On-Bill Repayment Shows Great Promise for Energy Efficiency, But Significant Challenges Remain

Although on-bill repayment programs have many advantages, these programs are still in their infancy and many barriers to widespread deployment remain. One of the programs’ advantages is that they build on utilities’ preexisting customer relationships. Another advantage is that the programs tend to be reliable investments if customers have a track record of paying their utility bills consistently.

However, some barriers still exist. As is the case with most energy efficiency financing mechanisms, lenders and utilities lack market experience with on-bill repayment. Therefore, many different perspectives exist about what is needed for on-bill repayment programs to succeed.

To get a sense of some of the current issues, Clean Energy Finance Center staff talked with individuals who are trying to make on-bill repayment programs work across the United States.

On-bill repayment makes energy efficiency available to almost all utility customers, including those who may not qualify for existing loan programs using standard underwriting criteria.

“If you ever want energy efficiency and renewables to compete head-to-head with buying energy, you have to buy them as a service,” said Dave Carey, Principal of Harcourt Brown & Carey, a consulting firm specializing in clean energy finance. On-bill repayment can be viewed as a service because it can be packaged with utilities’ other services.

Carey said that while 50 to 60 percent of residential customers are approved for energy efficiency loans currently, on-bill repayment could increase that figure to 95 percent or more. While it is important to increase loan approvals to expand customer access to energy efficiency finance, programs also need to consider the risk that higher numbers of approvals could lead to greater loan default rates.

According to Carey, there are four main components of on-bill repayment, all of which depend on the choices of program developers; programs rarely have all four of them. These components are: a payment which is on the utility bill, a shutoff option for non-paying customers, a requirement that the cash flow resulting from the investment stay positive, and an option to transfer the cost to new property owners. While these components are intended to strengthen on-bill repayment programs, some of them can be controversial and difficult to implement.

Adam Zimmerman, Executive Vice President of Craft3, a community development financial institution which has been the primary lender for the Clean Energy Works Oregon program, said residential customers in Oregon and Washington have been very responsible in repaying their energy loans. Previous utility bill payments are a reliable indicator of future behavior, Zimmerman said. Because of the positive results Craft3’s residential lending program has achieved, using utility payment history as a qualification, Craft3 dropped its required credit score to 590 and does not have income requirements. Using these criteria, Zimmerman estimated, a large state like California could increase program enrollment levels by 25 percent.

“A lot of energy efficiency programs haven’t generated as much demand as those of us in the environmental community have wanted them to,” said Brad Copithorne, Energy and Financial Policy Specialist at Environmental Defense Fund. He believes on-bill repayment programs can increase demand for energy efficiency and drive private sector investment in both the residential and commercial sectors.

Bill Codner, Program Manager at National Grid, said he is excited about bringing lenders on board to support energy efficiency programs. He has a goal of expanding National Grid’s commercial and industrial on-bill repayment program by a factor of two or three this year — if he can get sufficient funding from lenders to do so.

“We are seeing strong uptake on the two coasts,” Carey said. He has observed that regulators on the east and west coasts tend to be more supportive of innovations in financing, including on-bill repayment, although all programs are still in their infancy. While National Grid has strong support from regulators in Massachusetts, that is not always the case for utilities in other states. In Oregon, legislation paved the way for the Clean Energy Works Oregon program.

Driven by requirements from the state’s Public Utilities Commission, California is developing on-bill repayment programs for both the residential and commercial sectors. Copithorne played a large role in developing the blueprint for the state’s on-bill repayment program. He said he hopes other states will copy California’s program and “have it go viral as soon as possible.”

Environmental Defense Fund is also collaborating with stakeholders in Ohio and Texas; the initial results have been positive despite the political differences between the states. Copithorne said on-bill repayment has broad political appeal because it is both business-friendly and environmentally positive.

