Whenever a utility offers our customer on-bill financing we know we’ll be installing this energy efficiency project within a few months. Our hit rate for these projects is literally 100%.
The model is so straight forward it’s no surprise customers quickly say yes. No capital budgeting process, no new banking relationship, just an extension to an existing long-standing utility relationship. Whether its a municipal facility or a large corporation both recognize this option as a smart decision. Their monthly bill stays the same or goes down, with energy savings offsetting the interest and principal on the loan. Once paid off in a few years their monthly cost savings goes up even higher.
So why isn’t on-bill financing offered more widely?
Across the country PUC’s are increasingly mandating energy efficiency goals during their rate negotiations with utilities. As part of the PUC’s rate negotiation they know on-bill financing adds another layer of cost, essentially taxing utilities twice – first requiring them to offer energy efficiency rebates and second having them extend loans to their customers.
Although utilities already take credit risk everyday with their customers, they don’t like being a bank. At the end of 2010 we learned that one publicly traded utility was discontinuing their wildly successful on-bill financing program for this exact reason.
Meanwhile the DOE’s Loan Guarantee program’s stated mission is to “accelerate the domestic commercial deployment of innovative and advanced clean energy technologies.” The controversial program seems to have spent $ billions funding cleantech development (ie. manufacturing) more than deployment.
How about accelerating less sexy, but proven energy efficiency deployment?
Offer utilities a loan guarantee which supports on-bill financing.
With a Federal guarantee for loan repayment, utilities in every region would run fast to deliver on-bill financing. The model would help them hit their PUC negotiated energy efficiency goals and, most importantly, reduce customer consumption. Utilities would continue to source and qualify energy projects – but could then leverage their existing monthly billing relationships to off-load this high quality debt to banks and finance companies. These could even be packaged and resold. Can you say CARBs (Cleantech Account Receivables Bonds)?
Where PACE got derailed because Freddie Mac and Fannie Mae wouldn’t support taking a subordinate position on their mortgages, the on-bill financing model requires very few participants to be initiated – the customer and the utility.
In the past few weeks I’ve pushed this idea with a few folks, including the Environmental Defense Fund, a few utilities and on two Cleantech panels, one hosted by the New England Clean Energy Council, and another hosted by Boston’s Kellogg School of Management alumni group.
As I rarely spend cycles trying to influence Federal policy it occured to me that our blog may be a better way to reach folks who can carry this idea a bit further.