Repaying energy efficiency improvements through utility bills a growing trend
December 8, 2011 - In a study released by the American Council for an Energy-Efficient Economy (ACEEE), on-bill financing—a tool that allows customers to pay for energy efficiency investments though their utility bills—is becoming more widely available across the United States, and extending opportunities to historically underserved markets.
“The great thing about on-bill repayment is that it can serve a broad array of markets with diverse needs. It is a versatile financing tool that can be combined with a variety of different sources of capital and implementation strategies,” observed Casey Bell, lead author of the report.
The study, “On-Bill Financing for Energy Efficiency Improvements: A Review of Current Program Challenges, Opportunities, and Best Practices” profiles 19 existing on-bill financing programs in 15 states. The study finds that these programs are poised to address financing gaps that have not been historically addressed by other energy efficiency financing mechanisms.
On-bill financing generally refers to a financial product that is serviced by, or in partnership with, a utility company for energy efficiency improvements, and repaid by customers on their monthly utility bills. In many cases, says ACEEE, energy savings are sufficient to cover the monthly payments for the financing so that the total monthly charge on utility bills is less than or equal to the pre-investment amount. Programs can be tailored to meet the needs of industrial, commercial, and residential customers.
“On-bill financing programs can leverage a utility’s unique relationship with energy customers improving access to funding for energy efficiency investment, especially for historically underserved markets such as rental, multifamily buildings, and small businesses,” said ACEEE executive director Steven Nadel. There is also potential for traditionally credit-constrained customers to gain access to financing through modified underwriting that takes bill payment history into account, adds ACEEE.
On-bill programs are still generally in their infancy. These programs are facing some challenges to adoption and scalability, says ACEEE, including: funding the upfront costs for utilities with a need to modify their billing systems; a perception by some that utilities need to behave like a financial institution to participate in on-bill financing; and the need for more information on the performance of energy efficiency financing as an asset class.
“As the number of on-bill programs grows, we anticipate many opportunities to learn from experience,” said Bell. Important considerations for augmenting and implementing on-bill programs include understanding underlying financial incentives, and applicable laws and regulations, as well as how risks are distributed amongst stakeholders.