Challenge

Investments in residential clean energy technologies, in particular energy efficiency measures, can reduce energy consumption, bills, and greenhouse gas emissions, but often require high upfront investment costs. These upfront costs may place clean energy upgrades out of reach of low- and moderate-income households. Many existing financing approaches for such investments are inaccessible—due to credit score or other requirements—or pose a risk to consumers by placing a lien on a house (risking foreclosure in case of nonpayment) or a personal loan that could contribute to poor credit in the case of an inability to pay. Moreover, protections are needed to ensure that any investments achieve projected energy and bill savings, rather than driving up costs for households.

Policy Solution

Inclusive utility investments—the most common approach being the Pay-As-You-Save® (PAYS) model developed by the Energy Efficiency Institute, Inc.—finance clean energy upgrades through an on-bill tariff that is attached to the energy meter, rather than a lien on the house or a loan to an individual. Any approved upgrades must have an independent party verify that estimated cost savings will exceed the on-bill tariff.¹

Model Policy Features

Below, we describe some of the core elements of the PAYS® model, which is the most commonly adopted form of inclusive utility investments. PAYS® programs require meeting all of the specified Essential Elements and Minimum Program Requirements.²‘³

• In PAYS® programs, utilities can invest in residential clean energy upgrades—most commonly, lighting, heating, cooling, and weatherization—which the customer pays back on their utility bill.
• Potential customers receive a site audit to identify cost-effective energy and efficiency upgrades, and choose their preferred package of measures.
• The monthly repayment level is set such that site-specific estimated energy and efficiency savings from clean energy upgrades exceed the repayment costs (e.g. such that annual repayment is no more than 80% of annual cost savings).
• The repayment schedule is designed to end well before the expected end-of-life of the implemented measure (e.g. at 80% of projected life), at which point ownership of the upgrade is transferred to the homeowner (repossession is prohibited).
• If an energy upgrade measure is too expensive to meet the payback requirements, the household can pay for part of the upgrade up front if they choose, such that the remainder of the cost qualifies for the financing; this upfront cost can in some cases be offset by rebates or incentives.
• The financing is attached to the site of the meter, and transferred to the next utility bill-payer, rather than attached to the person or the house.
• Repayment is suspended during any vacancy, if the meter is stopped, or if the clean energy measure stops working, until that measure is repaired.
• Does not require credit checks, nor affect a customer’s credit.
• Financing is stackable with other incentives. 
• Low-income customers are provided with access to all existing non-loan alternative programs (such as grants) to access necessary upgrades before relying on tariff on-bill financing.

Potential Policy Drawbacks and Pitfalls

• Studies of existing programs show that average energy efficiency savings are somewhat lower than estimated, and some houses may even show an increase in energy usage after clean energy investments are made—although in many cases these demand increases are related to other behavioral changes (e.g. addition of inhabitants at a given location).⁴
• Strong consumer protection guardrails are required to ensure real savings after implementation, such as active oversight of project quality,⁵‘⁶ and requiring that the annual investment payback amount is no more than 80% of annual savings;⁷ however, the more stringent these requirements, the fewer measures will qualify—requiring customers to instead pay a larger share of the investment up front for measures that they wish to implement that are somewhat less cost-effective.
• Customers who are already on discounted low-income utility rates may take much longer to pay back any implemented measure, resulting in fewer measures being financeable using this model.
• Estimated savings are based on projected energy prices, which can be volatile and affect realized savings.
• In many cases, lack of loan repayment can lead to utility disconnections; consumer protections can be enhanced by prohibiting disconnections for nonpayment of the on-bill financing portion of the bill.⁸

Complementary Policies

Policies that may support inclusive utility investment effectiveness or provide customer protections include: 

• LMI home electrification programs, pre-weatherization, disconnection protections, arrearage management plans

Additional Information: As of 2024, 12 states had inclusive utility investment programs or pilots.⁹