New York has passed the first statewide "on-bill recovery" program that will allow homeowners to finance energy-efficiency upgrades at almost no cost. Private loans will pay for energy efficiency improvements, and homeowners will make loan payments as part of their monthly utility bills. Because the financed improvements should lower energy bills, there should be little or no increase in the average cost consumers pay.
Like many states, New York already offers subsidized home energy audits and low-cost loans to encourage homeowners to improve their home's energy efficiency. On-bill financing will expand access by setting a lower bar for participation; while only homeowners with high credit scores qualify for other loan programs, homeowners will most likely need only prove they pay their mortgage and utility bills on time to qualify for on-bill financing, according to Dave Palmer, executive director of Center for Working Families, which helped design New York's program.
"One of the biggest barriers to energy efficiency is people just don't have the upfront capital to pay for home retrofits that will save money," Palmer said. "The program is designed to provide that homeowner with capital, and they can pay that off on their utility bill."
The process starts with a home energy audit by a certified contractor, who will help homeowners define which upgrades will be cost-effective. In most cases, that will mean air sealing (caulking) work, insulation installations, heating system improvements or replacements, and solar thermal hot water system installations, according to Emmaia Gelman, the green economies strategist for Center for Working Families. But, particularly where electricity rates are higher, solar photovoltaic panels may be cost-effective, and the particular upgrades to any home will be determined by that home's energy audit.
"This program is a great idea because it negates or offsets upfront costs which often push homeowners away from otherwise logical investments in energy efficiency," said Erik Eibert, a test engineer in the Good Housekeeping Research Institute's Consumer Electronics and Engineering Lab.
Homeowners can qualify for 15-year loans of up to $25,000, provided, Gelman said, that the energy audit predicts that the improvements will be cost-effective and that the life of any new equipment will exceed the terms of the loan. Homeowners can qualify for loans of up to $13,000 for improvements that have a payback in energy savings of greater than 15 years.
If a homeowner gets a loan and then moves, the loan would stay with the home, and become the responsibility of the new homeowner if it isn't settled at the time of sale, Palmer said.
PACE (Property Assessed Clean Energy) programs were similar, in that they were designed to finance home renewable energy projects and incorporate loan payments in mortgage bills. PACE programs stalled, however, when Frannie Mae and Freddie Mac objected. On-bill financing through utilities should avoid the problem, Palmer said.
"The security for investors is payment on utility bill as opposed to property taxes, so there's no issue about how this debt relates to the mortgage," he said. "This positions New York to be model for the nation. With PACE temporarily or permanently crippled, on-bill is the way to bring energy efficiency to scale."
The state will negotiate with private lenders to set the loan rates, and it will back defaults with part of a $112 million fund financed by the Regional Greenhouse Gas Initiative, a multi-state carbon cap-and-trade program that limits emissions from power plants. (RGGI, as it is known, has been under fire in several states as lawmakers have either raided funds that had been dedicated to energy programs of this kind, or small-government advocates have opted out of the program.)
This isn't the first on-bill recovery program of its kind, but it will be the largest when it starts, within a year. Other programs include Portland's Clean Energy Works Oregon, which has helped hundreds of homeowners make energy efficiency improvements; the Tennessee Valley Authority's EnergyRight Solutions program, which finances heat pump upgrades in five states; and Midwest Energy's How$mart program, which, finances whole-house energy upgrades to its customers in Kansas.
For details about New York's program, check in with the New York State Energy Research and Development Authority as it develops the program. In the meantime, find existing offers at getenergysmart.org. For offers in other states, consult with the Database of State Incentives for Renewables & Efficiency at dsireusa.org.
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