When a state is facing electric resource shortages, like Texas is, it’s just common sense to explore all the ways to make our electric use more efficient. We know efficiency makes sense – in terms of grid reliability, lower emissions, and reduced costs to ratepayers. But there is a barrier to some ratepayers in implementing more energy efficiency: upfront costs. Several options currently exist to finance efficiency, such as home equity loans and incentive programs through utilities. But what about creating a market to allow private investors to invest in the market by offering lower rates for utility customers by ensuring some security through repayment on the utility bill? That’s what on-bill repayment aims to do.
On-bill repayment (OBR) offers an opportunity for home and building owners to finance energy efficiency and renewable electricity generation projects through cost-saving loans from third-party investors. The loans are repaid through customer’s utility bills. The money comes from private sector lenders at no cost to ratepayers or taxpayers. OBR also allows for longer term loans with lower interest rates.
The general concept of OBR is not new. Several utilities around the country have instituted on-bill finance programs. However, there is a key difference. On-bill finance programs use utility money to finance the program, thus creating an additional cost for the ratepayers. On-bill repayment would use new money from third parties, such as banks, to create a new market that is secure, cost effective, and enables more bang for the buck in terms of what the ratepayer receives.
OBR is a flexible program that works for a wide variety of properties and vendor business models. In some programs, contractors are told what solutions can be offered to each customer. OBR, on the other hand, allows each contractor or vendor significant latitude to design solutions that meet the needs for their customers. This could include everything from insulation upgrades for residential customers or lighting upgrades for restaurants all the way to deep retrofits of commercial or industrial properties. All of these would be delivered by the private sector and would be completely voluntary to each property owner.
Benefits of OBR include:
- Job growth: We estimate that it could generate 100,000 new jobs to install energy efficiency and renewable electricity.
- New market creation: We estimate that OBR could generate $13.5 billion over a decade in private sector investments in energy efficiency, renewable generation, and demand response projects.
- Ratepayer and state savings: OBR would promote energy efficiency and distributed energy resources that avoid the cost of expensive new power plants and other high-cost generation—saving ratepayers $4.8 billion in energy bills.
- Flexibility for contractors and vendors: Program participants would have considerable discretion to design product offerings and go-to-market strategies to meet their customers’ needs.
In a state like Texas that prides itself on making its economy attractive to investors and creating markets, especially in the energy sector, OBR could be an effective tool to opening up the state to a private sector solution that can ameliorate our Texas energy crunch. Efficiency is an investment that makes sense for Texas. As utilities face increasing demands on their energy resources, and fewer dollars to spend on efficiency for their customers, giving them another tool, energized by funds from the private market, will benefit the entire state.