Inclusive Utility Investments (Including Pay-As-You-Save®)

Inclusive utility investments provide support for cost-effective energy-saving measures through an energy service charge attached to the site, rather than a loan to the resident.

Table Of Contents
  1. Why This Matters
  2. Policy Solution
  3. Model Policy Features
  4. Potential Limitations & Pitfalls
  5. Complementary Policies
  6. Additional Information
  7. Examples
  8. Resources
COMMUNITY BENEFITAffordability, Decarbonization
KEYWORDSClean energy, Financing, Decarbonization, Distributed energy, Efficiency, Electricity, Methane gas, Utility bills
REGIONState, Local
AFFORDABILITY STRATEGYFunding/Financing, Residential Decarbonization
OVERSIGHTUtility Commission
POLICY MECHANISMLegislation, Regulation 

Why This Matters

Investments in clean energy measures in buildings, 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, as well as small businesses and other organizations. Many existing financing approaches for such investments are inaccessible—due to credit score, landlord-tenant split incentives, or other barriers—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, many financing mechanisms leave households uncertain about whether upgrades will raise bills or with no mechanism to ensure fair pricing and quality installation.

Policy Solution

Inclusive utility investments—the most common approach being the Pay-As-You-Save® (PAYS) model developed by the Energy Efficiency Institute, Inc.—increase access to clean energy by overcoming many of these challenges. A utility makes an investment in clean energy upgrades at a home or business, and recovers those costs through an energy service charge that is less than the estimated bill savings under the terms of the utility agreement. Once the utility recovers its costs, the customer enjoys even greater bills savings. Because the investment takes the form of a utility service, there is no personal debt or lien on the property. Any approved upgrades should have third-party verification that cost savings will exceed on-bill energy service charges, accompanied by utility commission oversight.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—and recover their costs through an energy service charge on the customer’s bill.
  • Potential participants receive a site audit to identify cost-effective energy and efficiency upgrades, and choose their preferred package of measures.
  • The monthly service charge level is fixed and the annual total cannot exceed 80% of the estimated annual bill savings from the clean energy upgrades.
  • The duration of service charges is designed to end well before the expected end-of-life of the implemented measure (e.g. at 80% of projected life or earlier for longer-lived measures like insulation), at which point ownership of the upgrade is automatically transferred to the homeowner (repossession is prohibited).
  • If an energy upgrade measure is too expensive to meet the payback requirements—i.e. It doesn’t produce enough bill savings to fully cover the costs—the household can choose to pay for part of the upgrade up front, such that the remainder of the cost qualifies for utility investment; this potential upfront cost can in some cases be mitigated by rebates or incentives, which must be applied first.
  • The investment is part of the utility’s energy service at the site, so if someone moves, the next occupant assumes the remaining service charges.
  • Service charges are suspended during any vacancy, if the meter is stopped, or if the clean energy measure stops working, until that measure is repaired or replaced.
  • Does not require credit checks, nor affect a customer’s credit, as it is not a debt obligation.
  • Investment is stackable with other incentives.
  • Low-income customers are provided with access to all existing non-loan alternative programs (such as grants or no-cost direct installation) to access necessary upgrades before an inclusive utility investment offer is made, as well as provided opportunities to integrate bill assistance and other affordability measures.
  • While PAYS® is the most commonly adopted form of inclusive utility investments, community input can also help identify program design elements or changes that meet local needs and priorities, such as inclusion of a broader range of technologies (e.g. solar and energy storage).

Potential Limitations & Pitfalls

  • One study of an existing program from Midwest Energy showed that, for that program, average energy efficiency savings from upgrades were 83% of estimated savings. Moreover, some houses did not experience net bill savings. These outcomes may have resulted, in part, from program features such as a 90% cap for service charges (rather than 80%), and a cost escalator in assumptions about future rates. Without additional analysis it is unclear how much of this increased usage might have also been associated with behavioral changes (e.g. addition of new inhabitants or appliances at a given location, which can confound this type of analysis).4
  • Strong consumer protections are required to ensure net bill 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—increasing the upfront copayment that customers may have to pay should they choose to participate.
  • If estimated savings are based on projected energy prices (instead of current energy prices, as required in the PAYS® model), and these increases do not materialize, it could negatively affect realized savings.
  • Savings targets may not be achieved with insufficient guardrails and quality controls, such as failure to use standard and field-validated energy modeling software. Such quality control is important to not only provide customers with net savings but also because non-payment for a utility bill, inclusive of service charges, can lead to utility shutoffs under a utility’s existing shutoff rules.8 
  • Transparency, education, and outreach are needed to ensure recipients are aware of any existing grants and incentives and use these first rather than using inclusive utility investments as a substitute.9

Complementary Policies

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

  • Weatherization, solar (+storage), and efficient residential electrification measures which may be financed directly with inclusive utility investments or stacked with grants or incentives from relevant programs.
  • Disconnection protections, bill assistance, low-income rates, and arrearage management plans to further help customers afford their bills and protect them from higher-than-expected bills.
  • Pre-weatherization and electrification readiness programs to cover up-front home repair costs and enable households to install measures covered by inclusive utility investments.

