Energy Exchange

Selected tag(s): On Bill Repayment

Verizon Invests Big in Clean Energy

This commentary originally appeared on Verizon’s News Center.

Rory Christian PhotoTechnology giant Verizon is making significant strides toward increasing the use of on-site green energy throughout its national portfolio with plans to finish more than $100 million in clean and renewable energy projects across facilities in seven states by the end of this year. The investment is estimated to reduce carbon emissions by over 15,000 metric tons each year, which is comparable to over 2,000 homes’ annual electricity use. Verizon’s video showcasing its plans includes an introduction by Environmental Defense Fund (EDF)’s very own Victoria Mills, managing director of Corporate Partnerships.

The move builds on the company’s earlier foray into clean technology, resulting in Verizon’s successful 2005 investment in a 1.4 megawatt fuel cell in Garden City, New York. Fuel cells use an electrochemical process in which oxygen and fuel (natural gas or biogas) react to produce amounts of electricity. The process produces less carbon emissions than more conventional sources of electricity, and enables the possibility of affordable on-site, user-owned power generation that is as constant and reliable as a utility and provides an attractive economic payback for customers.

When selecting locations for solar and fuel-cell energy projects, Verizon was careful to consider sites with favorable zoning requirements, utility partners and regulatory regimes. Despite being financially viable, identifying suitable projects was no simple task. Financing these projects without incentives at the federal and state levels proved impossible, and the incentives often came with conflicting timetables and were difficult to leverage. Read More »

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A New Day For Energy Efficiency In North Carolina

The North Carolina Utilities Commission issued an important ruling this week that reaffirms the importance of energy efficiency as the fastest and cheapest way to reduce pollution from fossil fuels, protect the health of our families and promote our economy.

The ruling approved a new “shared savings” program that allows Duke Energy to make favorable returns on energy efficiency investments, but only if the company saves their customers money in the process.  The shared savings model is the most common financial tool in the United States to encourage electric utilities to make energy efficiency investments.

The new program will motivate the utility to implement energy efficiency measures as broadly and cost-effectively as possible.  Duke’s investments, in turn, can help ensure a robust market for providers of energy efficiency goods and services.

The shared savings model also provides an additional financial incentive for Duke to achieve the voluntary energy savings it agreed to when the company merged with Progress Energy in 2012.  The merger agreement included a minimum 1% per year energy savings starting in 2014 and 7% cumulative energy savings over five years (from 2014-2018).  If the company achieves certain energy efficiency targets, it will receive a financial incentive.

Notably, the ruling requires Duke Energy to convene a stakeholder discussion on the feasibility of commercial and industrial on-bill repayment and combined heat and power programs, which will enable the commercial sector to achieve high levels of energy efficiency performance.

The commission’s decision replaces Duke’s avoided cost energy efficiency program, known as “Save-a-Watt.”  That program, which expires at the end of 2013, was successful in motivating Duke to make investments in energy efficiency.  In fact, the company exceeded its energy savings targets.  The downside: Save-a-Watt was overly complex for energy regulators and stakeholders.  In contrast, the new shared savings program is simple, transparent and will continue to expand Duke Energy’s energy efficiency investments.

EDF is pleased to see that the ruling incorporates all of the major elements of an agreement that we helped secure in August with Duke Energy, the Commission Public Staff, North Carolina Sustainable Energy Association and environmental colleagues.  We look forward to watching Duke Energy achieve its full energy efficiency potential.

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Duke Energy Agrees To New Model For Energy Efficiency

Environmental Defense Fund and the North Carolina Sustainable Energy Association recently joined the North Carolina Utilities Commission Public Staff and environmental colleagues in reaching an agreement with Duke Energy on its new incentive mechanism for energy efficiency investments.

The NC Utilities Commission is expected to issue a ruling on the agreement by the end of November 2013.  If approved, the agreement will motivate Duke to implement energy efficiency measures as broadly and cost-effectively as possible.  Duke’s efforts, in turn, can help ensure a robust market for providers of energy efficiency goods and services.

