On-Bill Loan Programs

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On this page:

• Examples from the Field
• Program Characteristics
• Reaching Underserved Communities and Addressing Consumer Protections
• Roles and Responsibilities
• Getting Started

On-bill loan programs enable utility customers to borrow money for energy improvements, which generate energy savings and allow customers to pay back the investments over time through their utility bills. These programs support customers who lack the capital to pay for projects upfront or cannot afford an increase in bill payments (to invest in improvements) which can be a significant barrier to investing in improvements. On-bill loan programs typically use public money, ratepayer funds, or utility shareholder funds to finance low- or zero-interest loans for clean energy projects.¹ Loans made through on-bill programs are associated with an individual utility account holder who is solely responsible for the repayment. The account holder pays back the loan over time through a charge on their utility bills.²

Loan programs can be structured as either on-bill financing programs or on-bill repayment programs. In both, utilities administer and market the programs to customers. In on-bill repayment programs, a non-utility, third-party financier, such as a bank or credit union, lends money to the customer after completing standard checks to ensure the customer is creditworthy. The utility then collects payments through customer bills. In on-bill financing programs, the utility itself is the lender. This means that the utility has capital available to finance customer improvements and ensures that the customer is creditworthy. On-bill loan programs can be implemented in a variety of ways depending on specific customer and stakeholder needs.

On-bill loan programs generally share the following key features:

• They provide loans to customers to make clean energy improvements.
• They allow customers to pay back the loan to either the utility or a third-party lender through their energy bills.

On-bill loan programs are generally administered by the following entities:

• Utilities work with a city, county, state, or region to develop an on-bill loan program that targets a specific project or customer sector and seek sources of funding to lower the cost of capital for project loans.
• State and utility regulators may need to create enabling regulations to support these programs.

As of 2020, there were approximately 110 utilities in 33 states that had established on-bill programs investing in clean energy improvements.³

Examples from the Field

Illinois Energy Efficiency Loan Program

• This ratepayer-funded program provides energy efficiency loans to residential customers of several investor-owned utilities including Ameren Illinois, ComEd, Nicor, North Shore Gas, and Peoples Gas.
• As of 2022, loans range from $500 to $20,000 and can be repaid over the course of 1, 3, 5, 7, or 10 years.

Butler Rural Electric Cooperative Energy Efficiency Loan Program

• This ratepayer-funded program serves the Cooperative’s 11,000 residential customers in Southwestern Ohio.
• Provides full upfront costs for clean energy project costs including for energy efficiency, air-source heat pumps, and geothermal systems.
• As of 2022, the program offers loans of up to $25,000 for up to 10 years.
• The program has made 500 loans for $7.5 million with defaults under 1 percent.

Washington Utilities and Community Development Financial Institution (CDFI) partnership: Home Energy On-Bill Repayment Program

• In 2011, Seattle City Light and Craft3 developed a nonprofit CDFI to establish an on-bill repayment program that supports clean energy projects.
• Craft3 originates the loans, and Seattle City Light facilitates the loans’ repayment
• A lower interest rate option is available for low- and moderate-income (LMI) households thanks to a subsidy from the City of Seattle.

Southern California Edison (SCE): Business On-Bill Financing

• SCE launched a non-residential, on-bill financing program in 2010 with ratepayer funding.
• The program offers 0% interest loans to customers in government and institutional, multifamily, and business sectors. Customers may participate by retrofitting buildings or installing energy-efficient equipment.
• Multifamily property owners and businesses can borrow $5,000-$250,000. Government and institutional customers can borrow $5,000-$1,000,000. Loans are offered for up to 5 years for businesses and up to 10 years for multifamily property owners, governments, and institutional borrowers.⁴

Tallahassee Energy Efficiency Loan Program

• This program uses public funds raised through the municipal utility’s rate payment structure.
• Residential customers can borrow up to $10,000.
• The program provides on-bill financing for residential and commercial customers for clean energy projects including energy-saving appliances and solar panels.

Program Characteristics

Here are the typical characteristics of on-bill financing.

Program types	On-bill repayment; on-bill financing
Target sectors	Commercial; Industrial; Residential: Homeowners; Public; Nonprofit
Potential funding sources	Private lenders; utility investment; public funds
Security required of borrower	Typically, none; some programs may require a Uniform Commercial Code Filing
Repayment mechanism	Utility bill
Funding needs	Typically, sponsors must provide a high level of funding to make the program successful for a large number of participants
Enabling legislation requirement	May be required

Reaching Underserved Communities and Addressing Consumer Protections

When developing a financing program, considering the needs of underserved communities early in the process can help decisionmakers create a comprehensive financing program and incorporate consumer protections. Decisionmakers can evaluate how and to what extent marginalized communities and considerations of equity have been included in the policymaking process for developing a financing program by considering the following questions:⁵

• Have marginalized communities, consumer protection organizations, and organizations serving marginalized communities participated meaningfully in the policymaking process?
• Does the policy help address the impacts of inequality or inequity, or does it widen existing disparities?
• What are the barriers to more equitable outcomes?
• How will the policy increase or decrease economic, social, and health benefits for marginalized communities?
• Does the policy make energy more accessible and affordable to marginalized communities?