Additional Information

As of 2024, 12 states had inclusive utility investment programs or pilots.10

Examples

1. Midwest Energy How$mart® Program – How$mart®

Details:

  • Includes monthly service charges paid to Midwest Energy electricity and/or gas customers for energy efficiency upgrade measures such as insulation, heating, and cooling, following the PAYS® model (charges end when the utility’s costs are recovered).
  • Accessible to renters if both landlord and tenant agree.
  • Recipients must be in good standing on utility payments.11
  • Service charges capped at 90% of estimated savings annually under the tariff for the utility’s investment. 
  • Average payback period is 15 years, longer than many other programs.
  • 73% of households had a copay to pay some of the upfront costs of the project.
  • Service charges are reduced or eliminated if the implemented measures do not work properly.
  • An evaluation of installed measures reduced annual electricity by 15% and gas by 26% on average, but were somewhat lower than expected: total savings were 83% of what were estimated before implementation.
  • Cost savings are higher in summer and winter, when bills tend to be highest, helping smooth out utility bill payments.12

LIMITATIONS:

  • Does not apply to houses that do not attach to the foundation (e.g. certain mobile homes).13
  • While the majority of households saw energy savings, only half of households saw cost savings that covered their annual service charges—likely due to a mix of changing gas and electricity prices (lower prices than projected yield lower cost savings), changes in occupant behavior, and higher-than-standard level of estimated savings (90% rather than 80%) that can be included in the cost recovery tariff.14

2. Duke Energy Improve and Save Program15

Details:

  • The program is available to Duke Energy electricity customers, including both renters and homeowners if both landlord and tenant agree.
  • Recipients receive a third-party energy audit to estimate the savings associated with energy efficiency upgrades, such as HVAC, duct sealing, insulation, and heat pump water heaters.
  • Customers may pay a portion of the investment up front, some of which may be offset through additional federal or utility-provided incentives.
  • The remainder of the clean energy investment is recovered through on-bill service charges, which are part of the utility’s services at the location (regardless of whether the occupant changes).
  • Cost recovery period is set at 10 years.

LIMITATIONS:

  • Does not apply to gas customers.

Resources

  1. Energy Efficiency Institute, Inc. (2021). PAYS essential elements and minimum program requirements. ↩︎
  2.  Energy Efficiency Institute, Inc. (2021). PAYS essential elements and minimum program requirements. ↩︎
  3. Clean Energy Works. (2023). Introduction to inclusive utility investments. ↩︎
  4. Deason, J., Murphy, S., & Leventis, G. (2024). Participant outcomes in residential Pay As you Save® programs. Lawrence Berkeley National Laboratory. ↩︎
  5. Clean Energy Works. (2023). Introduction to inclusive utility investments. ↩︎
  6. National Consumer Law Center. (2023). Tariff-based On-Bill Financing: Assessing the Risks for Low-Income Consumers . ↩︎
  7.  Energy Efficiency Institute. (2021). PAYS essential elements and minimum program requirements. ↩︎
  8. National Consumer Law Center. (2023). Tariff-based On-Bill Financing: Assessing the Risks for Low-Income Consumers . ↩︎
  9. EnergyStar. Inclusive Utility investment. Accessed: December 10, 2025. ↩︎
  10. U.S. Environmental Protection Agency. Inclusive Utility Investment. Accessed: September 30, 2025. ↩︎
  11. Midwest Energy. How$mart® Q&A Sheet. Accessed: September 29, 2025. ↩︎
  12. Deason, J., Murphy, S., & Leventis, G. (2024). Participant outcomes in residential Pay As you Save® programs. Lawrence Berkeley National Laboratory. ↩︎
  13. Midwest Energy. How$mart® Q&A Sheet. Accessed: September 29, 2025. ↩︎
  14. Deason, J., Murphy, S., & Leventis, G. (2024). Participant outcomes in residential Pay As you Save® programs. Lawrence Berkeley National Laboratory. ↩︎
  15. Duke Energy. Improve and Save. Accessed: September 30, 2025. ↩︎