often cannot generate all the needed renewable electricity on site. A PPA provides a mechanism for on-site and off-site renewable energy procurement. An energy agreement can also be used to purchase heating or cooling from a district energy system. |
| 7. On-bill financing | On-bill financing and rebates are provided by private companies, often utilities, to their customers as an easy way for customers to access upgrades like heat pumps, electric thermal storage units, and solar panels.vii The cost of the upgrades is repaid through charges added to a customer's bill. The utility or other financing company effectively acts as a lender, providing funds for improvements and then collecting repayments along with the regular energy consumption charges. |
| 8. Trade credit insurance/ loan loss reserves | Lenders receive some protection, often from government, against a commercial customer’s ability to pay debt, thus reducing the cost of borrowing to the owner and incentivizing the lender to provide more capital.viii, ix |
| 9. Commercial Property Assessed Clean Energy (C-PACE) | In a commercial PACE program, a municipality adds a charge to a commercial property owner’s property tax bill, or issues a local improvement charge, to pay back an energy efficiency or renewable energy upgrade over a period of time.x, xi |
| 10. Green or climate bonds | Green or climate bonds mobilize capital in support of climate and environmental objectives. A key focus is often on building energy retrofits.xii As with a conventional bond, investors offer a loan that is repaid at the end of the term, along with interest payments paid throughout the loan’s term. |
| 11. Community Economic Development Investment Funds (CEDIFs) for commercial buildings | CEDIFs raise funding from individuals to invest in for- or non-profit entities within a defined community. Tax credits are provided.xiii The Jubilee Fund in Manitoba, a CEDIF model, has supported affordable housing developers to provide energy efficient upgrades through their investment, as an example.xiv CEDIFs have been used in Nova Scotia to support development of community-scale renewable electricity projects. |
Opportunities to Learn More
Part of our work at HCi3 is to build knowledge of these alternative financing strategies, as well as how to use more traditional avenues - such as grants and loans – more effectively. Here are some opportunities:
Join our free webinar series on deep retrofit financing and funding, hosted in partnership with Building to Zero Exchange and the Recover Initiative. Learn more and register for Part 1, Deep Building Retrofits: Funding and Financing 101, November 12 .
Review our Deep Retrofit Funding & Financing guide.
QUEST Canada is holding a Project Initiation Workshop November 4-5 in Halifax targeted at municipalities and Indigenous communities looking to move from energy plans to action.
For those looking to advance deep retrofits, we hope these resources will be helpful. Look for Part 2 of this blog where we will offer further suggestions for accelerating financing for deep retrofits.
By Rochelle Owen, Rochelle Owen Consulting and Julia Sable, Director, Strategic Initiatives, HCi3