Published on December 13th, 2011 | by Zachary Shahan2
Repayment of Energy Efficiency Investments through Utility Bills Getting Popular, Study Finds
December 13th, 2011 by Zachary Shahan
“On-bill financing, an innovative tool that allows customers to pay for energy efficiency investments though their utility bills, is becoming more widely available across the country and extending opportunities to historically underserved markets, according to a new study,” the American Council for an Energy-Efficient Economy (ACEEE) notes. (Yes, it was an ACEEE study.) “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 [and] finds that these programs are poised to address financing gaps that have not been historically addressed by other energy efficiency financing mechanisms.”
Basically, a utility company funds or helps to fund an energy efficiency project and gets its money back over time from monthly utility payments. Of course, the energy efficiency projects reduce the energy use of the customers and their bills are often the same or even lower than before while they are paying off the project. Then, of course, once the project is paid off, they are rolling in savings. Programs are often made to fit industrial, commercial, and residential customers uniquely.
Yes, this is clearly an all-around-winning idea. People save money and help the environment without having to do hardly anything.
“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,” ACEEE notes.
Sound familiar? It reminds me a whole lot of the tremendously popular and beneficial PACE programs that were booming before an abrupt shutdown last year.
ACEEE also notes, not surprisingly at all(!), that energy efficiency loan programs are low-risk investment. Of course they are. On-bill programs, reportedly, have a default rate of 2%.
“There is evidence to suggest that customers tend to prioritize the payment of utility bills, which contributes to low default rates, and some program administrators are exploring the potential of bundling on-bill loans with other financial products and creating a secondary market for capital. Creating a secondary market could help bring programs to scale, since many of these programs have participation rates of less than 1% of eligible customers.”
Being a relatively new thing, these on-bill programs have some lessons to learn and naysayers to bypass. “These programs are facing some challenges to adoption and scalability, 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.” But the promise is huge.
Have such a program in your region? (If you think you don’t, perhaps look into it and see if you just haven’t heard about it.)
Electricity Bill Savings image via shutterstock
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