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On-Bill Financing: Exploring the Energy
Efficiency Opportunities and Diversity of
Approaches
National Conference of State Legislatures:
Everybody Wins – Driving Economic Growth and
Energy Efficiency with On-bill Financing
February 20, 2014
Casey Bell
ACEEE
Washington, DC
Benefits of Energy Efficiency
• Saves customers and businesses money
• Improves building comfort and affordability
• Environmental benefits
• Drives economic development and job creation
• Resource for demand-side management
• Disaster risk management/energy security
• Potential low-risk investment opportunity
Common Energy Efficiency Barriers
• Neither the owner nor tenant wants to bear the cost of the retrofit because the other will gain
• Long lease lengths make it difficult to negotiate retrofits because parties prefer letting leases expire to amending existing leases
Split-incentives with multi-tenant buildings
• Customers do not see the value in spending money to install EE upgrades
• Banks rarely consider energy efficiency investments when underwriting
Valuation
• Buildings are required or urged by various entities to install systems, making environmental upgrades potentially a lower priority
Competing investment priorities
• Limited debt capacity for Class B and C buildings
• Long payback periods Upfront capital costs
Slide design by Stephanie Sienkowski
Financing Mechanisms Mechanism Upsides Downsides
On-bill
financing/On-bill
repayment
Can be structured to “follow the
meter,” decreasing upfront capital
cost and stretching repayment out
over a long period.
Availability is still limited and there
is not much capital available for
large projects. Best for small
businesses.
Property assessed
financing (PACE)
No upfront cost, ability to transfer
ownership, financing is off balance
sheet.
Needs significant regulatory
support and standardization at the
state level.
ESCO financing Provides turnkey project
development. ESCOs assume
technical and performance risks of
projects.
MUSH markets are preferred
because those buildings typically
have stable energy loads and good
credit.
Energy service
agreement
(ESA)/Managed
energy service
agreements (MESA)
Mitigates high upfront capital costs
and does not require enabling
legislation. The investment fund
pays for and installs the upgrades.
This relatively new structure.
Potential legal ramifications of
changes to FASB.
Performance-based
contracting
No upfront capital costs. Repayment
is calculated through savings.
Buildings with good credit are
preferred for these projects.
Slide design by Stephanie Sienkowski
On-bill Financing
• Structured in numerous ways
o Loan o Tariff o Service Agreement o Hybrid Models
• Serves an array of markets o 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
Motivating Factors
(utility perspective)
Energy Savings Targets
Manage Peak Loads
Enhance Customer
Satisfaction
Power Plant
Avoidance
Extend EE Funds to
Underserved
What do you want to
accomplish?
Target Market(s)
Goals
Environmental Factors
Target Market
Selection of Program Administrator
• Utilities
• CDFI’s or Financial Services Providers
• Energy Service Companies
• Non-profits
Financial Product Structuring
Type Tariff-based Financing Loan-based Financing
Transferability Yes -- 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?
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 Comparisons
CEW OR
Available Capital:
2011: $12 million
2012: $24 million
2013: $36 million
Goals: Remodel 6000 homes by 2013
Participants:
599 loans (mid-2011)
Value of Financing:
$7.8 million
ECSC Pilot Available Capital:
CL&P: $30 million
UI: $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 million
UI: $4.1 million
SBEA CT
Available Capital:
$1.5 – $2 million
Goals: Retrofit 100
homes
Participants:
100 loans
Value of Financing:
$1.5 million
Program Comparisons (2)
CEW OR Objectives:
Customer Satisfaction
Compliance 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 Pilot 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 CT 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
Best Practices for State Policy Support
• Billing system overhaul
• Credit enhancement
• Managing dual fuels
• Allocating partial payments
• Peer connections
Leading States
New York
Oregon
California
Connecticut
Hawaii (OBR)
REGISTER NOW! National Symposium on
Market Transformation March 30 – April 1, 2014 • Hyatt Regency • Baltimore, MD
#ACEEEMT14
Who Should Attend: • Policymakers
• Energy efficiency program implementers
• Local, state, and federal agency personnel
• Utility staff
• NGOs
• Energy efficiency professionals
• Consultants
• Behavioral scientists
ACEEE Energy Efficiency
Finance Forum May 11 – May 13, 2014 • Capital Hilton • Washington, DC
Who Should Attend: • Clean-tech and energy efficiency investors
• Financiers
• Utility staff
• Local, state, and federal agency personnel
• Energy service company personnel
• Policymakers
• NGOs
• Energy efficiency professionals
“Building Momentum and Driving Demand”
www.aceee.org/conferences
“Efficiency in the Age of Interconnectivity”
Questions?
Casey Bell
Senior Economist
Finance Policy Lead
ACEEE
(p): +1-202-507-4746
(e): [email protected]