1996

Executive Summary

As the electric utility industry restructures, we find ourselves living in interesting times. Business is not "as usual" and no one is quite sure what the future holds. In terms of energy efficiency, we see a departure from traditional demand-side management (DSM), with utilities wanting to cut costs but retain customers. Utilities are testing new approaches to providing energy efficiency services to customers. Although past experience with DSM financing has not proven to be an out-and-out success, utilities are experimenting with variations on this old theme to see if financing can work in this new environment.

In this more competitive environment, new opportunities arise that support the evolution of financing mechanisms as part of utility energy efficiency programs. More than ever, utilities want to cut costs, and, if designed well, financing mechanisms will allow utilities to shift the bulk of energy efficiency programs' costs to participating customers. If administrative and marketing costs are not excessive, financing options have the potential to minimize both rate-impact and cross-subsidization issues (ratepayers subsidizing energy efficiency programs that they don't receive).

Although there are many factors working in support of financing programs, their success requires overcoming many obstacles. Most utilities lack expertise in providing consumer financing, thus making it more costly. High participation rates may be difficult to achieve on a wide-spread basis, thus limiting energy savings. In addition, in some cases customers have become accustomed to rebates and may not be interested in financing. Certainly, financing mechanisms represent just one piece of a package of programs designed to achieve energy efficiency goals. Time will tell whether utilities can design energy efficiency programs that offer customers financing options that achieve participation and savings levels comparable to successful rebate programs at significantly lower utility costs.

This report discusses different approaches that utilities are taking to provide customers with financing for energy efficiency improvements, including various types of financing mechanisms, such as loans, shared savings, leases, energy service charges, and end-use pricing. The report also discusses synergistic partnerships that utilities are developing to facilitate the financial portion of energy efficiency programs. Case studies of energy efficiency programs with financing components are profiled to show the lessons that can be learned from them. The case studies represent a variety of types of financing mechanisms, target a variety of customer sectors, and have a variety of funding sources. Finally, recommendations for designing successful programs are offered.

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39 pp., 1997, $13.00 U965

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