Making efficiency easy with on-bill financing

By Elisa Wood

April 9, 2009

Even if hostile governments corner all of the oil, the polar caps melt, and Oprah, herself, says, “It is time to save energy!” consumers will not pursue efficiency in a big way unless it is easy and painless.

That is why a growing number of state regulators are taking a close look at a concept known as on-bill financing. When a customer upgrades a heating system, insulates walls, or undertakes some other efficiency measure, the utility pays for it and then recoups the cost gradually over time in the customer’s monthly energy bill. The approach spares the customer the sticker shock of springing for the improvement all at once. It also gives the customer the opportunity to reduce energy use, which lowers heat or electricity charges and offsets at least some of monthly cost of the efficiency installation.

Utilities offer on-bill payment in two different ways: through loans or tariffs. A loan is assigned directly to the customer who must pay it back even if he moves. In contrast, the tariff approach links the charge to the meter, meaning that whoever lives at the house or owns the business pays the fee. If the customer moves, the new occupant picks up the payment.

The tariff approach allows for a long payment term and therefore lower monthly costs. “It also encourages renters to participate in the program because they only pay for energy saving measures while they benefit from them, and remain in the premises,” says Paying for Energy Upgrades through Utility Bills, a recent brief by the Alliance to Save Energy.

On-bill financing makes a lot of sense, but utilities are not jumping on board quickly. Many see the approach as experimental, given that it has yet to be tested widely. Further, while on-bill financing makes life easier for the customer, it complicates billing for the utility, which must modify its systems, said the ASE brief.

Connecticut and California have the largest on-bill programs. ASE says to keep an eye on New Hampshire, which has the greatest experience with the tariff-based systems. Hawaii and Kansas also have programs underway and may soon report results. Michigan appears to be heading toward adopting an on-bill program. Massachusetts and Rhode Island have used the approach for almost two decades.

More details are available at http://ase.org/content/article/detail/5476.

Visit Elisa Wood at www.realenergywriters.com and pick up her free Energy Efficiency Markets podcast and newsletter.