On-Bill Financing Programs
Overview and Key Considerations for Program Design
Recruiting Lenders to Participate
Utilities and program administrators should actively explore ways for lenders to participate in on-bill programs. A private lender such as a financial institution, working with a utility, could potentially contribute value to an on-bill program, and participation can speed the market transformation process described above.
One interesting possibility is for private lenders to fund the on-bill loans directly, or purchase the loans from the utility after funding, with the utility providing the payment processing and servicing functions required for the loans to have the on-bill payment feature.11 Enthusiasm for lenders to fund on-bill loans arises out of the possibility that lenders could cultivate a secondary market among private investors for on-bill loans, which would increase the number of loans an on-bill program could facilitate and free utilities from funding loans.
It is not yet clear, however, what terms and conditions lenders and investors would require in order to purchase or fund on-bill loans, or what level of utility or public contribution would be required to bring customer finance charges to the level needed for customer participation in different customer and property sectors. One possibility is to provide a lender a credit enhancement, such as a commitment to cover a certain percentage of losses, from the utility or another entity in order to enable lender participation. Ultimately, factors related to cost-effectiveness, described below, are likely to be important considerations.
While lenders could bring expertise to an on-bill program, it is worth noting a utility may be able to perform certain loan-related functions more effectively than a traditional lender, suggesting the two entities working together could produce a better loan product than either alone. Consider a utility's advantage in:
- Assessing the energy savings potential of a proposed efficiency project, or reviewing an assessment for validity.
- Managing a vendor network of efficiency contractors, such as air conditioning and heating installers and energy modelers.
- Using a customer's utility bill payment history in credit underwriting.
- Targeting marketing of efficiency services and related financing using utility data.
last revised 8/8/2012
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