Enhancing Energy Equity Through On-Bill Financing

On-bill financing programs, if designed properly, can be used as a mechanism to decrease energy inequalities. Through innovative design, these programs lower energy burdens and save customers money, while simultaneously reducing carbon emissions.

Historically, Black, Indigenous, and People of Color (BIPOC) communities, low-wealth communities, and other frontline communities are increasingly vulnerable to the impacts of climate change, often experiencing the ‘first and worst’ consequences, such as the increased frequency of wildfires, floods, winter storms, and hurricanes. Therefore, BIPOC communities and low-income households, often located next to polluting factories and bisected by major highways, are disproportionately impacted by these climate change-induced disasters.

New solutions are needed to help make energy efficiency and renewable energy more accessible and affordable. On-bill financing programs can be designed to provide an equitable solution for cost-effective clean energy upgrades to homes or businesses. This is done by pairing investment capital, data-backed energy solutions, and alternative finance underwriting options. By focusing on increasing accessibility and equity, on-bill programs can help more widely distribute the benefits of energy efficiency and other clean energy resources, including solar energy, to homes and communities often left behind.

One in four Americans experience high energy burdens, with one in five cutting back on or forgoing necessities such as food, health care, child care, and clothing. About half of all such households are Black. Nearly half of Latino households and over half of Indian and Pacific Islander households also face energy insecurities.

Lower-income families pay a disproportionate percentage of their family income towards energy costs compared to higher-income families. On average, lower-income households typically pay 10 percent of their total annual income on energy costs (compared with higher-income families that pay up to three percent). Rural households are particularly hard hit by increased energy burdens and often must pay up to 40 percent more than their urban counterparts.

On-bill financing programs are an effective tool for decreasing energy burdens around the nation. By providing a low-interest long-term repayment option with no upfront costs, on-bill financing programs help utility customers who are generally unable to benefit from utility incentive programs.

Installing clean energy upgrades for homes and businesses can help everyone, including BIPOC and rural communities, decrease their reliance on fossil fuel energy. Performing a whole-house energy efficiency retrofit cuts energy bills and therefore reduces energy burdens. Distributed rooftop solar energy or community solar projects help low-wealth and communities of color own locally-produced clean energy, promoting equity. Placing clean energy upgrades atop- or attached to buildings results in economic development, wealth building and creates well-paying jobs while reducing carbon emissions.

On-bill financing program designs have evolved to better center equity and accessibility and help unlock energy savings for low-wealth communities and communities of color while reducing carbon emissions. Notably, the Hawaii Green Energy Money $aver (GEM$) on-bill program is targeted at low- and moderate-income households, including renters living in multifamily buildings, to afford and access solar energy. GEM$ requires that participants see at least a demonstrated 10 percent net monthly energy savings, even while including the monthly program payment. In South Carolina, the Help My House program finances whole-house energy efficiency measures without collecting credit scores or income information. Instead, the program uses good bill pay history as the primary qualifier, allowing many more families to access financing for home improvements.

Barriers to Energy Savings

Building structure issues that make installing energy-efficient upgrades and rooftop solar a challenge
Upfront costs for clean and efficient energy upgrades are too high for many households. Rebates, even large ones, are only useful if the customer can cover the full upfront costs.
Difficulty accessing traditional capital sources, particularly for those with low credit scores or limited income
Split incentive issues that hinder the installation of cost-saving energy upgrades in rental properties
Geographic remoteness of rural and island communities often leads to higher prices and contractor shortages

OBF To Expand Access and Increase Clean Energy Adoption

On-bill financing program designs can help remove barriers, provide access, and increase clean energy adoption. By pairing quality information about energy investments with accessible, low-cost financing, on-bill financing programs can help deliver clean energy savings to nearly anyone. Program features that help make this a reality include:

No upfront costs to participants, with any administrative fees, rolled into the repayment plan
Designing programs to ensure a positive cash-flow experience for the participant, even while repaying for the clean energy upgrade
Tying the repayment to the utility meter (not the individual), enabling the cost-repayment to transfer to the dwelling’s next occupant. This is key to allowing renters to participate, as they pay for the upgrades only for as long as they benefit from them.
Long repayment periods to lower monthly payments, as long as they remain tied to the upgrade’s warranty period (e.g., 20 years for solar panels)
Using inclusive underwriting criteria (e.g., on-time utility bill payment history) rather than traditional screening measures, such as credit scores or proof of income
Low interest rates to help offset the cost to participants from longer repayment terms. This can be achieved through rate subsidies or alternative capital sources (e.g., RESP, green banks)
Lower overall clean energy upgrade costs by combining the financing with utility rebates, incentives, and tax credits.