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 programs allow building owners and occupants to pay for clean energy investments over time through an additional charge on utility bills.

On-bill programs have mostly focused on energy efficiency measures, though renewable energy and water efficiency projects may be eligible as well.  Such projects often come with a high upfront cost that many people, businesses, and institutions cannot easily afford. On-bill programs can mitigate this problem because an administering utility or a third party covers the upfront cost of the clean energy installations. A customer’s history of utility bill payment can help to establish credit, and the customer may see little or no net increase in the monthly bill due to expected reductions in energy consumption. Generally, non-repayment will lead to a shutoff in utility service, which deters defaults and can make the loan provider more confident in repayment.

There are two general types of on-bill programs:

  • On-bill financing (OBF) – a utility incurs the cost of clean energy upgrades and is repaid by the customer.
  • On-bill repayment (OBR) – a third party (not the utility) provides the capital for a clean energy upgrade and is repaid by the customer through a utility bill.

On-bill 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 on-bill programs also varies; programs may be administered by the utility itself, a nonprofit organization, or a government entity. Some programs feature a discounted or zero interest rate. Initial investment funds for on-bill programs can come a variety of sources from utility ratepayers, government grants, or other funding sources. The American Recovery and Reinvestment Act of 2009 (ARRA) provided a significant amount of funding for OBF.

Most participants in on-bill programs 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.

Certain on-bill 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.

The states are organized into the following policy categories:

1.    State-Required On-Bill Financing or State-Launched On-Bill Program: 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 or directed a state agency to set up an on-bill program. Program specifications, such as loan terms, program size, and customer eligibility vary from state to state. 

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

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

U.S. Department of Energy: On Bill Financing and Repayment Programs

ACEEE: On-Bill Financing for Energy Efficiency Improvements

NRDC: On-Bill Financing Overview and Key Considerations for Program Design

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.

Governor Cuomo proposes action to reduce coastal flood risk

Hurricane Sandy inflicted tremendous damage on New York’s coastal communities.  The threat of more intense, more frequent storms driven by climate change has led Gov. Andrew Cuomo to propose limiting development in vulnerable locations. Just as Sandy provided a preview of future climate risks, the governor’s proposal may offer an example of one effective response.

RGGI changes help both the environment and business

The nine states in the northeast Regional Greenhouse Gas Initiative took an important step this month that will significantly reduce greenhouse gas emissions and increase funding for energy efficiency and clean energy without unduly burdening businesses or consumers. That step was to adjust their cap-and-trade program by tightening the emissions cap and increasing compliance flexibility for businesses.

Judi Greenwald's Statement on RGGI Tightening Emissions Cap

Statement of Judi Greenwald
Vice President, Technology and Innovation
Center for Climate and Energy Solutions

February 7, 2013

“We applaud today’s plan by the nine states in the northeast Regional Greenhouse Gas Initiative to adjust their cap-and-trade program by tightening the cap and increasing compliance flexibility for businesses. Combined, the adjustments would significantly reduce greenhouse gas emissions and increase available funding for clean energy without unduly burdening businesses or consumers. C2ES believes that market-based policies are the most effective and efficient means of reducing greenhouse gas emissions, and we appreciate the continued leadership of the RGGI states.”

Our RGGI Page
Our comments submitted as part of RGGI’s 2012 program review
Our statement on RGGI’s launch


Contact: Laura Rehrmann, 703-516-0621, rehrmannl@c2es.org

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On its own, California’s program will drive down harmful emissions in the ninth largest economy in the world. But perhaps more importantly, California’s example could guide and prod us toward national action against climate change.

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