California Model Incentivizes Commercial Energy Efficiency

California’s utilities are initiating an innovative program that makes it much more attractive for commercial properties to upgrade their energy effiicency.

They will be allowed to pay for the upgrades over time on their utility bills and their payments will be pegged to energy savings.

It could stimulate $6 billion in private sector investment in commercial energy efficiency over the next decade, says the Environmental Defense Fund (EDF). 

In March 2013, Sempra Energy, Southern California Edison and Pacific Gas & Electric will begin offering "on-bill" repayment programs to commercial customers. 

That means property owners get access to zero-interest or low-cost financing for upgrades, which are then paid back through through their utility bills.

The money can be structured as loans, leases, power purchase agreements or other types of service agreements. It can be used to pay for anything related to energy efficiency, from installing LED lighting to a new heating ventilation and air-conditioning (HVAC) system. 

What’s unique about this program is that it allows third-party financing companies to be involved – expanding the pool of money available to fund energy efficiency upgrades and retrofits. 

The California Public Utilities Commission (CPUC) okayed the program earlier this year based on a proposal by the San Francisco office Environmental Defense Fund (EDF).

EDF is trying to encourage development of on-bill repayment programs across the US, says Brad Copithorne of EDF. They also think it may be possible to extend the program to  renewable energy and demand response projects.

California’s model contains these elements that EDF views as  critical to success: 

  • They "run with the meter," which accommodates changes in ownership or occupancy and allows for longer payback periods on retrofits.
  • Partial payments will be allocated pro rata between energy and financing obligations. To collect unpaid obligations, utilities will use standard collection procedures.
  • The program offers flexibility for contractors, project developers, lenders and other investors to design retrofit solutions and financing products that meet the needs of their customers.

This is just the latest example of how California is innovating when it comes to encouraging investment in clean energy and energy efficiency initiatives.  In late September, 14 counties and 126 cities created the nation’s largest Property Assessed Clean Energy (PACE) initiative to leverage the financing model for commercial properties.

Last year, NY State approved an "on bill" payment program for residential and small business energy efficiency, opening the door for $5 billion in private investment in the state’s energy economy. Governor Cuomo included it as a priority in his 2012 State of the State Address.

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