On-bill financing is a very promising way for utilities to help their customers invest in energy efficiency improvements, such as adding insulation, installing new lighting, or upgrading to a high-efficiency air conditioner. It is simply a loan to a utility customer – it could be a commercial building owner, a homeowner, or even a school – that is used to make improvements that will reduce energy waste, with the regular monthly loan payment collected on the utility bill.
Efficiency improvements funded by an On Bill loan can reduce utility bills, improve the value of the property, create new jobs, and deliver efficiency to the utility, which works to lower energy bills for everyone and reduce pollution. Because efficiency delivers so much value, many cities, states, and utilities are seeking innovative ways to help customers make these investments.
Click here to read a new NRDC Issue Brief -- On Bill Programs: Key Considerations for Program Design. It explains why on-bill programs are viewed as very promising and describes both benefits and challenges utilities (or other program administrators) should consider when exploring an on-bill program.
The purpose of the paper is to enable utilties and others to take stock of considerations so that on-bill programs may be tailored to the customers most likely to use the available financing to invest in efficiency and may be operated in a way likely to deliver cost-effective energy efficiency to the utility.
One observation in the paper is that On Bill programs give utilities a way to help local institutions improve their buildings. Schools, cities, and states all have many large buildings in need of efficiency improvements. With updated controls and a "tune-up" these buildings can save taxpayer funds by reducing energy waste and in many cases improve the productivity of the space for the occupants with better lighting, more comfortable spaces, and better indoor air quality. Moreover, investing in these improvements will create jobs. This is the kind of investment many mayors and governors are seeking -- it's fiscally responsible, adds long-term value, and creates job.
Since local institutions generally have good credit, the repayment risk to the utility should be highly manageable. The key question is this: why is the utility in a better position than a traditional lender to finance building improvements? This is explained in detail in the Issue Brief. In a nutshell, becasue the On Bill program structure provides a genuine advantage. First, in order to qualify for an On Bill loan, the energy savings must be likely to exceed the loan payment. (This could be a feature of a loan product offered by a conventional lender, but usually is not.) Second, because both the loan payment and the savings are included in the utility bill, the institution's total utility expense is likely to be reduced after the project. In many cases, this means the institution does not require new budget authority or authorization to undertake new debt, which will ease the path to undertaking needed building improvements. (While there are good efforts afoot to recruit lenders to participate in On Bill programs, it could take a while to demonstrate how On Bill loans perform.)
There are other very promising opportunities to target -- commercial building tenants at the time of build-out, for example, is another worth emphasis.
For any utility, public utility commission, state energy office, or other stakeholder exploring efficiency opportunities, On Bill financing should be on the short-list of possibilities, and the new Issue Brief should be helpful. And, a program targeted to help local institutions improve their buildings would be a great place to start.