In the Wake of the Coronavirus Outbreak, Innovative Finance Programs Are Ready to Leverage Federal Recovery Funds

The United States faces a daunting recovery in the wake of COVID-19. Federal legislative action on the coronavirus crisis has so far focused on disaster response, but Congress will eventually turn to developing an economic stimulus package. Building energy efficiency improvements will likely be a significant part of the plan since it puts many local businesses to work providing immediate, ongoing financial benefits to families and small businesses throughout the county. The American Recovery and Reinvestment Act of 2009 (ARRA) provided a valuable template for economic recovery via a surge in energy efficiency spending, but policymakers can take lessons from that effort and the following decade of building efficiency programs to make a greater dollar-for-dollar impact.

As part of ARRA, the U.S. Department of Energy deployed $36.7 billion in order to spur rapid job creation, reduce energy costs, and cut carbon emissions.  Energy efficiency improvements for homes and businesses were a major focus of these funds, with $5 billion to greatly expand the low-income focused Weatherization Assistance Program (WAP), $3.1 billion in State Energy Program grants, and $3.2 billion to the new Energy Efficiency Conservation Block Grant and Better Building programs. ARRA programs weatherized more than one million homes, delivering an average savings per home of more than $3,700 over the lifetime of the measures installed. The program supported tens of thousands of jobs, but many of these jobs disappeared by 2013 once the ARRA grant funds diminished. However, some ARRA funds are still in use to this day, thanks to approximately $860 million that was allocated to financing activities such as revolving loan funds and loan loss reserves.

One of the most important ways to evolve the ARRA weatherization model is to include more support for innovative financing programs.  This week, EESI sent a letter to Congressional leaders urging them to include support for these programs as part of any upcoming stimulus package.  The letter states that innovative financing is essential to leverage and enable grants, rebates, and tax incentives so that they are widely utilized and effective. Unlike grants and rebates, financing dollars can be reused in a revolving fund. This stretches recovery dollars and sustains the clean energy workforce to continue delivering savings and emission reductions long after initial grant funds are depleted. The letter was co-signed by the American Council for an Energy-Efficient Economy, the National Association of State Energy Officials, and the National Cooperative Business Association CLUSA.

The letter explains that the last decade has seen an explosion of innovative finance programs for energy upgrades, established largely to fill the hole created when the majority of ARRA funds dried up. Residential on-bill financing programs are offered by more than 60 electric cooperatives and public utilities across the country, especially in rural areas where families pay on average about 40 percent more for energy compared to their urban counterparts. On-bill programs in Arkansas, Hawaii, South Carolina, Washington, and other states have successfully introduced new program design elements to provide deeper average energy savings and improve program accessibility to households of all income levels. Many of these programs have been capitalized by the U.S. Department of Agriculture’s no-interest loan Rural Energy Savings Program, established in 2016.

Financing is not intended to replace grants and other incentives for clean energy upgrades, especially in an economic stimulus package.  But with the recent success of innovative finance programs as a guide, the stimulus package could better balance and leverage one-time cash incentives with support for longer-lasting finance programs. This will help prevent a boom-and-bust cycle for the energy efficiency industry, and instead, provide steadier support during the long road of national recovery.

Authors: John-Michael Cross and Miguel Yanez