White House Pushing for Major Expansion of Rural Energy Savings Program | Article

Tucked away in the Biden-Harris Administration’s $6 trillion budget request for Fiscal Year 2022 is a $22 million request for the Rural Energy Savings Program (RESP). Rural households pay an outsized amount of their income on energy costs, meaning that efficiency improvements and other cost-effective energy upgrades are badly needed. This is where RESP comes in. RESP, run by the U.S. Department of Agriculture’s (USDA) Rural Utilities Service (RUS), provides rural electric cooperatives and other rural utilities with zero-percent loans to launch or expand energy efficiency financing programs for their members. RESP-capitalized projects can finance a wide variety of cost-effective energy upgrades for rural homes and businesses, such as weatherization, new HVAC, distributed renewable energy, electric vehicle charging stations, fuel switching, and much more.

According to RUS’s FY2022 budget justification, the Rural Energy Savings Program “will be instrumental [in] providing funds to consumers for upgrades in cost-effective energy efficiency for their homes and businesses. These improvements will help in responding to the climate crisis and will create good-paying jobs and provide the free and fair choice to join a union. This program is also contributing to improving environmental justice in disadvantaged communities and coal-based communities.”

Though the need for energy upgrades is much bigger than what can be solved by $22 million, the budget proposal explains that a $22 million appropriation would actually give RESP $398 million to invest in communities. This is thanks to RESP’s ability to leverage other loan funds from the broader RUS Electric Program. The RUS Electric Program has access to approximately $6 billion per year to lend to rural electric utilities for infrastructure improvements and other projects. These loans are made at standard government rates set by the U.S. Treasury. To maximize the amount of zero-percent RESP loans it can make, RUS takes the RESP appropriation and uses it to buy down the interest rate for as much as the $6 billion loan pool as possible. This credit subsidy goes back to the first year of RESP in 2016, when its original $8 million appropriation was leveraged into $52 million of loan availability to utilities. In 2019, the $12 million appropriation allowed RUS to make $97 million available. The exact ratio changed from year to year, but generally each dollar of RESP appropriations became $7–$8 of zero-interest loan availability.

The math-inclined may notice that the White House’s request for $22 million to create $398 million in RESP loans reflects a very different ratio: the funding available to utilities would be 18 times greater than the appropriation request. This is because of a recent decision by the White House Office of Management and Budget to downgrade the risk assessment of RESP loans. RUS has made 29 RESP awards totaling $183.7 million in the program’s first four years, and participating utilities have yet to miss a repayment to USDA. This allowed the government to lower the interest rate of the base loan pool when used for RESP, meaning that the RESP appropriation could subsidize a much larger set of loans. When the current RESP application window was announced in December, RUS had approximately $90 million available from an $11 million appropriation for FY 2021. But with the lowered risk profile, that $11 million now leverages $200 million in available loans.

This comes at a key time when demand for RESP is growing. Electric co-ops, the traditional audience for RUS loans, have begun asking for larger RESP awards now that they have a better sense of how the program can be used. Applications from public rural utilities are also on the rise. Additionally, RUS expanded the pool of eligible applicants last year to include nonprofits, water utilities, and state agencies that can offer clean energy financing services to rural areas. This includes green banks and state energy offices, which typically serve entire states and therefore could have a larger appetite for loan capital than individual utilities. Green banks jumped on this opportunity, requesting more than $90 million across nine applications (with EESI assisting on all but one). Once those deals are closed, it will likely lead to more interest from non-traditional RUS borrowers.

Author: John-Michael Cross

EESI has worked with more than 20 utilities and other eligible entities to apply for RESP funds. Click to learn more about two EESI-supported on-bill financing programs that are investing RESP capital into their communities: “Help My House” in South Carolina and “Switch It Up” in Washington state.