• Owns or occupies facilities in regions where on-bill programs are available, and pays its own utility bills
• Wants a simple financing option with convenient repayments
• Is willing to collateralize the loan with the threat of utility disconnection in exchange for lower interest rates
• Seeks financing for specific energy conservation measures in the $5k - $350k size range

To compare on-bill financing/repayment to other financing options that might be a good fit, answer a few questions about your organization.

To be eligible for OBF or OBR, a project must be located in the coverage area of a utility that supports on-bill transactions. To learn if they are available in your area, see:

• National Conference of State Legislatures on-bill summary

• Database of State Incentives for Renewable Energy (locate your state for a list of incentives, which may include on-bill financing)

• Contact your local utility to inquire about on-bill programs in your area

In both OBF and OBR structures, the utility collects repayments from the end customer via its monthly utility bill. The distinction lies in the source of capital. OBF programs use public money, ratepayer funds, or utility shareholder funds to pay for projects, and this capital typically comes at interest rates that are very low or even 0 percent. OBR programs use private capital from third-party investors instead. OBR capital typically comes at a higher interest rate than OBF, though it is often cheaper than the market rate for loans due to the added security provided to investors by attaching the repayment obligation to the customer’s utility bill. Somewhat confusingly, the term “on-bill financing” is often used as a shorthand to refer to both types of programs. On-bill programs vary by state and by provider, and each program has its own terms and processes.

In a typical OBF or OBR transaction, the capital to implement the project is provided to the customer by the utility or investor. On-bill programs may require that customers select from a list of pre-approved contractors to perform the installation, and they can sometimes work in tandem with rebate programs to reduce the total cost that must be financed. Once the project is complete, the borrowed funds are repaid each month on the customer’s utility bill for a set term that can range from 2 to 15 years. The energy cost savings from the project are usually large enough to offset the on-bill repayment charge, making the new utility bill equal to or less than the old bill. The customer’s obligation to make repayments is typically collateralized by both the installed equipment and by the possibility that the utility can discontinue service if the customer fails to pay.

On-bill structures vary widely and have differing pros and cons for customers, including balance sheet treatment and transferability. Depending on the on-bill program, the underlying financing can be characterized as a loan or tariff, and less commonly a lease or energy services agreement. In a loan structure, the loan is tied to the customer and cannot be transferred in the event of a property sale. Tariffs, on the other-hand, are tied to the utility meter and may be transferred to a new party if the original owner or renter sells or leaves the building. For more detailed discussion of varying on-bill structures, see ACEEE’s On-Bill Financing Toolkit.

On-bill financing for energy projects has existed since the 1970s, but the majority of market activity has occurred since the turn of the century. Most current programs are backed by public or ratepayer funds, but private financiers are increasingly entering the market to expand the size and scope of these programs. OBF and OBR programs work well for the commercial & industrial and non-profit sectors as well as private universities, schools, and hospitals, and they are often viable for multifamily facilities. They are typically not used to finance projects in government facilities. On-bill programs have mostly focused on energy efficiency measures, though renewable energy and water efficiency projects may be eligible as well.

According to a 2016 report by Lawrence Berkeley National Laboratory, over 232,000 on-bill loans have been extended across the residential and commercial sectors, totaling more than $1.83 billion. In the commercial sector, on-bill financing has totaled roughly $775 million. Based on research by the National Conference of State Legislatures, on-bill programs for the commercial and industrial sectors are operating in 22 states as of 2016. Eight states have legislated the creation of on-bill programs, while the remaining states have programs operating without legislation.

CONNECT WITH PROVIDERS

• U.S. Department of Energy SEE Action Network —  Financing Energy Improvements on Utility Bills: Market Updates and Key Program Design Considerations for Policymakers and Administrators
• American Council for an Energy Efficiency Economy (ACEEE)  — On-Bill Financing Toolkit
• National Conference of State Legislatures — On-Bill Financing: Cost-Free Energy Efficiency Improvements
• Wilson Sonsini Goodrich & Rosati — Innovations and Opportunities in Energy Efficiency Finance
• Deutsche Bank Climate Change Advisors and The Rockefeller Foundation — United States Building Energy Efficiency Retrofits: Market Sizing and Financing Models