On-Bill Financing Programs
Overview and Key Considerations for Program Design
Analysis & Conclusion
There is good reason to be enthusiastic about the promise of on-bill programs to enable customers to finance significant new efficiency investments, especially for certain classes of customers. For many customers, such as city governments, schools, small businesses with a good payment history, and commercial tenants at time of build out, conventional financing might be difficult to obtain even though the customer appears to be good risks in light of the unique attributes of on-bill loans. For residential customers, on-bill financing could demonstrate the merit of a lending model that accounts for energy expenses. These customers could account for a large amount of implemented efficiency.
At the same time, operating an on-bill program will bring challenges and risks for utilities or other program administrators. For one, there might be good reasons certain customers are not eligible for loans from conventional lenders. Identifying customers that are good credit risks and with eligible efficiency projects is not a traditional utility function. Managing these challenges will require people, processes, and systems, and the mechanics must be considered in advance and in program design. Program design and other stakeholders should also consider the following specific points:
- On-bill financing for commercial and institutional customers appears to require fewer operational burdens for the utility or other program administrator. For a utility without an existing program, this sector may be a good place to start. Existing on-bill programs (specifically, in California and Connecticut) may offer guidance for how to operate such a program. Because the loan amounts are likely to be larger and the number of loans fewer, certain functions might be handled manually on an individual basis until the program is large enough to warrant investment in systems.
- Results from the New York residential on-bill program, launched in 2012, will be very useful to understand how an on-bill program can be offered to single-family residential customers at scale. The results should also help to address open questions related to cost-effectiveness. Any utility interested in exploring a residential on-bill program should seek to obtain program results when available.
- Financial institutions working with utilities could deliver advantages, and programs should actively look for opportunities to enable lenders to participate to gain familiarity with the program guidelines related to efficiency and to obtain information on loan applicants and borrowers that could be useful to deepening the participation.
- Any new program should explore how existing on-bill programs handle operational issues likely to be present in the new program.
On-bill loans can provide customers with access to credit for efficiency improvement projects, and the attributes of these loans suggest they can enable efficiency projects that might not occur otherwise. With attention to the benefits and challenges of on-bill programs, utilities will be able to realize cost-effective energy efficiency results and help their customers to invest in improving their buildings.
last revised 7/10/2013
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