The agreement would replace Duke’s avoided cost energy efficiency program, “Save-a-Watt,” with a business model known as “shared savings.”  Save-a-Watt, which expires at the end of 2013, was successful in motivating Duke to make investments in energy efficiency.  In fact, the company exceeded its energy savings targets, but the program was overly complex for energy regulators and stakeholders.

In contrast, the shared savings approach will split the anticipated dollar savings between Duke and its customers and set a single, flat rate of return.  By sharing the savings, the model properly balances the interests of the utility and customers, and it will motivate Duke to make energy efficiency investments that save customers money.  The shared savings model is the most commonly used energy efficiency utility incentive mechanism in the United States.

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Hawaii Making Waves In Financing Clean Energy

Public Utility Commission orders on-bill program to finance clean energy

Last Friday evening, February 1, the Hawaii Public Utilities Commission (PUC) issued a landmark decision and order to create an on-bill program, very much in line with EDF’s recommendations for on-bill repayment (OBR), that will provide access to low-cost financing for solar and energy efficiency projects for homeowners and small businesses.  This decision comes 18 months after the State passed legislation directing the PUC to investigate an on-bill program and authorized the Commission to implement the program (by decision and order or by rules) if the on-bill program was found to be viable.

The PUC decision determined that a statewide on-bill program is viable, and specified program design criteria that the Commission deems necessary to achieve viability.  EDF has been working to shape the proposal with key stakeholders including environmental groups, lenders and the Hawaii State Energy Office.

The specified criteria include the following components that EDF believes are critical for achieving both success and scale:

  1. bill neutrality (project savings exceed financing payment obligations)
  2. tariff-based obligation
  3. tariff is tied to the utility meter and therefore transferable
  4. standard collection procedures, including disconnection for non-payment of OBR obligation
  5. pro-rata allocation of partial payments

Since the terminology can be confusing, it is worth noting that this is not a typical ratepayer-funded on-bill finance program, despite having the same designation. The Hawaii program leverages private capital, and the PUC supports participation by multiple sources of capital rather than a single financing entity.  EDF believes both of these elements are critical to scaling the program and meeting the needs of a diverse set of property owners.

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California Utilities Announce Innovative Financing For Energy Efficiency Retrofits

This commentary was originally posted on the EDF California Dream 2.0 Blog.

On-Bill Repayment

Yesterday, the California investor-owned utilities (Sempra, SoCalEd and PG&E) announced several financing programs including the first On-Bill Repayment (OBR) program using third-party capital to finance energy efficiency retrofits in commercial properties. Property owners would be able to access low-cost capital to finance upgrades and repay the investment through their utility bill. The OBR program will contain three design elements that EDF believes are critical to success:

  1. The obligation will ‘run with the meter’ upon change in ownership or occupancy including via foreclosure. This both improves the credit quality of the obligation and allows investment in longer-payback retrofits.
  2. Partial payments will be allocated pro rata between energy and financing obligations. The utilities will also use all standard collection procedures for unpaid obligations. These features insure that the obligation will be treated similarly to existing utility bills.
  3. The program will provide flexibility for vendors, contractors, project developers, lenders and other investors to design retrofit solutions, go-to-market strategies and financing products that meet the needs of their customers.

Over the next 10 years, EDF estimates that OBR could generate $6 billion of private sector investment in commercial energy efficiency investment. During the next few years, EDF hopes to expand this initial program to additional states, and to cover residential properties.

EDF has been assuming that the California OBR program would only cover energy efficiency retrofits. In a sidebar conversation with a senior California Public Utilities Commission (CPUC) staff member, yesterday, I learned that it may be possible to extend OBR to renewable and demand response projects. We expect to be working closely with relevant stakeholders and the CPUC to make this a reality.

OBR is expected to be operational in California by the end of March 2013. EDF will be working closely with energy efficiency project developers, energy services companies, lenders and other investors to develop a robust pipeline of OBR projects that can be executed soon after program initiation.

