A Closer Look at Hawaii’s Innovative Financing Model for Green Energy Investments

The Hawaii Green Infrastructure Authority (HGIA) launched its Green Energy Money $aver (GEM$) On-Bill Program in June 2018. GEM$ is an on-bill repayment program aiming to help renters, low-to-moderate income households, nonprofits and small businesses save on their electric utility bills by financing eligible clean energy improvements. Participating Hawaiian Electric Companies (HECO) customers can conveniently pay back the cost of installing a solar PV, solar water heater or other eligible clean energy improvement through their monthly utility bill, with low or no upfront costs. The program is available to all 460,000 HECO customers, or approximately 95 percent of Hawaii’s population. HECO is made up of three electric utilities that serve all customers on the islands of Oahu, Lanai, Maui, Molokai and Hawaii Island. The program could be expanded to Kauai Island Utility Cooperative, the utility serving Kauai, with additional loan capital and upon approval of the Hawaii Public Utilities Commission (“Commission”).

The GEM$ program currently finances residential solar hot water heaters, residential heat pump water heaters, commercial energy efficiency measures, and solar PV systems. By making these clean energy upgrades more accessible to customers, the program contributes towards the state’s goal of achieving 100 percent renewable energy by 2045. Making energy efficiency financing more affordable and convenient can also help lower ratepayer electricity usage and bills, and decrease overall carbon emissions by reducing the need for importing oil for power generation.

Program evolution

The Commission approved the GEM$ on-bill repayment program in April 2018 and HGIA began accepting GEM$ applications in June 2018. It was the result of almost seven years of work by Hawaii’s energy stakeholders, beginning with the signing of Act 204, Session Laws of Hawaii 2011. The Act directed the Commission to investigate the viability of an on-bill financing program. In 2015, after establishing the viability of such a program, the Commission published the Hawaii Energy Bill $aver (“HEB$”) On-Bill program manual, the first attempt to bring on-bill financing to Hawaii. The HEB$ program was subsequently suspended by the Commission, due to a lack of a financial program administrator, which prompted the Commission to reconsider the program.

In 2017, the Commission (through Order 33715) directed HGIA and HECO to reenergize the on-bill program, as a way to reach Hawaii’s clean energy goals. Previously, Act 211, Session Laws of Hawaii 2013, had established a green infrastructure financing program, the Green Energy Market Securitization (GEMS) program. Capitalized with a $150 million bond issuance, GEMS can finance on-bill repayment programs and other energy efficiency and renewable energy (e.g., solar PV) projects. GEM$ is a program that leverages GEMS funds to provide low-cost financing through an on-bill repayment program. (Both GEMS and GEM$ are managed by the Hawaii Green Infrastructure Authority). With both these elements in place and with a new HGIA executive director, HECO and HGIA convened to develop an on-bill program using the HEB$ manual as a basis.

Addressing income inequality by expanding access to clean energy

A GEMS-financed rooftop project in Hawaii. Credit: Hawaii Green Infrastructure Authority

“The GEM$ program is designed to democratize clean energy and reduce energy poverty by expanding access and affordability of renewable energy and energy efficiency to renters, low and moderate-income homeowners and nonprofit organizations,” said Gwen Yamamoto Lau, HGIA’s executive director. “As Hawaii has 37 percent income-constrained (but employed) households plus another 11 percent that live below the federal poverty level, coupled with 43 percent of the households renting, many have been locked out of participating in clean energy.” To reach these populations, GEM$ adopted best practices from other on-bill programs to expand inclusivity: transferability of the repayment obligation, a non-traditional financing approval process, and a minimum threshold for estimated net savings.

The repayment charge is included as a line item on the participant’s monthly utility bill. The repayment obligation is attached to the utility meter rather than the individual. This allows for longer repayment periods of up to 20 years (and, therefore, more affordable monthly payments) because the repayment charge can transfer easily to the next tenant or owner. During the transfer process, the remaining obligation and repayment schedule must be disclosed and acknowledged by the new owners/tenants via program documents that HGIA provides to the seller/landlord. (When a rental property becomes vacant, the monthly payment obligation is suspended until a new tenant moves in.) This model overcomes the rental split-incentive barrier by allowing renters to pay for cost-saving upgrades only for as long as they benefit from the investment.

To participate in the GEM$ on-bill program, a customer needs at least 12 consecutive months of on-time utility bill payment history with no disconnection notices in that time. Credit scores or debt-to-income ratios are not used to determine program eligibility, thereby expanding access to many households that cannot access traditional credit. This approach is used by a number of on-bill programs, none of which has experienced higher-than-average default rates.

To secure financing, a proposed project must be projected to lower the applying customer’s net energy annual costs by at least 10 percent, including the cost of the monthly charge. Estimated energy savings are based on an analysis of the historical kWh consumption over the past 12-month period and the projected future impact on the utility bill after the installation of an energy improvement. This requirement comes from the Green Energy Money $aver (GEM$) on-bill program manual, and seeks to protect low-to-medium income utility customers from seeing increased utility bills after installing an approved energy upgrade. To reach these mandated energy savings, the program centered its offerings on upgrades that offered the best payback in Hawaii’s mild, sunny climate: solar hot water heaters, heat pump water heaters, solar PV systems, and commercial energy efficiency retrofits.

Program Operation

Through the GEM$ on-bill program, residential and commercial HECO customers can finance solar PV systems and other eligible energy improvements with no upper borrowing limit. The minimum loan size for residential projects is $5,000; and the minimum loan size for commercial projects is $50,000. Commercial accounts—including multi-family rental buildings and small businesses—are eligible for a wider set of measures including HVAC upgrades, building envelope improvements, thermal storage pumps, and control systems. Financing is also available for ongoing maintenance and repair costs, especially for solar PV hot water systems. Both residential and commercial customers can borrow with terms of up to 20 years, with interest rates fixed at 5.50 percent.

As a public-private partnership, the Hawaii Green Infrastructure Authority leverages the GEMS loan funds for eligible projects with investor capital and other qualified sources of capital. Hawaiian Electric Companies' role in GEM$ is limited to placing the tariff charge on the participating customer’s meter, providing the participant’s bill payment history, and remitting the payments to HGIA. An outsourced loan servicer processes on-bill payments for HECO and HGIA.

Repayment risks are mitigated by the utility’s standard collection policies, including termination of utility service for non-payment of the tariff charge. Additionally, the GEM$ repayment charge has senior status over payments for electricity usage. This means that if the utility bill is partially paid, any outstanding repayment is applied first to HGIA’s Program Charge and then HECO recovers the rest. Additionally, a Unified Commercial Code (UCC-1) lien and a signed security agreement is placed on the financed equipment. All these security provisions provide greater certainty that the lenders will be paid back on their capital investment, which in turn reduces program costs and interest rates.

Author: Miguel Yanez