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): cbell@aceee.org