U.S. States & Regions

States and regions across the country are adopting climate policies, including the development of regional greenhouse gas reduction markets, the creation of state and local climate action and adaptation plans, and increasing renewable energy generation. Read More
 

On-Bill Financing: Encouraging Energy Efficiency

On-Bill Financing: Encouraging Energy Efficiency

August 2013

by Sylvia Zhang

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Buildings account for 41 percent of the United States’ primary energy consumption. One generally cost-effective way to decrease buildings’ energy consumption is by improving building efficiency. However, the high up-front cost of efficiency improvements is often a barrier. To address this challenge, many states and utilities are exploring innovative financing mechanisms to make efficiency measures more financially feasible. On-bill financing is one such measure that has recently been gaining popularity. 

On-bill financing (OBF) refers to a type of loan that can be used to invest in improving the energy efficiency of a building. The loan is paid back over time through additional charges on the building’s utility bill. This mechanism encourages building occupants and owners to invest in energy efficiency measures, which can decrease energy consumption and utility bills.

This brief explains the basics of OBF, describes its distribution across the United States, and provides a number of examples of programs in place.

 

 

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Building Sector



On-bill financing (OBF) refers to a type of loan that can be used to invest in improving the energy efficiency of a building. The loan is paid back over time through an additional charge on the building’s utility bill. This mechanism encourages building occupants and owners to invest in energy efficiency measures, which can decrease energy consumption and utility bills.

Installing energy efficient measures often comes with a high upfront cost that many people, businesses, and institutions cannot afford. OBF programs can mitigate this problem because the administering utility or a third party covers the upfront cost of the energy efficient installations, which the participating utility ratepayer then repays through an additional charge on their utility bill. Since the ratepayer will be using less energy, and therefore paying less for energy, after the installation, there should be little or no net increase in the monthly bill.

On-bill financing programs vary by state and by provider, and each program has its own terms and process. Programs may be available to residential, commercial, industrial, and/or institutional customers depending on the state and utility policies. In those states with legislation that requires utilities to offer OBF, generally it is only obligatory for investor-owned utilities (IOUs). Administration of OBF programs also varies; programs may be administered by the utility itself, a nonprofit organization, or a government entity. Some OBF programs feature a discounted or zero interest rate. Generally, non-repayment of the loan will lead to a shutoff in utility service, which deters defaults and makes OBF more attractive for the loan provider. Initial investment funds for energy efficient installations can come from utility ratepayers, government grants, or other funding sources. To date, much of the funding for OBF has come from funds directed by the American Recovery and Reinvestment Act of 2009 (ARRA).

Most participants in OBF begin the program with an audit of the building to determine if energy efficient upgrades would be cost-effective. Some programs require all upgrades to be “bill-neutral.” Bill-neutrality occurs when the savings accrued by the decreased energy use will be equal to or greater than the monthly repayment amount. Unless specifically noted, the programs described in the map are not required to be bill-neutral.

On-bill financing programs may also have the characteristic of being “tied to the meter,” meaning that responsibility of repayment lies with the current resident of the building, rather than forever with the resident who instigated the financing. This allows for flexibility for residents who wish to move or sell their home. Unless specifically noted, the programs described in the map are not tied to the meter.

The states are organized into the following policy categories:

1.    State-Required On-Bill Financing: These states have passed laws or public utilities commission orders that require utilities statewide (usually only large or investor-owned utilities) to provide an OBF program. Program specifications, such as loan terms, program size, and customer eligibility vary from state to state. 

2.    State-Supported On-Bill Financing: These states have passed laws or public utilities commission orders that authorize and/or support the implementation of OBF state-wide, but do not require any utilities to offer OBF programs. These include policies that remove legal barriers to offering OBF or establishing funds for OBF programs.

3.    Preliminary On-Bill Financing Policy: These states’ public utilities commissions have ordered the establishment of pilot OBF programs or commissioned research or working groups to analyze the feasibility of OBF programs.

4.    On-Bill Financing Offered by Individual Utilities: Utilities in some states have voluntarily created OBF programs without direction from local or state government. In some states, utilities can earn money from reducing overall demand.  Energy efficiency can also be a way to reduce peak loads and thus generation costs.

To learn more about On-Bill Financing programs, please see the C2ES On-Bill Financing Brief.

Additional information:
ACEEE: On-Bill Financing for Energy Efficiency Improvements
NRDC: On-Bill Financing Overview and Key Considerations for Program Design
C2ES Climate TechBook: Building Envelope

Texas Encourages Combined Heat and Power

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On June 14, 2013, Texas Governor Rick Perry signed into law two bills that should increase the use of combined heat and power (CHP) in the state. Although natural gas production has been on the rise in Texas, the use of CHP has stagnated due to a difficult financing environment and regulatory barriers, and these laws may help remove some of those barriers.

