Hawaii: Green Energy Money $aver (GEM$) On-Bill Program

Hawaii Governor David Ige and the Hawaii Green Infrastructure Authority (HGIA) launched its Green Energy Money $aver (GEM$) On-Bill Program in April 2019.  GEM$ is an on-bill repayment program aimed 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 photovoltaic (PV), solar water heater, or other eligible clean energy improvements through their monthly utility bill, with no upfront costs.  The program is available to all 460,000 Hawaiian Electric Companies (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. The goal of the program is to make energy efficiency financing more affordable and convenient in order to help lower ratepayer energy bills and decrease overall carbon emissions by reducing the need for importing oil for power generation.

In the program’s first nine months, GEM$ has funded $6.6 million in solar PV projects with 78 percent going to low-to-medium income customers. This investment translates to 1.6 megawatts of distributed installed solar PV and about 12,000 metric tons of projected avoided greenhouse gases over the lifetime of the solar panels.

Program Evolution

Maui Brewing Company solar PV panels installed on the rooftop. Credit: Hawaii Green Investment Authority (HGIA)

The Commission approved the GEM$ on-bill repayment program in April 2018 and HGIA began accepting GEM$ applications in April 2019. 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 an on-bill program, the Commission published the Hawaii Energy Bill $aver (“HEB$”) On-Bill program manual, an earlier 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 on-bill program in Hawaii.

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 established a green infrastructure financing program, the Green Energy Market Securitization (GEMS) program. Capitalized with a $150 million bond issuance, GEMS can finance on-bill repayment programs and other energy efficiency and renewable energy projects (e.g., solar PV). GEM$ 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 HGIA). 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

The GEM$ on-bill Program is a low-to-medium income (LMI) -focused on-bill financing program ensuring that these households and renters have access to solar energy, affordable utility bills, and a healthier environment. Since September 2019, only those households with an income lower than 140 percent of the area median income (AMI) can apply to GEM$. This helps concentrate GEM$ investments on those families that are unable to access traditional financing, perhaps due to poor credit or lack of access to a home equity line of credit.

“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. HGIA does not issue loans through GEM$, instead, it provides applicants with an on-bill obligation or charge, which stays on the utility bill until all costs are recovered by HGIA. The repayment obligation is tied to the utility meter rather than the individual. This permits for longer repayment periods of up to 20 years, (and the resultant more affordable monthly payments) because it allows the repayment charge to transfer to the next tenant or owner. During the transfer process, the remaining obligation and repayment schedule must be disclosed and acknowledged by 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 ten 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 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, thermal storage pumps, and control systems. If eligible, 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 up to 20 years, with interest rates fixed at 5 percent.

Because GEM$ has no maximum financing limits on investments to commercial buildings, installing solar panels on tenant-occupied multi-unit dwellings is a viable and affordable option for renters to own solar energy. GEM$ has funded solar panels atop these buildings and for parking lot solar canopies serving these buildings, generating solar energy to individual units and for common areas. The GEM$ team is working on designing a model that would allow direct pipe-in customized solar energy amounts to individual units in multifamily buildings aligning with the specific energy usage of each unit. This innovative model would further allow multifamily tenants to own solar energy that is produced by panels installed on their premises.

Small businesses installing rooftop solar panels – which on average are larger in capacity than those used on single-family homes – have the option to combine the GEM$ on-bill program with a traditional power purchase agreement (PPA). The small business or nonprofit would install a large system on their property that generates more than will be consumed on-site and enter into a PPA with HECO to sell the surplus energy back to the grid, thereby creating an extra revenue stream. The business would use the GEM$ on-bill program to fund the system, and then repay it over time on the utility bill.

GEM$ operates as a public-private partnership between HGIA and the State of Hawaii. HGIA provides capital, via GEM$, to customers, approves applications, manages program contractors, and markets GEM$ to individuals, landlords, and commercial accounts. HECO’s role in GEM$ is limited to placing the on-bill obligation 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 overpayments 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 the capital investment, which in turn reduces program costs and interest rates.

The GEM$ on-bill program is the first debt-free on-bill financing program in the country that finances clean energy upgrades for homeowners, renters, businesses, and nonprofits, regardless of credit or income. Additionally, GEM$ is the first such program operated and funded by a green bank, HGIA, Hawaii’s Green Bank.