HOLLAND — A financing program in Holland that helps residents pay for energy efficiency and renewable energy upgrades remains one of the only such programs in Michigan, and could be a model for more to come.
Known as on-bill financing, the program allows Holland Board of Public Works customers to obtain a loan through the utility’s nonprofit arm to pay the upfront cost of projects. Loans come at a minimum of $5,000 and include upgrades to insulation, heating and cooling units and appliances, as well as the installation of solar panels. Residents then pay back the loan on their utility bills — in part through the energy savings.
In July, Holland BPW enrolled its 100th participant in the program.
As interest builds among Michigan utilities in offering on-bill financing, Holland is serving as a model to help others overcome concerns. Besides a small electric cooperative in the Thumb region, Holland is the only utility with an on-bill financing program of its scale in Michigan.
“If I were to talk to you in 2020, we’ll probably have a couple more,” said Mary Templeton, executive director of Michigan Saves, a Lansing-based nonprofit that works with Holland to find contractors and also administers its own clean energy loan program.
“Based on some of the feedback I’ve received, others have wanted to see how Holland would go,” Templeton said. “Now that Holland has two and a half years under its belt and 100 people participating, more and more interest is being generated.”
Advocates say the key benefit of on-bill financing is the ease of repaying loans while requiring no upfront capital. In Holland, on-bill loans can last up to 15 years at interest rates of 5.99 percent.
While customer interest in on-bill financing has grown both statewide and nationally in recent years, several key questions remain about how utilities should establish billing programs and lending structures. Michigan’s utilities are still sorting through best practices and whether the number of customers they could reach is worth the investment.
On-bill financing is among several financing mechanisms, rebates and incentives available to ratepayers as utilities increasingly push energy efficiency to meet their long-term climate change goals. Their ongoing challenge lies in getting more customers to participate.
Holland’s program launched in November 2016, two years after state lawmakers passed a bill allowing municipal utilities to offer on-bill financing. Lawmakers expanded that framework for regulated utilities as part of sweeping energy reforms in 2016.
Over the past two years, the Michigan Public Service Commission hosted meetings with utilities and other interested parties to sort through barriers for more widespread adoption.
MPSC Chairwoman Sally Talberg said the meetings were meant to create a “template” for interested utilities to follow, but as of yet, the commission has not approved any programs.
Detroit-based DTE Energy proposed an on-bill loan program that would have changed its billing system with high upfront costs.
The MPSC “expressed some concern with that approach,” Talberg said, based on the kind of return the utility would have gotten in participation and energy efficiency. Instead, the MPSC approved a more targeted pilot program for certain low-income customers that is technically a loan but isn’t an on-bill financing program.
“The thinking there was: Let’s hone the market we’re trying to serve and really have a proof of concept with how it functions before spending a lot of money to change over all of their systems designed for millions of customers,” Talberg said.
In addition to potential administrative costs, utilities in Michigan and other states have expressed concerns about entering the lending space, or having an entity between them and their customers.
While it’s been proven at a smaller scale, as is the case with Holland, “to bring this to scale is really challenging,” Talberg said. “I think (on-bill financing) holds promise, but there’s just a lot of challenges.”
Annie Gilleo, senior manager of state policy for the American Council for an Energy-Efficient Economy, wrote earlier this year that while on-bill financing is catching on in some states, it’s expanding slowly. On-bill financing covered $200 million in lending in 2014, according to one study, but the growth in years 2012-2014 was only 4 percent compared to 44 percent for other utility loan programs.
“Many utilities are not interested in using their capital, are concerned about losses, or are reluctant to enter what they see as the banking business,” Gilleo wrote. “These programs still have a long way to go to scale up. Even successful on-bill financing programs are reaching only a small percentage of customers.”
Brian Wheeler, spokesperson for Jackson-based Consumers Energy, said the company is not in the process of including on-bill financing for residential customers, “but we have been involved in past discussions to evaluate including it.”
Wheeler said the utility would want to “ensure the entire process is simple for customers and validate that systems to provide financing would be working correctly.” He cited the cost of creating the internal system to provide on-bill financing as the key barrier at this point.
Templeton said Michigan Saves can help utilities determine these best practices.
“We have a platform that other utilities can take advantage of so their cost of setting up these programs can be lower,” she said.
Part of long-term plan
Anne Saliers, community energy services manager at the Holland BPW, agrees that the biggest challenge was integrating the billing system. It took the utility about 18 months to develop the program.
The Holland Energy Fund, a 501(c)(3) nonprofit corporation, provides the loans and rebates for customers to do efficiency projects. The Energy Fund has a $3 million line of credit from BPW’s cash reserves that it uses to pay contractors on a wide range of energy efficiency improvements listed in a statewide database.
Customers, whose applications are selected based on their history of paying bills on time, begin with an energy audit to determine which upgrades are needed first. Usually these include air sealing around doors and windows and switching to LED light bulbs. Insulation, furnace ducts, equipment and appliances follow in order, Saliers said. If projects cost more than $10,000, the city also offers a 10-percent rebate.
Saliers said the average size of loans in the on-bill program are $15,280 while the average project costs $17,000. Customers spending at least $10,000 on efficiency upgrades see at least 20-percent energy savings on gas and electric, she added.
Energy efficiency programs are a key component for Holland’s long-term energy plan adopted in 2012, which calls for cutting its carbon emissions by more than half by 2050.
Even though Holland has reached its 100-participant milestone for on-bill financing, Saliers said the pace should be faster more broadly for energy efficiency. Just more than half of the BPW customers enrolled in the utility’s Home Energy Retrofit Program use on-bill financing — the rest pay with cash or use another line of credit. Roughly 100 homes a year have enrolled in the retrofit program.
“If we want to achieve our community energy plan goals, we need to be doing 250 homes a year,” she said.
‘It makes a difference’
Holland residents Lori and Dave Appledorn heard about on-bill financing from a city official as they were making separate renovations to their 130-year-old, 1,200-square-foot house in the city. After an energy assessment, the Appledorns received a roughly $10,000 loan to cover new insulation, basement windows and foundation upgrades.
Since the work was completed early last summer, the Appledorns have cut their electric and natural gas usage by about 10 percent each. The loan will be paid down over the next 10 years.
Dave Appledorn called the process “overall a pretty good experience.”
“We’ve encouraged our neighbors to look into it as well — we live in a neighborhood of old houses,” he said. “It makes a difference in the value of the house and it certainly makes a difference in the quality of life living in the house.”