Posted in California, Energy Efficiency, On-bill repayment / Also tagged | Read 1 Response

Using Financial Innovation To Break Down Barriers to Energy Efficiency Upgrades – Part 2: Residential Buildings

Energy Efficiency Financing Blog Series

By: Brad Copithorne, EDF’s Energy & Financial Policy Specialist

In Part 1 of this blog series, we examined how several innovative companies have developed a structure to finance energy efficiency projects in commercial buildings.  This structure, an Energy Services Agreement (ESA), provides building owners access to capital, solves the split incentive issue and eliminates exposure to performance risk on the project.  In Part 2, we examine another innovative financing solution that will provide capital to residential projects.

McKinsey recently estimated that there is over $225 billion of available cost effective energy efficiency investment opportunities available in the residential sector.  If these investments are made, energy consumption in the residential sector will decline by 28% by the end of this decade.  Unfortunately, most homeowners do not have access to low-cost sources of capital to pay for the upfront costs of the retrofits.

On-Bill Repayment

On-bill repayment (OBR) programs allow customers to repay third-party loans for energy efficiency and renewable energy investments through their utility bills.  Utility bills generally have very low default rates because nobody wants their power turned off.   Loans tied to the utility bills should also have low default rates which will allow lowered costs for borrowers and increased availability of credit.

During the past decade, various utilities have successfully piloted more than a dozen on-bill finance programs.  These programs have used utility, ratepayer, public or mission-driven capital which has greatly limited scalability.  An OBR program, on the other hand, uses entirely third party capital from profit motivated investors such as banks.  Since this is a much larger pool of capital, the supply of funds will increase to meet demand.

Based on extensive consultation with key stakeholders, including banks, the three California investor-owned utilities, project developers and others, EDF believes that an OBR program can be successfully launched statewide in California using entirely private capital, and provide building owners with low-cost funding for energy efficiency and renewable projects.   EDF is currently in discussions with California utilities and regulators on creating an OBR program for the state.

EDF estimates that a statewide OBR program that would generate $2.7 billion of annual investment in energy efficiency and renewable projects.  Over 20,000 installation jobs would be created and after 5 years, annual CO2 emissions would decline by 7 million tons.

On-Bill Repayment: Step By Step

  • Approved contractors and utilities identify projects, and then help building owners apply for a loan to pay for upgrades. 
  • The contractor provides the homeowner with an estimate of the expected monthly energy savings and up-front upgrade costs.  
  • If the loan is approved by a 3rd-party lender, the contractor will execute the project. 
  • Expert, objective inspectors (managed by either the utility or a government entity) validate the estimate of projected savings and that the upgrades are properly installed. 
  • Homeowners pay a combined monthly bill for both energy and loan repayment.  The program would require that savings exceed debt service, so the customer would see a reduction in their monthly utility bill.

Example: Homeowner

Current utility bill: $350 per month
Investments: Solar panels, duct sealing, controls and new refrigerator
Expected utility bill savings: $225 per month
Investment loan: $20,000
Loan terms: 
–          Interest rate on loan: 6.25%
–          15 years repayment schedule
–          Monthly payment: $170

Utility bill after retrofit:  $125
Utility bill + loan payment:  $295

Savings: $55 per month (savings will grow as utility energy rates increase)

Program Terms

  • Any building with a meter would be eligible including commercial, industrial, public, multifamily and single family residential buildings.
  • Eligible measures would include approved list of renewable and energy efficiency projects.
  • Contractors and lenders would be subject to pre-approval.
  • Projected first year savings would need to exceed debt service by a comfortable margin. 
  • Lender would have no ability to request a customer disconnection but partial bill payments would be allocated proportionally between lender and utility.  The utility would follow all standard disconnect procedures.

Innovations In Energy Efficiency Finance

Next week EDF and Citi are co-hosting a conference for institutional investors, real estate owners and project developers on energy efficiency finance.  Both ESAs and on-bill repayment will be discussed extensively.  Our next blog post will report on the outcomes of the conference.

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