By: Jessica Feingold, EDF Financial Policy Fellow
EDF believes that On-Bill Repayment (OBR) can do for efficiency what the third-party finance model has done for solar.
A recent post on efficiency.org, entitled ‘Solar is for the wealthy? Not anymore!’ highlights the growth of residential solar projects in middle-income markets (areas with median incomes of $50k-$100k) at the same time that financing became widely available from the private sector. While wealthier people have always been more likely to be able to afford the upfront costs of a solar installation, the introduction of solar leases and Power Purchase Agreements (PPAs) has extended the opportunity to a much wider range of consumers. This increase was described in detail in the 2012 California Solar Initiative Assessment. The success of solar among middle income households – achieved by eliminating upfront costs and allowing for monthly repayment through a solar lease or PPA structure – lends support to the notion that low-cost financing will be critical to making similar advancements in energy efficiency.
EDF has been working to create an OBR program in California that would provide financing for energy efficiency and renewable energy upgrades. OBR uses private capital to finance these clean energy upgrades at no upfront cost to consumers. However, OBR differs from the existing clean energy financing models in that it allows for repayment of a clean energy investment on the customer’s monthly utility bill. This reduces the administrative burden of an additional bill, while at the same time strengthening the credit of the loan by leveraging historically strong utility payment history. Thus, OBR would provide low-cost capital to consumers for clean energy upgrades.
Middle-income earners, in particular, stand to benefit from OBR, since they otherwise do not have access to low-cost, unsecured financing. Middle-income households are highly price-sensitive and likely do not have sufficient savings or home equity available to make clean energy investments that would reduce their utility bills, resource use and reliance on grid power. That is precisely why private sector financing was critical to promoting solar among middle-income households. Energy efficiency projects, on the other hand, have not yet attracted the low-cost private capital needed to achieve such widespread success.
OBR is an innovative financing solution that would allow middle-income households to realize the long-term benefits of energy efficiency, and provide more affordable financing for renewable energy projects as well.