Buildings energy efficiency is not moving fast enough to meet the Paris Agreement goals. Retrofitting old buildings is extremely costly and needs much more investment, as our previous articles have detailed. Innovative models of financing are urgently needed. In an article for Ensia, Nate Berg explains how by rolling upgrade costs into monthly bills for poorer communities, U.S. utilities are helping customers save energy and money at the same time. It could work as a model for everyone.
For customers of the Roanoke Electric Cooperative in rural North Carolina, high energy costs are much more than a pesky bill or a grudging expense. “We’re one of the poorest areas of the nation,” says Curtis Wynn, the cooperative’s president and CEO. “We have a lot of low-income individuals who are our members and, quite frankly, a major portion of their monthly budgets are consumed by paying their electricity bills.”
Wynn says he has seen monthly bills reach nearly US$700. But high rates aren’t to blame. It’s often the homes themselves that are the problem. Drafty windows, leaky ducts and poor insulation are common, and that means that much of the heating and cooling it takes to keep them comfortable slips outside, leading customers to use much more energy than they should have to — an estimated 10 to 20 percent, according to the U.S. Department of Energy.
The simple solution to this problem is an energy efficiency upgrade — patching leaks in ductwork, sealing the frames of windows, laying insulation in attics, replacing old heat pumps. The costs can range from a few hundred dollars to about US$8,000, but these interventions can result in energy savings over time that more than offset the expense. It’s a pragmatic investment that lowers costs in the long run.
Such an investment, though, can be out of reach for low-income energy customers who have neither the cash to afford the upgrades nor the credit score necessary to borrow what they would cost.
But with an innovative financing mechanism, electric utilities like the Roanoke Electric Cooperative are using their borrowing power to finance energy efficiency upgrades in homes at no upfront cost to their customers.
“We’re helping the member lower their electricity consumption and ultimately their bills, and we’re lowering our costs for the power that we go out and purchase on their behalf,” says Wynn.
Utilities use government loans to pay the upfront cost
This is possible through what’s called tariffed on-bill financing. Using energy efficiency loans available from the federal government, utilities pay the upfront costs of upgrading a home’s energy efficiency and then amend that home’s newly lowered bill with a tariff charge that pays back the cost of the upgrade month by month.
Post-upgrade, your bills are guaranteed lower
Key to making it work is that the tariff is calculated so the customer’s bill is always lower than it was before the upgrade. About 80 percent of the monthly savings go toward paying off the cost of the upgrade, and the rest goes to cutting the customer’s costs. In other words, they reimburse the utility for the cost of the upgrades and still pay less for energy each month than they did before the improvements were made.
The Roanoke Electric Cooperative program, Upgrade to $ave, is administered by EEtility, an Arkansas-based B corporation that works with utilities to perform energy audits on homes, prescribe efficiency upgrades and coordinate the contractors that implement them. Tammy Agard, the company’s co-founder, calls this approach a win-win-win that benefits residents, utilities and the environment.
Unlike most debt-based energy efficiency upgrade programs, the tariff-based model links the monthly charges to the address and not the customer, allowing renters to have their energy costs lowered through upgrades without necessarily paying the full cost for them if they move. After the upgrade is paid off, the tariff is lifted and the utility bill associated with that address becomes even lower. This approach, known as “Pay As You Save” and originally developed by the Energy Efficiency Institute in Vermont, has been licensed for use at utilities around the country, from California to Ohio to New Hampshire.
“This is an all-inclusive model,” Agard says. “There’s nobody from the brain surgeon to the person cleaning the floor at the hospital who can’t participate in this program.” In 2018, Agard was named a Champion of Energy Efficiency by the American Council for an Energy Efficient Economy (ACEEE) for EEtility’s work helping low-income residents in rural electric cooperatives like Roanoke.
The model is spreading, but not fast enough
Such are increasingly common. Because it’s cheaper for utilities to improve energy efficiency than to build more energy production capacity — and because now require them to — utilities have initiated a variety of efficiency upgrade options, including utility-financed loans that tend to raise customers’ bills and programs that pay back upgrade costs through a line item on annual property tax bills.
But these efforts haven’t pushed the masses to make energy efficiency upgrades. “It’s a challenging area,” says Martin Kushler, a senior fellow at the ACEEE. He’s been reviewing utility energy efficiency programs across the country since 2003, and says that even though programs are improving, adoption rates for energy upgrades remain low.
For Wynn at the Roanoke Electric Cooperative, EEtility’s approach checks all those boxes. So far, more than 400 of the cooperative’s 14,000-plus members have received upgrades through the program, and about 1,500 have expressed interest in participating. “We’re getting inquiries every day,” he says.
The biggest challenge, Wynn says, is that some homes are in such rough shape that the investment in an energy efficiency upgrade can’t be justified. Even so, he expects to work with EEtility on at least another 500 upgrades within the next few years.
EEtility is now working with three utilities in the U.S. and is in talks with about a dozen more. Most are rural electricity cooperatives serving low-income customers, but Agard says this approach to energy efficiency upgrades can work in any market.
“We have a program that absolutely can be scaled across the country,” she says. “Because if it’s providing services for our most vulnerable populations then why couldn’t it provide services for everyone?”
Nate Berg is a cities, science and design writer.