California Proposes Nation’s First Statewide On-Bill Repayment Program Using Third-Party Financing

January 11, 2012

Low-Cost Financing for Energy Efficiency and Renewable Upgrades Key to Meeting State’s Climate Pollution Reduction Goals

(San Francisco – January 11, 2012) The California Public Utility Commission took a visionary step yesterday toward creating the nation’s first statewide on-bill repayment (OBR) program that uses third-party financing for energy upgrades of all building types. The program is based on a proposal put together by Environmental Defense Fund.

“On-bill repayment is an innovative, cost-effective approach that will create a robust marketplace for energy efficiency lending, save energy users money, create jobs and avoid greenhouse gas pollution,” said Brad Copithorne, EDF’s Energy and Financial Policy Specialist. “Even more good news: this proposal should lower financing costs for distributed solar projects.”

Recent studies have shown that energy efficiency improvements can account for nearly 30 percent of emissions reductions required to meet California’s goal of reducing climate pollution 80 percent below 1990 levels by 2050, with the largest share coming from the building sector – which consumes 70% of electricity in the U.S. and emits more than a third of greenhouse gases.

The program is simple: banks and other investors would be allowed to provide loans to building owners and renters to fund energy efficiency upgrades and renewable electricity generation projects. The funding is then repaid through the customer’s utility bill. The program can work for single-family, multi-family and commercial buildings and could include a wide variety of financing techniques including loans, leases, Energy Service Agreements and Power Purchase Agreements.

Key features:

Residential projects will have to promise savings in excess of the loan repayments so participating customers see a net decline in utility bills.
Investments will be funded by third-parties such as banks and other financial institutions. Since the loans are repaid through utility bills, low interest rates and attractive terms are expected to be available from a variety of lending institutions and investors.
Utilities will benefit from fees paid by lenders for billing services and will achieve better results from existing energy efficiency programs.

“We estimate that an on-bill repayment program that spurs investments in the range of $3 billion annually could create 20,000 jobs and, after five years, reduce annual electricity use and emissions equal to that of 1.6 million cars,” said James Fine, one of EDF’s climate economists. “We have every reason to believe this initiative will also help California meet AB 32 and other long-term clean air goals.”

EDF has been building a coalition of environmental groups, consumer and community organizations, financial institutions, contractors and project developers to support and/or participate in on-bill repayment programs.

The CPUC is accepting initial comments on the proposal through January 25 and will be holding workshops on February 8-10. A final PUC decision expected by April. If all goes as planned, California’s OBR program is set to commence in early 2013 and could serve as the model for states around the country to use.

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Environmental Defense Fund (edf.org), a leading national nonprofit organization, creates transformational solutions to the most serious environmental problems. EDF links science, economics, law and innovative private-sector partnerships. Visit us on Twitter at @EnvDefenseFund and @EDF_CA, at our California blog, California Dream 2.0, and on Facebook at facebook.com/EnvDefenseFund.