Long-Term Financing Option to Entice Energy Efficiency, Clean Energy Projects
Originally published January-February 2011
Even in Burlington, Vt., where annual electricity consumption is only about 1 percent greater than it was two decades ago, homeowners shy away from making home improvements that decrease emissions and increase energy efficiency because of the expense.
Through a Demonstration of Energy-Efficient Developments grant, the Burlington Electric Department is trying to make renewable energy and energy efficiency projects more enticing by eliminating prohibitive up-front cost and allowing customers to pay for these improvements for a period of up to 20 years.
“We tried a variety of solar programs over the years that were prohibitive because of cost,” said Tom Buckley, BED’s manager of customer and energy services. “This is a way that people can afford solar collectors that can be paid from their savings in real-time.”
“We never came close to that with conventional financing,” he said.
Financed through an addition to customers’ property tax bills, the program involves creating special assessment districts, where customers can opt-in and choose to have the tax added to their bills upon completion of each project. If the homeowner moves to a new house before the project has been paid in full, the next homeowner would assume the payment on their property tax bill, along with the benefit of a more efficient system and a smaller carbon footprint.
“As long-time implementers of energy efficiency programs we have always been looking for a way to give customers a financing mechanism to make these improvements,” said Chris Burns, BED’s director of energy services.
The DEED grant has, specifically, allowed the utility to research and design a pilot project to test the idea, as well as to develop a how-to guide for other public power utilities looking to do the same.
The idea for the program came through a federal model: the Property Assessed Clean Energy (PACE) program. And also from the expertise of Marrian Fuller, a graduate student from the University of California at Berkeley who helped to implement a PACE program in Berkeley, Calif. Fuller worked with Vermont Energy Investment Corporation—which handles all of Vermont’s energy efficiency programs outside of Burlington—in summer of 2008 and advocated for a similar program in Burlington.
Rebranded locally as the Burlington POWER Program (Property Owners Win with Energy Efficiency and Renewables), the initiative has earned widespread support locally. Advocacy efforts conducted by BED, VEIC and the Burlington’s city attorney’s office resulted in the passage of enabling state legislation in June 2009. Following passage, the advocacy team garnered support from City Hall, and city voters approved the creation of Burlington as a clean energy assessment district in March 2010. BED’s marketing department has been actively educating residents at neighborhood planning meetings, through newsletters and through the BED website.Despite its popularity in some states and support from the Department of Energy, the PACE program faces opposition from the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac.
There are two main concerns, said Burns, “competition and prudency.”
There is “competition to home equity lines and lines of credit for home improvements,” he said. And also the uncertainty that the improvements are going to save as much money as they are forecasted to, and, in the end, if homeowners are going to be able to pay for the improvements and their other bills.
“Rigorous energy efficiency programs are able to provide customers with objective and accurate energy savings estimates. Many efficiency programs, like BED’s, are subject to independent measurement and verification processes from regulators to help to ensure accuracy,” said Burns.
“We are enthusiastic about the potential and support in Washington for solving these problems,” said Buckley. “Keep in mind that there are a lot of communities out the door with these things.”
BED has been exploring a variety of local sources for municipal funding, including banks, bonding, and the use of undesignated city funds. BED is negotiating with the Vermont Community Loan Fund to finance projects for low- and moderate-income residents, and also with several local banks for all other projects.
BED insists that public power utilities are a natural fit for leading PACE programs.
“Communities and public power systems can be particularly attractive locales for establishing PACE programs,” said the most recent DEED report on the project. “In many of the communities, the public power system is already collaborating with the host community to access municipal or other government bonding. The power system may also be working with the community to encourage efficiency and meet climate change or sustainability goals.”
The report recommends that public power communities interested in a PACE program have systems in place to implement, measure and verify energy efficiency programs, and also a certified network of skilled and experienced contractors who work on energy efficiency projects.
BED has invested about $30 million over the last 19 years in energy efficiency projects and customers support energy efficiency programs in their city by paying a small monthly fee.
“Everyone would like to see it move forward,” said Buckley. “Those who have funding sources in place have to keep going.”
BED estimates that the cost of financing the Burlington POWER Program for 10 years would be about $4.7 million.
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