On-bill financing: Why isn’t everybody doing it?

Share Button

Elisa WoodBy Elisa Wood
December 15, 2011

If someone told me they could improve the efficiency of my computer so that it operates quicker, at no extra cost to me, I can’t imagine I’d turn them away. Yet, the energy efficiency industry offers a similar option for homes and businesses and at least so far, consumers aren’t flocking to the programs.

On-bill financing gives customers the ability to finance energy efficiency improvements made to their homes and businesses at no upfront cost. Customers pay for the insulation, lighting, new heating system or other efficiency measure over extended terms on their monthly utility bills. Typically, the savings from the efficiency improvement offset the cost, so the customer sees no increase in the monthly utility bill. You get a building that uses less energy and yet experience no financial pain in doing so.

There is no catch here. It sounds like a good deal for the consumer and early reports indicate it is. So why aren’t consumers interested?

A new report by the American Council for an Energy-Efficient Economy takes a close look at 19 on-bill financing programs offered in 15 states.  In many cases, less than 1 percent of eligible customers choose to participate in these programs.

The concept is just beginning to take hold, so the problem may simply be lack of awareness, says Casey Bell, lead author of the report.

“The growth of these programs depends on a number of factors. We are seeing a trend where they are emerging in more states. While I profiled 19 programs, we found 31 in 20 different states. A lot of these programs are still new, and many are still in the pilot phase,” Bell said.

Indeed, when it comes to energy, it’s not easy convincing consumers to accept new ideas, even those that directly benefit them, as behavioral scientists made clear at an ACEEE-sponsored conference on energy use and behavior in Washington, DC earlier this month. Even if they read the brochure from their utility, watch a TV commercial and spot a sign on the bus, they still are slow to respond.  What does convince them? A chat with a neighbor who tried the program, a push by their church, community or social group, a direct knock on the door by a real live person.

So to improve participation levels, it may be matter of more utilities offering more on-bill financing programs and then being patient; it may take some time for participation to snowball.

Will this happen? Can you expect to see your utility offer on-bill financing any time soon? The ACEEE report points out various reasons utilities are hesitating. Not surprisingly, money is a big issue. Utilities see less opportunity to finance an on-bill program, especially now that government funds are dwindling.

Some of this pressure can be relieved by attracting more third-party capital to programs, according to the ACEEE report.  This approach has potential because investors perceive utility revenue as low risk; consumers tend to prioritize paying their utility bills, since non-payment leads to shutoff of service. So, some utilities are exploring the possibility of bundling program loans with other financial products and creating a secondary market for capital.

“There is a lot of opportunity to learn from experience, and tapping into private sector sources of funding is likely critical for scalability,” Bell said.

In other instances, utilities finance on-bill programs through Community Development Financial Institutions or by leveraging government loan through agencies like the USDA’s Rural Utility Service.

So it’s going to take some experiment and innovation for on-bill financing to achieve scale. As if often the case, financial innovation is as game changing as technological advancement. We may have the smart boxes to revolutionize the way we use energy, but if utilities and consumers can’t pay for them, they offer little good.

The solar energy sector provides a good example. For years we saw little installation of solar panels on commercial buildings, despite enormous information produced by the industry about solar’s value. Then, entrepreneurs in the last decade came up with the idea of solar leasing and solar power purchase agreements. As a direct result, solar panels began sprouting on the roof tops of stores, car dealerships, office buildings and other commercial enterprises.  The lesson? In our contemporary energy economy, promise finally leads to practice – when the financing is right.

Elisa Wood is a long-time energy writer. Follow her on Facebook at Energy Efficiency Insights.

Share Button

About Elisa Wood

Elisa Wood is the chief editor of MicrogridKnowledge.com. She has been writing about energy for more than three decades for top industry publications. Her work also has been picked up by CNN, the New York Times, Reuters, the Wall Street Journal Online and the Washington Post.


  1. Michael Jones says:

    I believe that the big problem here is that people have been promised huge savings from companies so many times over the years that frequently never occur and they no longer believe the hype. If these products work as well as advertised, simply guarantee the results and pay for the product via savings for a period of time, rather than having the consumer take the risk. Consumers no longer believe the marketing hype.

  2. Bill Jackson says:

    Customers have told me it is a lack of believability that the actual energy savings will more than pay for the financing costs. The examples you posed, a chat with a neighbor who tried the program, a push by their church, community or social group, a direct knock on the door by a real live person, I believe would all work except perhaps the “knock on the door.”
    Utilities also tend to resist on-bill financing if the utility bears the risk of default. Yes, default rates are relatively low, but financial department6s within utility organizations are very risk averse.

  3. … What Michael said!!! Promises have been made, and NOBODY seems to track the results. So even if promises are met, who knows about it!?

    Much of this is a big lie backed by no verification. BPI taught us to measure before and measure after. That should include more than pressures, IT SHOULD INCLUDE THE ENERGY BILL! We need to verify delivery of the savings promised.

    What is measured can be managed, how do you manage what DOES NOT get measured? How do we improve at saving energy if we don’t bother tracking?

    And there is tremendous resistance to transparency. Big lies will be exposed, poor performance will be apparent, and even those who will be proven successful at delivering upon promise are afraid – they don’t KNOW if they will be proven as meeting targets.

    I’ve been tracking, but it’s a colossal PITA and not terribly scientific. We need energy transparency to really make this work, and it better happen fast. Easy access to energy use means easy access to energy results. Those that are not delivering on promise need to know NOW so they can fix it.

    Transparency will happen with On Bill, but in the worst way. When people’s budget’s are dramatically adjusted and they can’t afford their payments because the true cost is so far off the projected number. That will be bad for everyone.

  4. I agree that a reference from a trusted friend, family member, church or community leader makes a huge difference in consumers just being willing to listen to the opportunity. I will also say that knocking on doors does work as I have knocked on many and gotten positive results.
    Testing before and after and measuring savings over time both make a huge difference in engendering confidence in the process and clients being willing to make referrals. After 3 years and over 500 projects, we have delivered on our promises in association with the Long Island Green Homes Program and the NYSERDA On-Bill financing program whereby the savings pay for the Home Performance project.
    Also, NYSERDA, by law, demands that the monthly payment be no greater than the projected monthly savings.
    Overall though the public’s consciousness needs to be raised. It will only happen through aggressive consistent marketing by the programs themselves, recommendations by trusted third parties and first quality work by BPI approved contractors that consistently deliver the results they promise.