GBA Logo horizontal Facebook LinkedIn Email Pinterest Twitter Instagram YouTube Icon Navigation Search Icon Main Search Icon Video Play Icon Plus Icon Minus Icon Picture icon Hamburger Icon Close Icon Sorted
Guest Blogs

Financing for Energy-Efficiency Upgrades

Two programs, although not available in every state, help homeowners pay for upgrades while lowering monthly energy bills

On-bill programs allow homeowners to enjoy the benefits of energy upgrades without big upfront costs.

High energy bills are a stress for most of us—especially for low-to-moderate income families who may pay a large portion of their income for energy bills. It is usually not high utility rates that cause the problem, but the condition of the homes themselves: air leaks around windows, doors, electrical, and plumbing penetrations; leaky ducts; inefficient HVAC systems; and poor insulation top the list. As a result, much of the heated or cooled air meant to keep residents comfortable, streams outside, wasting energy and losing homeowners money. The direct and simple solution is to implement well-planned energy-efficiency upgrades, which can bring relief in the form of lower energy bills. This kind of investment, though, is often out of reach for lower-income energy customers who have neither the savings to afford the upgrades nor the credit score to borrow needed funds.

So how can energy-efficiency upgrades be affordable for people with low and moderate-income levels? An answer is already in use: make payment for energy upgrades on one’s energy bill. When done right, this approach can often make it easy and cost-effective for homeowners, renters, and landlords, even those with low-to-moderate income levels, to pay for energy-efficiency upgrades. There are two programs for on-bill payment: on-bill financing and Pay As You Save or PAYS.

What is on-bill payment?

With the on-bill Financing program, the utility or a third party lends the upfront costs for the energy-efficiency upgrades as a traditional loan to the homeowner and adds the loan payment with interest directly to the monthly energy bill. On an annual basis, the energy savings from the upgrades often cover the added payments so that the energy-efficiency upgrades can be essentially cost-free. In these cases, the annual energy payments plus loan payments add up to the same or less than the previous annual bill. When the payments are completed, they have even lower energy bills. They also have an improved, more comfortable home from day one.

More than 110 U.S. utilities are offering a variety of on-bill payment programs. Check out this interactive map of utilities offering on-bill financing to see if your utility offers on-bill payment for energy upgrades. Call them anyway if your utility is not listed, as the number of utilities offering on-bill repayment for energy-efficiency loans is growing.

While interest rates for on-bill financing may be lower than standard, not all of these programs may be suitable for lower-income families because they use standard loan terms and qualifications for the upgrades and may not be attractive to risk-averse customers. They are also not available for renters. This is where PAYS, if offered by your utility, may offer an advantage.

PAYS makes energy upgrades affordable for all

PAYS lowers the high barriers for entry, making it the most effective on-bill payment program for low and middle-income families. Unlike on-bill Financing programs, which make consumer loans directly to the homeowner, utilities offering PAYS make investments in energy-efficiency upgrades directly in customers’ homes—it is not a loan or debt to the homeowner. Like on-bill financing programs, utilities add a fixed monthly charge to the energy bills at the home to recover the costs for their investments. After the utility has recovered its investment, ownership of the upgrades transfers to the homeowner at that time, and the energy bills become even lower when the on-bill payment is completed.

PAYS has several features that make energy upgrades especially accessible to families with low-to-moderate incomes, who may not qualify for home improvement loans through some of the other on-bill payment programs:

No up-front costs: As with all on-bill payment programs, there are no upfront costs or down payments for the homeowner.

No credit checks: There are no credit checks, liens, or bank applications. The customer’s utility payment history can be used to qualify.

No personal debt obligation: The obligation to pay is assigned to the residence, not the individual homeowner. Therefore, the only obligation is to continue paying the utility bill, which is usually lower than before.

Independent verification of upgrades: The upgrades are independently certified for proper installation with reliable technologies so homeowners can have confidence in the benefit of the upgrades.

Lower energy bills: The monthly charge for upgrades is calculated, so the customer’s annual utility bill is lower than before the upgrade. (Efficiency upgrades only qualify for PAYS if an onsite cost-effectiveness analysis shows the upgrades will provide immediate net annual savings to the homeowner. The annual savings estimates must show charges are no more than 80% of the estimated savings.) There is little or no risk to customers whose total annual utility bill almost always lowers the very first year than before the improvements were made. The utility bill will be even lower when the investment is paid off.

Payments go with the home, not the homeowner: Unlike standard personal loans used in on-bill financing programs, when the home is sold, the energy upgrade payment (and the energy upgrades) go with the home. The utility’s cost recovery charges automatically pass to the new buyer. So homeowners are not faced with a large one-time repayment, even if they move.

No obligation to pay without benefit: There is no obligation to pay if participants don’t benefit. If a customer relocates, their payment obligation stops. If an upgrade fails or breaks down, it is repaired, or the payment obligation stops. If repaired, the payment amount stays the same, and the term is extended.

Renters and landlords can both benefit: Renters can participate and pay lower utility bills while they occupy the premises. Landlords who don’t pay for renters’ utilities pay nothing and benefit long term from the energy upgrades.

In the past 20 years, more than $50 million in PAYS investments have been made in almost 6000 projects; there have been no reports of PAYS program participants, including low-income customers, being disconnected for nonpayment of their utility bills. Yet participants have benefited from lower energy bills and more comfortable homes from the very first month. Currently, PAYS is available in these 10 states: New Hampshire, California, Kentucky, Hawaii, Kansas, Missouri, Georgia, Arkansas, North Carolina, and Tennessee. Where PAYS is available, all big obstacles on the path to improved energy efficiency in existing homes are removed.

Take action

Using PAYS for energy upgrades is a win-win-win that benefits residents of all incomes, including renters, as well as landlords, utilities, and the environment. If your utility offers the PAYS program, consider applying. It is a great step to take on the path to making your home energy efficient. If PAYS is not available, check out whether your utility offers one of the on-bill financing programs and consider applying if they do. Finally, if neither PAYS nor another on-bill payment program is available through your utility, speak up and urge your local utility and local leaders to start a PAYS program now.

Joe Emerson is the founder of the Zero Energy Project, where this article was originally published. You can reach him at  [email protected]. Special thanks to Harlan Lachman for his advice on this article. Harlan is President of the Energy Efficiency Institute and is one of the developers of Pay As You Save.


  1. BenEvered | | #1

    I've heard about such a program, and I think it's a good one. Somethimes the numbers in the bills are scary, especially for those who live in big houses. Unfortunately, there is no such program in my state yet, but I hope soon it will be. For me, and I think for other locals, it would have been a huge advantage and would have saved some money. Now it's not winter, so I don't have to pay a lot, but still, this month I have some money problems, so I had to take a loan to pay for bills. I did it for the first time, so it took me a while to decide which amount to loan and there. The info on this page was pretty helpful because I had no idea that it's important to know my debt-to-income ratio, and I calculated it for the first time. I hope that I'll be able to pay off my loan as soon as possible, and I also hope that soon such a program will be available in my state, and in winter, I won't be stressed because of bills.

  2. Expert Member
    NICK KEENAN | | #2

    This thread from the Q&A discusses changing the way mortgage qualification is calculated to be more favorable to energy efficiency:

    Note that the largest county in Maryland, Montgomery County, has started requiring a disclosure on the sale of residential real estate of utility usage. I've heard anecdotally that when people are comparing houses they shy away from the ones with out-of-scale utility bills. It's a modest start but it's a step in the right direction.

Log in or create an account to post a comment.



Recent Questions and Replies

  • |
  • |
  • |
  • |