Energy Efficiency Financing

Every year, the Midwest region sees hundreds of thousands of homeowners and business owners take advantage of utility rebate programs designed to defray the costs of energy efficiency improvements. However, for some, these rebates do not lower the upfront costs enough. Fortunately, many states have enacted policies to encourage or establish financing tools to put efficiency improvements more in reach for customers. Between Property Assessed Clean Energy, on-bill financing, green banks and federal rebates from the Inflation Reduction Act, energy efficiency improvements are more accessible to more people than ever before. 

Property Assessed Clean Energy (PACE)

Property Assessed Clean Energy (PACE) is an innovative financing model that allows property owners to receive up-front financing to pay for energy and other eligible building improvements on a property and pay their PACE loans back over time through a voluntary special assessment on their property taxes in the form of a lien. PACE features a non-recourse loan structure, meaning that the PACE lien stays tied to the property, not the property owner. PACE financing typically features long-term payback periods, thereby making it easier to develop cashflow-positive PACE projects. PACE can be used to finance a wide range of energy efficiency upgrades, on-site energy resources and water conservation measures, depending on the enabling legislation in a given state. Some PACE programs also qualify financing for building and property resilience, seismic retrofits and certain environmental hazard mitigations.  

Although commercial (C-PACE) and residential (R-PACE) programs both exist, commercial PACE programs are more prevalent. Currently, 30 U.S. states have active C-PACE programs, including eight Midwest states (Illinois, Kentucky, Michigan, Missouri, Minnesota, Nebraska, Ohio and Wisconsin) and three U.S. states have active R-PACE programs, including Missouri. While C-PACE has seen significant investments and successes across the country, some R-PACE vendors have attracted controversy for exploitative practices. If a state elects to move forward with R-PACE, it is imperative that enabling statutes include strong consumer protections to ensure that the program is only serving customers who are best suited for this financing option. 

For more information on PACE, visit the U.S. Department of Energy’s or visit the website of PACENation, a nonprofit advocate for the PACE industry.  

On-Bill Financing

On-bill financing (OBF) is an umbrella term that refers to programs that help provide customers funding for energy efficiency upgrades. The most common OBF mechanism is the trademarked Pay as You Save® (PAYS)® tariff from EEtility. PAYS® is an on-bill financing program in which a utility invests in cost-effective efficiency upgrades to a property on behalf of its resident(s) and recovers its investments over time through a fixed monthly tariff charge on the resident’s bill. The monthly charge is attached to the property’s utility meter, so if the unit sells, the charge – and the financial benefits associated with the efficiency improvements – remain for the new property owner until all costs are recovered.  

PAYS® reduces or eliminates the up-front cost of building energy retrofits and can be used to finance many cost-effective energy upgrades for efficiency improvements, such as lighting, electrical appliances, heating/ventilation/air conditioning systems, plumbing, building envelope improvements and more. Learn more about the PAYS model here

The program originally grew in popularity among municipal and cooperative utilities that were the first to widely implement and popularize the program, though recently a number of investor-owned utilities (IOUs) have taken action to offer on-bill financing. In Missouri, for example, the Office of the Public Counsel recommended the states’ IOUs run PAYS® pilots. The utilities have since made these pilots permanent, making the state the first to have all its major utilities offer PAYS® financing. Illinois is currently undergoing a stakeholder process to establish an OBF structure for the state’s IOUs, as required by the Climate and Equitable Jobs Act.