On-bill financing: Why isn’t everybody doing it?

Elisa WoodBy Elisa Wood
December 15, 2011

If someone told me they could improve the efficiency of my computer so that it operates quicker, at no extra cost to me, I can’t imagine I’d turn them away. Yet, the energy efficiency industry offers a similar option for homes and businesses and at least so far, consumers aren’t flocking to the programs.

On-bill financing gives customers the ability to finance energy efficiency improvements made to their homes and businesses at no upfront cost. Customers pay for the insulation, lighting, new heating system or other efficiency measure over extended terms on their monthly utility bills. Typically, the savings from the efficiency improvement offset the cost, so the customer sees no increase in the monthly utility bill. You get a building that uses less energy and yet experience no financial pain in doing so.

There is no catch here. It sounds like a good deal for the consumer and early reports indicate it is. So why aren’t consumers interested?

A new report by the American Council for an Energy-Efficient Economy takes a close look at 19 on-bill financing programs offered in 15 states.  In many cases, less than 1 percent of eligible customers choose to participate in these programs.

The concept is just beginning to take hold, so the problem may simply be lack of awareness, says Casey Bell, lead author of the report.

“The growth of these programs depends on a number of factors. We are seeing a trend where they are emerging in more states. While I profiled 19 programs, we found 31 in 20 different states. A lot of these programs are still new, and many are still in the pilot phase,” Bell said.

Indeed, when it comes to energy, it’s not easy convincing consumers to accept new ideas, even those that directly benefit them, as behavioral scientists made clear at an ACEEE-sponsored conference on energy use and behavior in Washington, DC earlier this month. Even if they read the brochure from their utility, watch a TV commercial and spot a sign on the bus, they still are slow to respond.  What does convince them? A chat with a neighbor who tried the program, a push by their church, community or social group, a direct knock on the door by a real live person.

So to improve participation levels, it may be matter of more utilities offering more on-bill financing programs and then being patient; it may take some time for participation to snowball.

Will this happen? Can you expect to see your utility offer on-bill financing any time soon? The ACEEE report points out various reasons utilities are hesitating. Not surprisingly, money is a big issue. Utilities see less opportunity to finance an on-bill program, especially now that government funds are dwindling.

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December 15, 2011 | | Tags: , , | 3 Comments »

Fixing people, not just buildings

Elisa WoodBy Elisa Wood
December 7, 2011

Electric utilities operated under a rarified business model for decades. Their customers were captive so they rarely had to think about what motivated them to buy. New government energy efficiency mandates have changed that, and done so with an ironic twist. Now utilities must figure how to get their customers to refrain from buying.

It’s not easy persuading people to stop using something they like as much as electricity. But behavioral science is coming to the rescue – or at least trying to – as was apparent at the Behavior, Energy & Climate Change conference held in Washington, DC, November 29 through December 2.  About 650 people attended, many of them scientists, university researchers and college students, ready to tackle energy efficiency’s biggest hurdle: human nature.

“The challenge that we have is not just to fix the buildings; we have to fix the people who live work and play in those buildings. We have to fix us,” said Brian Keane, of SmartPower.

While behavioral scientists and economists have only begun their work, it’s already clear that utilities and government programs approach energy efficiency wrongheaded. They tend to talk about why energy efficiency is good for them, not the customer, why it makes the electricity grid function better or achieves government’s environmental goals.

The makers of Tide laundry detergent don’t tell customers they should buy the product because it makes the company lots of money, pointed out Lisa Skumatz, a Colorado-based economist. If the energy industry continues to sell energy efficiency as good for utilities, good for the environment, good for government, it will reach only a very narrow audience.

Utilities also must stop listening to what people say and instead focus on what they mean. But how do you do that? Jane Hummer of Navigant Consulting demonstrated how to analyze comments people post online to get at what they really think. “Consumers are increasingly narrating all aspects of their lives online,” creating “a free focus group that you can analyze at your leisure,” she said.

Don’t take what they say online at face value – after all many hide behind anonymity and therefore tend to speak in extremes – but “get at the underlying sentiment,” she said.

Using a spreadsheet and key word search, she analyzed comments posted from articles about smart meters in the Wall Street Journal and New York Times. In some states, consumers oppose smart meters, fearing they harm health and impinge on a homeowner’s privacy.  Funny thing about the privacy concerns…some of the people who write that they are worried about privacy in the same post reveal details of their lives on line: their political affiliation, where they live, what they do. So is privacy really their concern?

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December 8, 2011 | | Tags: , , , , , | 4 Comments »

Know true costs; Save real energy

Cara MialeBy Guest Blogger Kara Saul Rinaldi

November 30, 2011

More than half of the states in the nation have created programs to increase the energy efficiency of homes through a comprehensive approach that looks at all opportunities to save energy, from insulation to upgrading heating and cooling systems. When taxpayer and ratepayer dollars are used, it is essential that these programs are reviewed with a cost-effectiveness test that provides policymakers with adequate knowledge about the programs’ effectiveness. Unfortunately, in many states, the testing system is deeply flawed. The way cost-effectiveness tests are currently applied frequently hinders the design and implementation of residential energy efficiency programs, particularly programs intended to support comprehensive energy efficiency upgrades.

For three decades, the Total Resource Cost (TRC) test has been the principle screening tool that regulators have used to assess the cost-effectiveness of energy efficiency programs and make decisions regarding the use of ratepayer dollars to support the programs. Unfortunately, the way the TRC test is applied often leads to support for single-measure programs rather than whole-house retrofits – despite the fact that the whole-house approach actually delivers deeper and more cost-effective energy savings.  Because of this, the TRC test, when poorly applied, impedes the realization of significant, cost-effective energy savings through state-run energy efficiency programs.

In general, whole-house programs do not tend to score as well in the TRC test as single-measure programs that encourage highly cost-effective measures, such as lighting. This is due in part to the different ways in which the TRC test is implemented, some of which cause particular difficulties for whole-house programs. The TRC test typically includes participant contributions to the cost of an energy efficiency upgrade, resulting in a poor score for a highly leveraged whole-house program – even if leveraging public dollars with private investment is generally seen as desirable in other contexts. On the flip side, the TRC test fails to capture the full benefits of energy efficiency, such as increased comfort, which are frequently significant, although difficult to quantify. To make matters worse, the TRC is sometimes used to screen each individual measure or project, which might sound cost-effective in practice, but creates confusion about what jobs are eligible, decreases customer interest, and adds to a program’s administrative costs.

New York, which for years has been a leader in home performance programs, recently implemented a rule requiring application of the TRC at the measure-level. As a result, the program’s output is declining after years of steady growth. Elsewhere, the application of the TRC has discouraged the creation of strong whole-house energy efficiency programs, or has forced program administrators to develop create programs designed to pass cost-effectiveness tests, rather than to deliver real energy savings to homeowners.

So what should be done to ensure the cost-effectiveness of energy efficiency programs across the country is more accurately evaluated?

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December 1, 2011 | | Tags: , , , | 3 Comments »