HB 2049 clarifies language in the Texas Utility Code to allow CHP facilities to sell electricity and heat to multiple customers near the CHP facility to maximize efficiency and minimize financial risk. HB 1864 clarifies how to conduct CHP feasibility studies for government facilities that seek to use CHP for disaster preparedness.

Increased use of CHP has a number of positive effects. It is much more efficient than producing heat and power separately.  It will replace coal usage in the state with natural gas and therefore decrease greenhouse gas emissions. In addition, because CHP is a decentralized method of energy generation, increased usage of CHP would decrease losses that generally occur while moving power from central power plants to customers. CHP is also less vulnerable to broader grid disruptions.  Lastly, unlike typical power plants, CHP uses essentially no water, a welcome benefit in drought-ridden Texas.

 

For more information:
Texas CHP Initiative – Press Release
Energy Business Review – Story

Maine Overrides Governor Veto and Passes Omnibus Energy Bill

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Maine’s Omnibus Energy Bill (HP 1128 or LD 1559) became law on June 27, 2013 after the state Senate unanimously overrode Governor LePage’s veto. The House overrode the governor’s veto with a 121-11 margin. The law, which focuses on reducing energy costs to Maine residents, increasing energy efficiency, improving electric system reliability, and protecting the environment, had strong bipartisan support.
 
The law will expand natural gas infrastructure in the state. In addition, the law will increase spending on energy efficiency programs, including home weatherization programs, to bring it in line with other states participating in the Regional Greenhouse Gas Initiative (RGGI). The law also includes a provision to adopt the RGGI Model Rule. Maine and New Hampshire are the only states in RGGI that require legislative action to adopt the model rule. The New Hampshire legislature has already sent a bill to do this, HB 306, to Governor Hassan’s desk, and she is expected to sign it soon.
 
Governor LePage supported some aspects of the bill, but vetoed it for a couple of specific reasons. He wanted the bill to support an offshore wind project proposed by the University of Maine rather than one developed by a Norwegian energy company. In addition, the Governor wanted a version that would alter the state’s Renewable Portfolio Standard (RPS) to allow non-wind projects larger than 100 megawatts in capacity to qualify.
 

For more information:

Kennebec Journal – Story
Bangor Daily News – Story 

 

Obama will need to act on his climate plan with a sense of urgency

In his State of the Union address, President Obama promised stronger action on climate change.  Today he followed up with a credible and comprehensive plan.  The real issue now is how vigorously he follows through.

From a policy perspective, the president’s plan lacks the sweep, cohesion and ambition that might be possible through new legislation.  With Congress unwilling to act, the president instead is offering an amalgam of actions across the federal government, relying on executive powers alone.

Taken together, the actions represent the broadest climate strategy put forward by any U.S. president, addressing the need to both cut carbon emissions and strengthen climate resilience.  While many of the specific items are relatively small-bore, and quite a few are actions already underway, the plan also includes new initiatives that can significantly advance the U.S. climate effort.

New York takes leadership role in climate resilience

Mayor Michael Bloomberg’s $20 billion plan to safeguard New York City against a future Hurricane Sandy and other climate risks is the most ambitious effort yet by any U.S. city to prepare for the expected impacts of climate change.

The mayor last week announced “A Stronger, More Resilient New York,” a comprehensive plan to protect communities and critical infrastructure, and proposed significant changes to New York’s building codes for new construction and major renovations that will help buildings withstand severe weather and flooding. Its 250 recommendations include building new infrastructure (like installing armor stone shoreline protection in Coney Island), changing how services are  provided (like encouraging redundant internet infrastructure), and establishing standardized citywide communication protocols for use during disruptions.

Nebraska to support wind farm development with tax incentives

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On June 4, 2013, Nebraska Governor Dave Heineman signed into law a bill that supports wind farm development with tax incentives. LB 104 provides a sales tax exemption for the purchase of turbines, towers, and other wind farm components. These tax incentives for wind development will allow wind projects to stay competitive with other methods of electricity generation in Nebraska and are expected to increase wind generating capacity in the state.

The American Wind Energy Association ranks Nebraska as having the fourth best wind resources in the nation, but the state lags in wind energy development. It ranks 26th out of the 39 states that generate electricity from wind energy. Nebraska currently has 459 MW of wind power capacity, while its neighbors Iowa, Kansas, and Oklahoma have 5133 MW, 2713 MW, and 3134 MW of capacity, respectively. Iowa, Kansas, and Oklahoma already have tax incentive provisions similar to those of LB 104.

