Understanding On-Bill Financing (OBF)
Basic energy efficiency investments such as insulation, air sealing, heat pumps and lighting upgrades have been shown to generate an average energy savings of 25%. On-bill programs provide a mechanism whereby the upfront cost of energy saving improvements and equipment is funded by an electric utility or a third party financier. Ratepayers are able to pay down the cost of these investments through a monthly payment on their electric bill, using a portion of the savings that were achieved as a result of the improvements. By shifting the upfront costs of energy saving improvements to the utility, on-bill financing makes improvements more accessible and affordable to ratepayers of all types and income levels. Additionally, tying these investments to the properties energy bill assures that the utility will recover 100% of the investment while realizing reduced operating expenses and allowing them to more cost effectively manage the energy resources of the communities they serve over the long term.
What kind of energy savings measures can be supported with OBF?
- Duct sealing
- Air sealing
- Programmable thermostats
- HVAC system replacement
- Heat pump
The Benefits of Utility-driven Financing Programs
Utilities are uniquely well positioned to address pervasive housing quality and energy affordability issues throughout the Southeast. As trusted energy experts in their community, they are able to provide reliable and actionable education to their customers. As experienced infrastructure companies they have the skills and resources to help customers implement practical, cost effective measures and shepherd them through project management process which can be daunting to the average person. With a network of vetted local contractors and access to real time energy data, utilities can make sure customers are getting the performance they paid for and identify and address performance issues quickly. Finally, with access to low interest capital and the ability to qualify customers based on factors beyond credit scores and collateral, they can provide access to affordable capital for people who are otherwise excluded from these opportunities.
Three Models of On-Bill Programs
On-Bill Tariff (OBT) is a model where the investment in the energy performance of homes and buildings is recognized as a system reliability investment and the utility utilizes their established authority to add tariffs for system investments to consumer bills as the collection mechanism.
A tariff is not categorized as a loan to the customer, therefore, it does not add to the debt profile of the property owner the way a bank loan would.
The investment in energy savings is tied to the meter of the physical property and it is transferable with the sale of the property.
A notable benefit of this model is that it can be utilized by renters and is more easily accessible for customers with limited credit or low credit scores.
On-Bill Financing (OBF) is a model where the investment is paid for in the form of a loan from the utility to the property owner. In this model the utility is the capital provider and underwriter of the loan to the customer.
This model allows the utility more flexibility in determining the creditworthiness of the customer. Typically the utility will base creditworthiness on bill payment history to the utility. This allows broader accessibility to capital to low-to-moderate income customers who have less access to credit through traditional lenders.
Utilities have the discretion to expand customer eligibility to include renters and allow the debt to be transferred with the sale of the property.
On-Bill Repayment (OBR) relies on capital provided by a third party lender who provides underwriting services and qualifies the property owners based on traditional underwriting criteria.
In this model, the utility serves primarily as marketing and payment collection partner. Marketing the loan to their customers and collecting the debt via their bill payment system and forwarding it on to the bank.
These are traditional loans which ties the debt obligation to the property owner and is not transferable with the sale of the property.
For additional information, consult these other organizations:
- Energy Efficiency Institute
- Clean Energy Works
- Environmental and Energy Study Institute
- Appalachian Voices
Inclusive Financing for Energy Efficiency Webinars
Want to learn more about the process and design of on-bill programs? Check out our webinar series with Clean Energy Works – Inclusive Financing for Energy Efficiency: Learning Circle Series.
The Southeast Energy Efficiency Alliance & Clean Energy Works present this comprehensive series on Inclusive Financing for Energy Efficiency (EE). This series provides 8 episodes featuring nationally recognized experts and on the ground program operators. The first two sessions provide an overview of program concepts for general stakeholders. The next six will address technical questions for practitioners actively designing and implementing on bill tariff programs.
On-Bill Programs by State
- Home Energy Lending Program (HELP)
HomePlus Loan Program
Tariff: Upgrade to Save
Utility Loan: Help My House