This commentary was originally posted on the EDF California Dream 2.0 Blog
Low-Cost Financing for Energy Efficiency Upgrades
At a hearing yesterday chaired by California State Senator Kevin de Leon that explored ways to expand energy efficient retrofit activity, Jeanne Clinton, Special Advisor for Energy Efficiency at the California Public Utility Commission (CPUC), announced that her agency is working with Environmental Defense Fund (EDF) to establish the first statewide on-bill repayment (OBR) program for energy efficiency and renewable energy upgrades to be financed entirely by third parties. The CPUC/EDF proposal is expected to be released later this month.
EDF applauds the CPUC for its vision in taking this first step forward. A well-designed OBR program present the opportunity to take energy efficiency to scale—in the billions of dollars—on all types of buildings without using taxpayer or ratepayer funds.
OBR is an innovative, cost-effective approach that will lead to a robust marketplace for energy efficiency lending, save energy users money, put people to work and avoid greenhouse gas pollution.
Here’s how it would work: 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 program can work for single-family, multi-family and commercial buildings and include a wide variety of financing techniques including loans, Energy Service Agreements, leases and Power Purchase Agreements. If all goes as planned, California’s OBR program is set to commence in early 2013.
Here are some of the key program 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. Given that loans are repaid through utility bills, low interest rates and attractive terms are expected to be available from a variety of lending institutions, from local credit unions for residential upgrades to million-dollar bank loans for commercial building overhauls.
- Utilities will benefit from fees paid by lenders for billing services and improved results from existing energy efficiency programs.
EDF has been building a coalition of environmental groups, financial institutions, contractors and project developers to support and/or participate in on-bill repayment programs. The feedback so far has been encouraging for many reasons. EDF believes this program could spur investments in the range of $3 billion per year, creating more than 20,000 jobs. Having the program in place for only five years would decrease annual CO2 emissions by about 7 million metric tons, the equivalent of taking more than 4 million cars off the road.
Stay tuned for the CPUC announcement later this month.