At the time of the bill passage, Nebraska does not have a Renewable or Alternative Energy Portfolio Standard, but the Renewable Energy Credits (RECs) that are generated from Nebraskan wind farms have value in other states and can be traded through REC tracking systems.

 

For more information:

C2ES Climate TechBook: Wind Power

JournalStar: Heineman signs bill to offer wind energy tax incentives

Minnesota passes "Omnibus Energy Bill" including 1.5 percent solar requirement

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On May 24, 2013, Governor Mark Dayton of Minnesota signed into law an energy bill that is projected to greatly increase the state’s solar energy capacity by the end of the decade. Specifically, all utilities in the state must procure 1.5 percent of their electricity from solar generation by 2020, in addition to Minnesota’s existing Renewable Portfolio Standard (RPS) of 25 percent by 2025. Thus Minnesota’s RPS is now effectively 26.5 percent by 2025. To learn more details about Minnesota’s RPS, click on the state in the C2ES map of state Renewable and Alternative Energy Portfolio Standards.

Although 1.5 percent may seem low, compared to Minnesota’s existing solar capacity it is actually quite high. Currently, Minnesota has 13 megawatts (MW) of solar energy capacity, but in order to reach the 1.5 percent standard, the state will have to increase its solar capacity to 450 MW, more than a 30-fold increase. Thirteen other states have solar requirements, or “carve-outs,” five of which have percentage requirements higher than Minnesota. The states with the highest solar requirements are Colorado and New Mexico, each requiring four percent of electricity sold in the respective state to come from solar energy by 2020.

In addition to requiring that 1.5 percent of electricity come from solar resources, HF 956 also includes other solar energy initiatives. The law mandates that the state’s largest utility, Xcel Energy, begin a community solar garden program, in which people can own shares of a remote solar energy system and earn credit on their utility bill as if the solar panels were on their own homes. In addition, the law increases the maximum capacity for a net meter from 40 kilowatts to 1000 kilowatts, meaning owners of large solar panel arrays, such as large retail stores, can now be credited for electricity they put back on the grid, reducing their electricity bills. Lastly, the law also mentions a non-mandatory, state-wide goal of 10 percent solar by 2030.

Another energy bill was recently introduced in Minnesota that would increase the state’s RPS to 40 percent by 2030. This move would make Minnesota’s RPS one of the highest in the country.

 

For more information:

C2ES: Renewable Energy - Solar
C2ES: State RPS and AEPS Details
Midwest Energy News: Minnesota’s new solar law: Looking beyond percentages
PV-Tech: Minnesota bill will boost solar from 13 MW to 450MW

Mississippi passes four energy efficiency laws as part of economic development plan

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On April 23, 2013, Mississippi Governor Phil Bryant signed into law four bills relating to energy efficiency. The four pieces of legislation strengthen the state’s energy office, increase energy efficiency standards of state-owned and commercial buildings, and create a revolving loan fund for state institutions to invest in alternative fuel vehicles. All will take effect on July 1, 2013. These four measures are part of Governor Bryant’s larger economic development plan called Energy Works: Mississippi’s Energy Roadmap, which also includes legislation to incentivize oil and gas production.

HB 1296 reorganizes and increases the recognition of the state’s energy office, the Mississippi Development Authority’s (MDA) Energy and Natural Resources Division. One of the newly established responsibilities of the Division is to promote energy efficiency within state agencies and the private sector in order to realize the environmental as well as the economic benefits; another is to promote renewable technologies within Mississippi. 

HB 1266 strengthens the energy efficiency standards for newly constructed state-owned buildings, which match the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) 90.1-2010 standards. This only applies to construction projects above a certain size, and only applies retroactively to some state-owned buildings constructed after July 2009. According to the Governor’s office, higher energy efficiency will translate to financial savings by the state government.

HB 1281 strengthens the energy efficiency standards for commercial buildings, which match the ASHRAE 90.1-2010 standards. This only applies to commercial buildings under construction after July 1, 2013. Local governing authorities, rather than the MDA, will have the right to enforce and set penalties relating to these standards. This law makes Mississippi’s commercial building energy standards the highest in its region.

Lastly, HB 1685 establishes a $2.75 million zero-interest revolving loan fund available for municipalities and school districts to acquire vehicles that run on natural gas or propane, either through purchase or conversion. This fund will be administered by the MDA.

 

For more information:

Press Release: Gov. Phil Bryant Enacts Major Energy Efficiency Legislation
Energy Works: 2013 Landmark Energy Legislation in Mississippi
C2ES: Commercial Building Energy Codes Map
C2ES: Climate TechBook - Buildings

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