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Turning Green into Green

How rewriting loan contracts can turn eco-friendly into income.

Perhaps it’s no wonder that an electrical engineer who became a professor of finance would figure out how green buildings can financially benefit the people with the resources to fund renewable energy projects.

“My research is on sustainable energy investments,” says Professor Nalin Kulatilaka, codirector of the BU Clean Energy & Environmental Sustainability Initiative, “from renewable energy sources, like solar and wind, to energy conservation and energy efficiency investments, like building retrofits.”

The thrust of his work is to incentivize the up-front funding for green energy buildings from banks and other sources by writing a new kind of contract for the loans. The contracts are intended to turn green energy savings into cash, so the investors who put up the capital can capture some of the money saved as revenue from the project.

“We are now designing contracts that would allow the building owner and the tenant to share the savings. These would occur in such a way that funding could be attracted from conventional—or at least semi-­conventional—sources like large banks.”

When the parties involved can tap into the savings that come from using green energy, tenants are incentivized to conserve energy, and funders see the value in providing resources to the project.