On-Bill Financing: Exploring the Energy Efficiency Opportunities and Diversity of Approaches KEEA/PBI Energy Efficiency 2013: A Policy & Law Conference,

On-Bill Financing: Exploring the Energy Efficiency Opportunities and Diversity of Approaches

KEEA/PBI Energy Efficiency 2013: A Policy & Law Conference, October 1, 2013

Casey BellACEEEWashington, DC

On-bill Financing

•Structured in numerous wayso Loano Tariffo Service Agreemento Hybrid Models

•Serves an array of marketso Residential

• Owner-occupied• Rental

o Commercial and Industrial• Small business

Allows utility customers to invest in energy efficiency improvements and repay the investment through an additional

charge on their utility bill.

Current On-bill Landscape

Program Design Considerations

Fundamental

• Program Objectives• Target Market• Selection of Program

Administrator• Financial Product

Structuring• Capital Source

Secondary

• Credit Enhancements• Customer Eligibility

Requirements• Project Eligibility

Requirements• Installation• Marketing• Additional Incentives

Program Objectives

What do you want to accomplish?

Target Market(s)

Selection of Program Administrator

• Utilities

• CDFI’s or Financial Services Providers

• Energy Service Companies

• Non-profits

Financial Product StructuringType Tariff-based Financing Loan-based Financing

TransferabilityYes -- financing is assigned to the meter.

Sometimes

Debt Classification

Not necessarily classified as debt.

 Classified as debt. 

Regulatory Approval

Required Not required.

Financing Term

Could be useful for incentivizing deeper retrofits with longer repayment periods

Work well with shorter repayment periods

Bill neutrality?Bill neutrality?

Sources of Capital

• Utility• Ratepayer Funds• Shareholder Funds

• Public• Grants (Federal, State, Local) e.g. Stimulus• Public Loan Funds • Bond Issues• Revenue from Cap and Trade Programs

• Private• Community Development Financial Institutions• Local Banks & Credit Unions• Large Commercial Banks & Capital Markets

Secondary Considerations

• Credit Enhancements• Customer Eligibility Requirements• Project Eligibility Requirements• Installation• Marketing• Additional Incentives

• Rebates• Lower Interest Rates• No Money Down

Program Example: Clean Energy Works Oregon

Available Capital: Program Objectives Customer satisfaction; compliance with HB 2626, The Energy Efficiency andSustainable Technology Act (EEAST).

Target Market Residential (owner-occupied and rental).Program Administration Clean Energy Works Oregon (CEWO), Non-profit.

Financial Product StructuringLoan-based financing. Participants can transfer the loan for an $850 fee if they sell their property. During the pilot phase, the median loan size was $12,633 with a 5.99 percent interest rate and a 20 year repayment term.

Goals: Capital Source Craft3 (formerly Enterprise Cascadia) a local Community Development Financial Institution (“CDFI”). The program was started with ARRA funds.

Remodel 6000 homes for energy efficiency by end of 2013

Credit Enhancements No explicit credit enhancement.

Participants: Customer Eligibility Requirements Underwriting based on utility bill repayment history, and requires a minimum credit score of 590.

599 loans as of mid-2011 Project Eligibility Requirements

Energy savings minimum thresholds were set to manage program costs requiring at least 10 percent savings for basic weatherization, 20 percent for extended weatherization including wall and floor insulation, and 30 percent for extended weatherization plus installation of a furnace or heat pump.

Value of Financing: InstallationBPI certified contractor performs a free Home Energy Assessment. Certified contractor works with CEWO Energy Advisor to plan the project the contractor will install.

$7.8 million Marketing http://www.cleanenergyworksoregon.org/.Additional Incentives Some customer rebates, no money down.

2011: $12 million 2012: $24 million 2013: $36 million

Program Comparisons

CEW ORCEW ORAvailable Capital:2011: $12 million2012: $24 million2013: $36 million

Goals: Remodel 6000 homes by 2013

Participants: 599 loans (mid-2011)

Value of Financing:$7.8 million

Available Capital:2011: $12 million2012: $24 million2013: $36 million

Goals: Remodel 6000 homes by 2013

Participants: 599 loans (mid-2011)

Value of Financing:$7.8 million

ECSC PilotECSC PilotAvailable Capital:CL&P: $30 millionUI: $7.5 million

Goals: Comply with EERS and provide service to all customer classes.

Participants: CL&P: 6,685 (since 2005)UI: 3,903 loans

Value of Financing:CL&P: $17.3 millionUI: $4.1 million

Available Capital:CL&P: $30 millionUI: $7.5 million

Goals: Comply with EERS and provide service to all customer classes.

Participants: CL&P: 6,685 (since 2005)UI: 3,903 loans

Value of Financing:CL&P: $17.3 millionUI: $4.1 million

SBEA CTSBEA CT

Available Capital:

$1.5 – $2 million

Goals: Retrofit 100 homes

Participants:

100 loans

Value of Financing:

$1.5 million

Available Capital:

$1.5 – $2 million

Goals: Retrofit 100 homes

Participants:

100 loans

Value of Financing:

$1.5 million

Program Comparisons (2)

CEW ORCEW ORObjectives:Customer SatisfactionCompliance HB 2636

Target Market: Residential (owner –occupied and rental)

Program Administration: CEW, Non-profit

Structuring:Loan-based, transfer for

$850 fee. 5.99% w/ 20 year repayment.

Capital Source:Craft 3, CDFI

Objectives:Customer SatisfactionCompliance HB 2636

Target Market: Residential (owner –occupied and rental)

Program Administration: CEW, Non-profit

Structuring:Loan-based, transfer for

$850 fee. 5.99% w/ 20 year repayment.

Capital Source:Craft 3, CDFI

ECSC PilotECSC PilotObjectives:Compliance with EERS,

Expand Access to EE Funds, DSM

Target Market: Small business customers

Program Administration: CL&P and UI (IOUs)

Structuring:Loan, no transfer

Capital Source:Public benefits fund w/

revolving loan fund

Objectives:Compliance with EERS,

Expand Access to EE Funds, DSM

Target Market: Small business customers

Program Administration: CL&P and UI (IOUs)

Structuring:Loan, no transfer

Capital Source:Public benefits fund w/

revolving loan fund

SBEA CTSBEA CTObjectives:DSM, Customer Satisfaction

Target Market:Residential (LMI focus)

Program Administration: ECSC, Trade Association

for State Cooperatives

Structuring:Low-interest (2.5%) loan

that follows the meter.

Capital Source:USDA REDLG Program

Objectives:DSM, Customer Satisfaction

Target Market:Residential (LMI focus)

Program Administration: ECSC, Trade Association

for State Cooperatives

Structuring:Low-interest (2.5%) loan

that follows the meter.

Capital Source:USDA REDLG Program

Challenges to Scaling

• Quantify cost of operating loan programs & subsidizing finance charges.

• Weigh importance of bill neutrality.

• Energy Savings Data

• Financial Performance DataAnd CONTEXT!!!

Questions?

Casey BellSenior Economic Analyst

Finance Policy Lead

ACEEE

(p): +1-202-507-4746

(e): [email protected]