Programs should be designed to maintain high standards for contractors or vendors to ensure that they are meeting all relevant codes and standards.⁶ Upgrades should be restricted to cost-effective improvements, which can protect vulnerable customers by ensuring that the upgrades generate savings.⁷ On-bill programs should include adequate consumer protections to prevent low-income households, elderly residents, and individuals with low English proficiency from being targeted by dishonest vendors.⁸ Monitoring and evaluation should be included in on-bill programs to identify any issues.⁹

Many of the financing programs covered in this Clean Energy Financing Toolkit for Decisionmakers can provide specific benefits to underserved communities through increasing access to clean energy (e.g., lower energy bills, upgraded equipment, improved comfort). However, financing programs that put additional debt on customers could place LMI households at an increased risk if adequate consumer protections are not in place. For example, customers could face penalties for failing to repay program funds, including having their power shut off, receiving adverse credit scores, and in some instances losing their homes. Decisionmakers can implement consumer protection frameworks to address these concerns, including increasing awareness, analyzing the applicant’s ability to pay, and requiring disclosure of financing costs. Considerations for consumer protections are specific to each program.

Roles and Responsibilities

On-bill loan programs are typically developed and supported by utilities and partner financial institutions. In on-bill financing programs, the utility would determine the funding source, identify eligible clean energy technologies, and develop repayment terms. In addition, the utility would create loan criteria and evaluate loan applications. After issuing the loan, the utility would facilitate the repayment of the loan through the customer’s monthly utility bills. For on-bill repayment programs, a third party, such as a bank or credit union, would issue the loan, and the utility would facilitate the collection of the repayment through monthly utility bills. The third-party financial institution would be responsible for developing loan criteria and evaluating loan applications.

State and local governments and utility regulators may need to develop enabling legislation or regulations to support on-bill loan programs. State and local governments may also partner with utilities to advertise the programs to area residents.

Getting Started

State and local governments should consider these steps and best practices during the design, approval, and management of an on-bill program:

• Review program details, including case studies and linked resources. If possible, contact organizations that have implemented an on-bill loan program to learn more.
• Determine and clear regulatory hurdles to establish an on-bill loan program and set up consumer protections in advance of implementation, including a benefit-cost screen, repayment terms, agreement termination and transfers, and standards for communicating on-bill loan project benefits.
• Engage key stakeholders to help inform the development of the policies, procedures, regulations, and guidance for on-bill programs.
• Engage with key stakeholders to inform the development of regulations or policies to facilitate the use of PPAs.
• Establish eligible technologies, project types, and sectors.
• Create a development and implementation plan that emphasizes collaboration between utility and government stakeholders.
• Determine roles, responsibilities, and resources needed for all key partners with a special focus on the utility's options, constraints, and administrative and billing processes. (Key partners will depend on who is leading the effort, but they will at least include a government agency, a utility, and service providers.) If applicable, develop the utility’s interest in offering an on-bill loan program for customers in its jurisdiction.
• Develop an initial program budget for anticipated loan volume and administration, and then determine potential sources of funds.
• Describe the program’s potential economic and environmental benefits for the community, depending upon loan volume.

References and Footnotes

¹ U.S. Department of Energy. 2018. Clean Energy Finance: On-Bill Programs.

² Loans are considered personal debt, and they are paid off by the owner if the owner sells the property. Loans could survive a foreclosure or bankruptcy process and be assumed by the eventual new owner, providing additional security to the lender. In practice, however, there are few examples where on-bill loans have been transferred through a bankruptcy or foreclosure. Some on-bill loan programs allow renters and short-term owners to take responsibility for repayment obligations.

³ Stanton, Tom, and Scott Sklar. 2020. Utility Tariff On-Bill Financing: Provisions and Precautions for Equitable Programs. NRRI Insights.

⁴ Southern California Edison. 2019. On-Bill Financing.

⁵ Governments, agencies, and nonprofits have developed equity lenses and frameworks to ensure that issues of race and equity are incorporated throughout policy-making processes. These questions draw from the following frameworks: Institute for Energy Justice, “Section 2 – Energy Justice Scorecard”; City of Seattle, “Racial Equity Toolkit”; and Higher Education Coordinating Commission, “Oregon Equity Lens.”

⁶ Stanton, Tom, and Scott Sklar. 2020. Utility Tariff On-Bill Financing: Provisions and Precautions for Equitable Programs. NRRI Insights.

⁷ Stanton, Tom, and Scott Sklar. 2020. Utility Tariff On-Bill Financing: Provisions and Precautions for Equitable Programs. NRRI Insights.

⁸ Stanton, Tom, and Scott Sklar. 2020. Utility Tariff On-Bill Financing: Provisions and Precautions for Equitable Programs. NRRI Insights.

⁹ Stanton, Tom, and Scott Sklar. 2020. Utility Tariff On-Bill Financing: Provisions and Precautions for Equitable Programs. NRRI Insights.