New Financing Solutions for Energy Retrofits

Like PACE financing, on-bill financing minimizes upfront costs, but rather than spread payments over property tax bills, the latter spreads them over utility bills. Also like PACE, the money saved on utility bills after the energy improvement has been implemented can exceed the loan payment, making cash flow positive from the outset. Many programs require that the energy savings meet or beat the corresponding charge on the utility bill.

Energy savings far into the future can be matched to long on-bill repayment periods, even extending to future building owners and tenants. For the utility, on-bill programs can drive efficiency that helps meet legislative energy targets, manage peak loads, and avoid the cost of new power plants.

States with on-bill financing programs include California, Oregon, Illinois, Wisconsin, Georgia and New York (see map). Other states have pilot or pending programs. Due to varying state regulations and utility structures, the specifics of individual on-bill programs vary widely. They can be structured as loans, tariffs or service agreements.

While on-bill financing (OBF) has been available for years and is the most common on-bill option, a related model called on-bill repayment (OBR) is more recent and has the potential to vastly increase the capital available for energy efficiency. OBF programs are limited to utility or ratepayer funds, but OBR programs tap into a potentially far larger pool of third-party capital. This makes the latter vehicle a possible game changer on the energy efficiency field.


“On-bill financing requires the utility to make the loan, do the underwriting, and typically use rate payer or tax payer capital to do it. That means there is a limited amount of capital available,” says Brad Copithorne, financial policy director for the Environmental Defense Fund (EDF). “The OBR idea is that the utilities just do something they’re already good at, which is collecting bills. The private sector provides the capital, and if it decides this is an attractive market, it may choose to invest billions, not millions, of dollars.”

According to EDF estimates, if an on-bill repayment program in California spurred investment in the range of $3 billion annually, it could create 20,000 jobs while reducing electricity use and emissions. OBR could also improve the credit quality of other vehicles including loans, leases, energy service agreements (ESAs) and power purchase agreements (PPAs).

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