“In the end, this all boils down to a dialogue between regulators and utilities,” Carey said.? He said regulators in many states seem reluctant to allow utilities to begin on-bill repayment programs. “There’s always trepidation about risks and unknowns. In the end, there has to be an economic reward,” Carey said.

Utilities are also cautious about starting on-bill repayment programs, which require changes ?to their IT and billing systems. Copithorne is working with stakeholders to build support for a statewide program in California; he said he considers it essential to make the on-bill repayment process easy for both utilities and their customers. He also said utilities want to protect their reputations and customer relationships.

Copithorne emphasized that utilities can focus on their core competencies and play the role of middlemen rather than becoming deeply involved in financing. He uses the analogy of a Visa card, since Visa is the middleman for transactions between lenders and customers. Similarly, utilities can partner with lenders so they don’t need to become financial experts to offer on-bill repayment programs.

While many utilities are concerned that they may find the cost of making changes to their IT and billing systems to be costly, others have been able to make the changes at a relatively low cost. For example, according to Zimmerman, the Oregon and Washington utilities which collaborate with Craft3 found the cost of altering their billing systems to accommodate on-bill repayment to be very reasonable.

Craft3’s programs are designed to minimize the risk to utilities’ reputations. Zimmerman is skeptical of programs which promise customers a net neutral or net positive return (also known as bill neutrality). He said the utilities he works with are cautious about promising bill neutrality due to the many uncertainties inherent in energy efficiency retrofit projects.

Customers hesitate to participate in programs for many reasons, including the cost of upfront capital investment. For example, Codner is interested in starting the first on-bill repayment program for natural gas in the United States. However, according to Codner, natural gas poses a financing challenge because the payback period for the customer investment is longer than it is for electricity. In the current economic climate, National Grid’s commercial and industrial customers are reluctant to initiate programs unless the payback period is short-term.

Making the loan application process user-friendly is essential. Copithorne said he would like to see the private sector make it as easy as possible for utility customers to apply for loans. Ideally, the process might become as easy as applying for an auto loan. When a customer goes in to purchase a car, an employee takes down his or her information and provides loan options before he or she leaves the building. Auto dealerships offer same-day service.

Energy services agreements – where an intermediate company sells energy services to a customer and shoulders the burden of the risk – can reduce commercial building owners’ reluctance to participate in programs, said Copithorne. A building owner may lack the upfront cash for upgrades, the lease may require the owner not to borrow, the owner may not be able to pass on costs to the tenants, or the owner may simply be skeptical of salespeople. Copithorne believes that energy services agreements can solve some of these problems and should be part of commercial on-bill repayment programs.

National Grid targets its loans selectively to reach commercial customers who might otherwise not participate in programs. Codner said, “Our goal is not to provide zero-interest loans for everybody. Our goal is to get those companies that would not move forward with a project to do something. A lot of companies have capital constraints.”

Zimmerman said cash rebates may be more effective, from a residential sales perspective, than buying down interest rates. “Free money brings people to the table as customers,” he said.

This story was originally published by the Clean Energy Finance Center (CEFC). You can subscribe to future stories from the Clean Energy Finance Source by visiting the CEFC's news page.

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A123 shows submission fight to extend smarts factory building

A123 of submission immediately became a campaign issue, because the Obama management $249,1 million in the form of grants three years promised earlier to help the company, the jobs and factories to US Republican Mitt Romney campaign the President to bring Barack Obama errors in economic policy pointed to the insolvency as an example.
It produced the company, co-founder of a 26-year-old from the Massachusetts Institute of technology, defective batteries, the its most important customers, Fisker Automotive Inc., to recall hundreds of $103,000 forced cars. The technology will not disappear: Johnson Controls Inc., a Partsmaker based in Milwaukee, has offered A123 buy car battery business.

"This shows how difficult it is to bring this battery revolution underway," said Ed Kim, analyst at AutoPacific Inc. in Tustin, California.
The bankruptcy followed the attempt, a majority stake in a Chinese company, A123 on the for sale, which fell by Congressional Republicans in the midst of control apart. The offer by Johnson Controls approved by a U.S. bankruptcy court be and could be crowned by a rival bidder.

