On-Bill Financing/Repayment

To be eligible for OBF or OBR, a project must be in the coverage area of a utility that supports on-bill transactions. To learn if they are available in your area, see:
-National Conference of State Legislatures on-bill summary
-Database of State Incentives for Renewable Energy (locate your state for a list of incentives, which may include on-bill financing)
-Contact your local utility to inquire about on-bill programs in your area

In both OBF and OBR structures, the utility collects repayments from the end customer via its monthly utility bill. The distinction lies in the source of capital. OBF programs use public money, ratepayer funds, or utility shareholder funds to pay for projects, and this capital typically comes at interest rates that are very low or even 0 percent. OBR programs use private capital from third-party investors instead. OBR capital typically comes at a higher interest rate than OBF, though it is often cheaper than the market rate for loans due to the added security provided to investors by attaching the repayment obligation to the customer's utility bill. Somewhat confusingly, the term "on-bill financing" is often used as a shorthand to refer to both types of programs. On-bill programs vary by state and by provider, and each program has its own terms and processes.

In a typical OBF or OBR transaction, the capital to implement the project is provided to the customer by the utility or investor. On-bill programs may require that customers select from a list of pre-approved contractors to perform the installation, and they can sometimes work in tandem with rebate programs to reduce the total cost that must be financed. Once the project is complete, the borrowed funds are repaid each month on the customer's utility bill for a set term that can range from 2 to 15 years. The energy cost savings from the project are usually large enough to offset the on-bill repayment charge, making the new utility bill equal to or less than the old bill. The customer's obligation to make repayments is typically collateralized by both the installed equipment and by the possibility that the utility can discontinue service if the customer fails to pay.

On-bill structures vary widely and have differing pros and cons for customers, including balance sheet treatment and transferability. Depending on the on-bill program, the underlying financing can be characterized as a loan or tariff, and less commonly a lease or energy services agreement. In a loan structure, the loan is tied to the customer and cannot be transferred in the event of a property sale. Tariffs, on the other hand, are tied to the utility meter and may be transferred to a new party if the original owner or renter sells or leaves the building. For more detailed discussion of varying on-bill structures, see ACEEE's On-Bill Financing Toolkit.

ADVANTAGES

CONVENIENT STRUCTURE-On-bill agreements are typically very simple and making repayments directly on the utility bill is convenient. Most customers see a reduction or no change in their bill.

FAVORABLE TERMS-Low-to-zero interest rates are available in many on-bill programs. Because of the security that on-bill provides to utilities and investors, they can sometimes offer flexible repayment terms ranging from 2 to 15 years.

GREAT FOR LEASED SPACE-So long as the customer is billed by the utility or is authorized to be considered an extension of the utility customer, on-bill is a viable option for those in leased space.

TRANSFERABILITY IF STRUCTURED AS A TARIFF-There is flexibility for customers who wish to move out of their building, as the repayment obligation can be passed along to future tenants if structured as a tariff.

DISAVANTAGES

LIMITED SCALABILITY-On-bill programs are only offered by select utilities, and program specifications vary by utility. Therefore, on-bill may be difficult to implement as a portfolio-wide initiative.

PROJECT SIZE CAP-On-bill financing programs are not suited for very large projects. Most will not serve projects above $350k.

POWER LOSS FOR NON-REPAYMENT-The consequence of non-repayment is utility disconnection.