Green Financing / On-Bill Financing
What is on-bill financing?
On-bill financing (OBF) is an innovative financing solution that allows electricity ratepayers to use energy savings to pay for energy efficiency and solar power installations. The payments are applied directly on the monthly electricity bill. SEE FLOWCHART.
How does on-bill financing work?
Low-interest financing is used to pay the upfront cost of efficiency and solar power purchases, such as rooftop solar water heaters and photovoltaic panels. These upgrades immediately reduce energy consumption, lowering monthly energy costs. A portion of the monthly savings is applied to repaying the loan, which will appear as an item on the customer’s bill. Once the upgrade is paid off, the customer’s bill goes down even further.
Has on-bill financing been successfully implemented elsewhere?
Yes. In fact, utilities have used OBF to finance power plants for more than a century: Investors provide the upfront cost, and ratepayers pay back those investors on their electric bill. Now, this same concept is being applied to benefit individual ratepayers, enabling people to pay for energy-saving improvements in homes and business. OBF programs have sprouted in several states, and Hawai'i's Public Utilities Commission (PUC) recently decided that OBF is a viable program for Hawai'i.
Who pays for on-bill financing?
OBF leverages energy savings to pay for energy upgrades. Using the sun to power our homes is cheaper than using fossil fuels, but the upfront cost is a barrier for many ratepayers. OBF enables individuals to benefit from clean energy without an upfront cost. Hawai'i's OBF program will require that on-bill participants' total new costs will be less than what they were paying previously.
Who can benefit from on-bill financing?
Everyone. In Hawai'i, the PUC's recent order clarified that Hawai'i's OBF program will apply to residential and small business customers. Also, the PUC determined that the OBF program will include a focus on renters and low-income ratepayers.
FAQ: Green Financing
What is the Green Infrastructure Financing bill?
The Green Infrastructure Financing ("Green Financing") bill creates a framework and regulatory mechanism for securing low-cost capital from the private sector to finance clean energy solutions. It is one method for funding Hawai'i's On-Bill Financing program. SEE FLOWCHART.
How does green financing bring low-cost capital to Hawai'i?
Green Financing combines two proven financing methods to yield large quantities of private investment in Hawai'i's energy infrastructure. The first method uses securitization to attract AAA-rated bond financing (2-3% interest under today's market conditions). The second is on-bill repayment, which repays clean energy upgrades at a home or business through a customer's utility bill. By leveraging a AAA rating and low utility customer default rates, the State can attract lower cost capital and allow more residents to benefit from clean energy improvements. For comparison, neither the State nor our investor-owned utility enjoys a AAA rating. The Green Financing bill contains the provisions necessary to achieve this remarkable solution.
Who pays for the bonds?
The Green Financing program uses two income streams. First. participating customers will see immediate energy and cost savings. A portion of those savings are passed back to the Green Financing fund via the customary monthly energy bill. Second, a Green Infrastructure Fee will appear on every ratepayer's statement. This does not require new or additional fees because the PUC may dedicate a portion of the existing Public Benefits Fee (which already appears on monthly energy bills) to cover the Green Infrastructure Fee.
Is the state liable for Green Financing bonds?
No. The bonds are provided by private investors, and are secured by the Green Infrastructure Fee on every ratepayer's bill. The state is not liable. The Green Infrastructure Fee does not require new charges on customers' energy bills. Instead, the program is designed such that it can use a portion of the existing Public Benefits Fee. Green Financing provides a mechanism to multiply the benefit of those existing funds, through securitization and private investment in Hawai‘i's energy infrastructure.
Can Green Financing make a difference for ordinary ratepayers?
Yes. The program can provide capital to ratepayers that have been locked out of traditional financing, such as tenants and low-income households. Green Financing unlocks energy savings by eliminating the barrier of upfront cost for energy efficiency and clean energy technologies. These technologies are proven to reduce monthly energy bills. From the ratepayer's perspective, they can see a monthly bill that is the same or less each month, until the purchases are paid back, at which point the monthly bills will go down substantially.
How much private investment can Green Financing bring to Hawai'i?
Green Financing is designed for transformational change—tapping a huge pool of institutional bond investors to garner large amounts of low-cost capital. For example, by pledging $8 Million of the existing Public Benefits Fee, Green Financing can secure $100 Million in bond investments. That $100 Million can be invested, and reinvested, directly into energy upgrades in homes and businesses.
How does green financing fit with on-bill financing?
On-Bill Financing can lower monthly energy bills, spur the development of modern energy infrastructure, reduce fossil fuel consumption, and keep money from leaving the State to pay for imported fossil fuels. Green Financing can be one key source of funding for on-bill financing. Benefits include:
- Green Financing can be an "anchor" funding source for on-bill financing, ensuring program feasibility irrespective of the scope or magnitude of other private funding sources that wish to participate in the on-bill program.
- It can ensure that Hawai'i's on-bill program includes equitable financing options for all residents, including residents who are otherwise unable to access traditional sources of private capital for energy improvements, such as renters and low-income households.
- It can unlock large-scale private capital markets, pushing down the cost of capital, and making energy efficiency and clean energy even more cost-effective for ratepayers.
- Green Financing bonds catalyze private investment in our energy infrastructure.