Given the number of battery manufacturers and even less demand for electric cars, "war of attrition was pretty much a given," Kim said. The surprise was that A123, with State support and fine minds behind it, "the game so quickly would."
'Common' consolidation

They sell themselves to Johnson Controls, A123 would more proven industrial enterprises in the hands of one end that can use its electric car technology in so-called start-stop batteries for hybrid and traditional vehicles. The sale to Johnson Controls base holds the US investment in battery technology and a local production for at home rather than potentially losing it to China.
"In an emerging industry, it is very common that some companies with others to consolidate as the industry grows and matures," Dan Leistikow, a spokesman for the Energy Department, wrote in an Oct. 16 blog entry on the website of the Agency. Johnson Controls potential buy "means that the A123 continue to be production facilities and technology a vital part of America's advanced battery industry."

A123 was in 2001 by the then-26-year-old entrepreneur Ric Fulop and scientists yet-Ming Chiang am with founded. The company, initially funded by a grant of $100,000 from the Department of energy, owes its name to the Hamaker constant force to calculate the attractive and repulsive forces between the particles in nano dimensions.
Vue, Volt

In the beginning, A123 made batteries for power tools with companies such as Stanley Black & Decker Inc., the world's largest manufacturer of cordless tools. The company expanded its product portfolio for the production of hybrid and plug-in batteries for vehicles after investment by companies such as General Electric Co. and Procter & Gamble Co.
In January 2007, General Motors Corp., the Detroit-based automaker said before its own insolvency, said that A123 Hybrid Vue Green batteries for a plug-in Saturn line would provide. In August 2007, GM said that it would document Volt cells with A123 for Chevrolet.

These two deals are finally charged. GM gutted the batteries, which developed it together with A123 against those of South Korea's LG Chem Ltd. Seoul selected In January 2009 GM - based LG Chem to make the packs. The Saturn brand was in the same year as part of which eliminates automaker bankruptcy.
Federal

A123 $1.84 billion in federal loans in January 2009 applied to build the first U.S. large-scale installations for the supply of rechargeable hybrids and electric cars. The company said that it would planned to eventually spend $2.3 billion on U.S. factories, which employ 14,000 people. His Oct. 16 message listed it 1,763 employees at 10 locations in Germany, China, and the United States.
Seven months after A123 is applied for loans, President Obama announced that the company among the recipients of the $2.4 billion in the federal funding for the promotion of hybrid and electric vehicles, would be getting $249,1 million of those funds.

"This is about the birth of an entire new industry in America-an industry which be central to the next generation of cars,", Obama said Jennifer Granholm in a September 2010-call with A123 CEO David Vieau and then Michigan Governor. The call was during the opening of a factory in Livonia, Michigan on speaker celebrates an event played.
"Made in America"

"If people bring their hoods on the cars of the future, I want to see engines and batteries that are stamped: made in America" Obama said, according to a transcript provided by the White House.
Obama had set a target of 1 million electric vehicles on U.S. roads by 2015. With less than 50,000 sold, this number seems out of reach.

A123 landed $249,1 million received $132 million Department of energy grant, the funds to build plants in Livonia and Romulus, Michigan. The company sold the first stock to the public in September 2009 GM, Shanghai Automotive Industry Corp., Bayerische Motoren Werke AG and Chrysler Group LLC are among its customers.
While A123 boasted an impressive list of customers, the money was another thing. The brochures, the company said it had never profitable, had a history of losses and "may be impossible to achieve or sustain profitability."

Investors flocked
The risks are not investors. A123 about 380 million $ for the company and its investors receive $13.50 per share in the IPO to increase its selling price at least twice thrown. 50 Percent increased shares in the first day of trading, Castle at $20.29.

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