How on-bill financing expands energy improvement opportunities

Many homeowners would like to make energy efficiency improvements to their home, but lack the money to do so. Appalachian Voices described how on-bill financing can make capital available for energy efficiency improvements in a recent webinar.

On-bill financing is a tool for site-specific energy efficiency improvements. With on-bill financing, the utility pays for the upfront cost of the improvement. It then recovers the cost through a monthly charge on the project beneficiary’s electricity bill. This fixed monthly charge will be less than the estimated monthly savings from improved energy efficiency, making the payment cash flow positive. Most critically, the repayment obligation is tied to the electricity meter at the project site, not to a particular bill-payer. This means that the monthly on-bill charge transfers to any successor bill-payers, should residents move over the course of project repayment.

This point is key. On-bill financing significantly expands the customer base for energy efficiency upgrades by linking cost recovery to the meter. Under traditional finance models, the site-specific property owner is responsible for covering the full cost of efficiency improvements. These can take years to pay off. If the owner rents the property, upfront payments for energy efficiency can be especially risky. Changes in tenant turnover may impact income stability.

Renters are unable to undertake efficiency upgrades under the traditional energy efficiency finance model because they do not own the property. On-bill financing solves this problem by tying cost repayment to a project site’s electricity meter. So, improvement costs are covered by whoever pays the monthly electricity bill. This relieves the burden on property owners to cover all repayment costs and it enables renters to pay the monthly cost recovery.

In this way, on-bill financing rewrites the rules of who can participate in energy efficiency programs. In most cases, the utility determines a customer’s eligibility for energy efficiency improvements based on their electricity bill payment history, not their credit score. For communities with limited credit scores, this key design feature can unlock a future of efficient, sustainable housing stock.

Appalachian Voices believes that this ability to reach credit-strapped, non-property owning communities is what makes on-bill financing so valuable in West Virginia, as well as in the surrounding region, that is afflicted by high energy waste and disproportionate energy burden.

A recent study by the American Council for an Energy-Efficiency Economy, every state in the region except North Carolina fell into the bottom half of state energy waste rankings. This energy waste places a huge weight on household budgets, as nearly 40% of the region’s homes are low-income.

Despite standing the most to gain from energy efficiency improvements, the majority of these low-income households- the majority of which are renters- have been historically left out of energy efficiency programming. On-bill financing provides a new model for energy efficiency in the Southeast that, for the first time, includes these communities and opens energy efficiency to everyone. Although this webinar limited its scope of discussion to energy efficiency, it is possible on-bill financing could also be used to finance solar as well.

Click here to watch a recording of the webinar.