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California Poised To Launch Program Eliminating The Upfront Cost Of Energy Efficiency And Solar Upgrades

This article is more than 10 years old.

If there is a lament that unites energy efficiency and clean energy advocates, it is to bemoan the upfront cost of energy efficiency and solar upgrades. Even in California, which has done as much as any government in the world to save its residents energy over the last 35 years, convincing consumers to proactively invest in improvements that save energy is not easy.

At a panel discussion convened by the California Public Utilities Commission (CPUC) on March 8, Brad Copithorne, an Energy and Financial Policy Specialist with  Environmental Defense Fund’s (EDF) San Francisco office, presented a proposal that would eliminate the upfront cost of energy improvements.

The Copithorne and EDF proposal (PDF), which was released for comment by the CPUC on January 11, would create the nation’s first statewide on-bill repayment (OBR) program for energy efficiency and renewable energy upgrades to be financed entirely by third parties.

Here’s how it would work. After performing an energy audit of the home or commercial building, or assessing the suitability of the rooftop for solar, a contractor recommends improvements to the building owner. Improvements could include attic and wall cavity insulation, high-efficiency windows and appliances, duct-sealing, or rooftop solar. The contractor presents an estimate of the upfront cost of the improvements. If the building owner agrees to the upgrades, the contractor sends a loan request to participating banks for approval. The loan is repaid through the customer’s monthly utility bill.

“Whatever the savings would be on the project, they would be required to exceed what you have to pay each month on the loan,” said Copithorne. He offered an example. A homeowner pays an average of $300 per month for utilities. The package of energy upgrades recommended by the contractor will save $200 monthly. After the monthly loan payment, say $180, represented as a line item on the utility bill, the customer’s bill drops from $300 to $280. If the property is sold, the loan stays with the meter and would be taken over by the new tenant.

Twenty dollars a month might not sound like much, but the benefits to the customer continue long after the loan is gone. After the lender is repaid, the customer keeps the energy savings and is likely to be living in a healthier, more comfortable home.

Copithorne said that each of the state’s investor-owned utilities (IOUs) has an on-bill repayment program but they are available only to small businesses and generally oversubscribed. He said that the third-party lenders who could make the loans won’t be content with a small market; they want a big market, which means homeowners. Copithorne wants homeowners in the pool, too, so the program’s consumer and environmental benefits appear to mesh with the banks’ needs. “We think having a single, statewide program would be critical to reducing the cost for all involved,” he said.

On-bill repayment cannot work as envisioned, Copithorne conceded, without the support of California’s major utilities. “The issue in the residential space is that in order to make this work, you got to have the utility employ all of their standard collection procedures as approved by the PUC,” he said. “If you don’t do that, the banks are going to look at this like as an unsecured loan. Everybody in this room can presumably borrow a pot of money for energy efficiency through an unsecured loan – it’s called a credit card. But the rates for unsecured credit, for good reason, are 18%. That’s not going to get it done.”

But, Copithorne said, EDF has told the utilities that it believes there are two very important financial benefits that should persuade them to sign on. One, the IOUs could stand to receive perhaps $2 per bill from the banks in return for providing the on-bill service. “From PG&E’s perspective,” said Copithorne, “once they’ve made the upfront investment – since they’re already sending you that bill – their marginal cost is a nickel, a dime. It’s not going to be a large number. We can have the difference, a dollar per bill, go to their bottom line.”

Second, California’s major utilities are assigned energy efficiency targets by the CPUC and earn bonuses if they exceed the targets. “If we’re able to introduce all these new sources of private capital to invest in energy efficiency, then one would think for each dollar the utility pays we ought to be able to get more energy efficiency,” said Copithorne.

Assuming that the utilities will participate, EDF foresees a host of benefits – among them, no or limited direct cost to taxpayers and ratepayers, jobs in the construction industry, and pollution reduction. “We’ve estimated that if we get only 1% of residential participation that this would generate $2.7 billion of investment per year, and, after 5 years, reduce CO2 emissions by 7 million tons,” said Copithorne.

The proposal is furthest along in California, but Copithorne said EDF had “recently been approached by the reddest of the red states, Texas, to come down there on behalf of Rick Perry’s office to present this to them.”

“It may be an idea that hopefully has interest across the political spectrum. We’re hoping to pursue this in a number of states across the country,” he said.

A final decision is expected from the CPUC in April. If approved, California’s on-bill repayment program could launch early in 2013.