Use energy savings to finance energy improvements

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When it comes to making energy-efficiency improvements to a home or business, the benefits are great: lower monthly bills, higher comfort and property value. But upfront costs can be a real barrier.

Pennsylvania utilities often offer rebates on energy-efficiency improvements, but this is not enough for many electricity customers.

Having access to capital to invest is the key to making energy improvements financially feasible, particularly for commercial buildings. A growing number of states have developed new financing mechanisms, called "on-bill financing" or "on-bill repayment," to allow homeowners and businesses to finance energy improvements at little or no cost. The Pennsylvania Public Utility Commission is now considering such a program.

On-bill financing allows a building owner to make the energy-efficiency improvements up front and to repay the cost through an added charge on his or her monthly utility bill. On-bill financing is often structured so that the monthly energy savings reduce the utility bill by an amount equal to or greater than the monthly repayment charge. This way, the cost of the improvements is offset by the savings on the monthly utility bill.

The process usually starts with an energy audit to define which upgrades will be cost-effective. The most common improvements include lighting upgrades, air sealing, insulation, controls, and heating and cooling system improvements.

Pennsylvania's PUC established a working group to examine the various programs and find out what's working around the country. At least 22 states now offer on-bill financing.

In Portland, a program known as Clean Energy Works Oregon has helped hundreds of homeowners make energy-efficiency improvements. In Kansas, the Midwest Energy's How$mart program finances "whole-energy" upgrades for its customers. The Tennessee Valley Authority's EnergyRight Solutions program finances heat-pump improvements in five states.

Two good models the PUC is exploring include one offered by neighboring PSEG in New Jersey and by National Grid in Massachusetts, New York and Rhode Island.

PSEG offers on-bill financing for interest-free loans that can be repaid over five years (10 years for properties mortgaged by the Housing and Mortgage Finance Agency). To date, PSEG has successfully provided on-bill financing to 3,300 participants and has received $36 million in repayments.

National Grid offers on-bill financing to help small businesses make critical building improvements while leaving these businesses cash to grow. In 2011, National Grid financed projects, also at zero interest, with 12,000 customers totaling about $22 million. The program has a default rate of less than 3 percent.

Pennsylvania's PUC working group has honed in on a recommendation for a pilot program for small commercial and multi-family buildings, given that these customers have the greatest need for additional access to financing. A pilot program will enable Pennsylvania to test its design and work out the kinks before launching a program statewide.

The Sustainable Energy Fund, based in Allentown, has taken the lead in designing a plan that would use third-party capital, not funds from a utility itself. SEF's model, along with other stakeholder comments, is available at: www.puc.pa.gov.

Eventually, on-bill financing would be offered to small businesses, multi-family housing, schools, nonprofits and government entities.

Small businesses are a vital engine of economic growth and job creation. When small businesses, schools, local governments and other commercial customers increase their energy efficiency, it has an immediate economic impact across the commonwealth.

The Keystone Energy Efficiency Alliance, a partnership of 64 energy-efficiency businesses and nonprofits in Pennsylvania, applauds the PUC for bringing together smart people to help solve the financing conundrum that often vexes energy-efficiency investments.

The alliance looks forward to the implementation of the on-bill repayment pilot program -- an essential next step to help Pennsylvania businesses and residents save on their energy bills and strengthen local economies.

opinion_commentary

Liz Robinson is president of the Keystone Energy Efficiency Alliance (energywisepa.org/keea).


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