Jason Schneider

Most experts and program managers agree that financing is necessary to encourage homeowners to participate in weatherization programs and meet the goal of reduced energy consumption.

Organizers working with local governments to set up programs that provide homeowners with loans for energy-efficient improvements are choosing a variety of formats. Some are considering low-interest loans; some are using PACE (Property-Assessed Clean Energy) financing, where homeowners pay back the loan through their property taxes; others are opting to use the PAYS (Pay As You Save) system where homeowners pay loan installments through utility bills.

Bruce Matulich, CEO and executive director of the Electric & Gas Industries Association (EGIA), in Sacramento, Calif., says that, with this broad objective to implement home efficiency coming at a time when a credit crisis is affecting lenders, the industry has to figure out how to provide maximum value. He supports both property-assessed loans and on-bill financing through utilities. In fact, his association works with 20 utilities and other entities across the country to help administer financing solutions on their behalf. Contractors who work in several areas might find that one county or city has a financing program, but they still need to provide an option for homeowners outside that jurisdiction.

Matulich says that although PACE-type programs have captured a lot of attention and are a great tool for higher-cost retrofits, they are not the be-all and end-all. “We need a lot of different solutions in place,” he says.

For the PAYS model of financing — created by Harlan Lachman and Paul Cillo of the Energy Efficiency Institute, a resource efficiency consulting company — the utility must be an essential service. “You do not want the person to get out of the obligation by switching utilities,” Lachman explains. The assessment is assigned to a meter location, not to an individual customer, so the loan obligation stays with the property. PAYS also requires independent certification that products are appropriate and that monthly savings estimates exceed the monthly loan payments. PAYS is flexible in most of its other provisions, including the structure of the financing (loans could come through the utility or through a third party), the period of time it covers, and who performs the work. Lachman says that both PACE and PAYS solve the problem of providing homeowners with up-front money, but PAYS can be used with rental properties and by landlords and government entities.

Governments are turning to a variety of options to provide the initial funding for these programs, including selling bonds. Others have received or are applying for Energy Efficiency and Conservation Block Grants (EECBG), funded for the first time by the American Recovery and Reinvestment Act of 2009. Programs such as PACE that involve property tax assessments, and those funded through bonds, require legislative action before they can be implemented.

Local Stars

There are only a few full-fledged loan programs, including Long Island, N.Y., Sonoma County, Calif., and Boulder County, Colo. Many state and local governments, including Michigan, Atlanta, Ga., and Portland, Ore., are in loan program planning or pilot test phases.

The ClimateSmart Loan Program ( climatesmartloanprogram.org) began when voters in Boulder County approved a ballot measure to permit the county to sell $40 million in bonds to fund the program. In 2009, residential property owners in the county participated in two rounds of applications and improvements. Homeowners were required to attend an educational workshop, submit bids and an online application, and if the application was approved, meet with a loan officer. Once the owner received a notice to proceed, he or she hired a contractor to complete the work, submit invoices, carry out inspections, get both the necessary permits and a homeowner acknowledgement form. Contractors were paid within seven to 10 business days of completing the work. The financing inspired homeowners to spend additional money. “We have learned from contractors that for every dollar of direct funding from the loan program, homeowners spent an additional 50 cents using other sources of funding,” says Susie Strife, sustainability education specialist with the Boulder County Commissioners’ Office.

Strife says that although audits are not required, they are highly recommended. Homeowners cannot fold audit costs into the loan — market rate on the audits can be between $300 and $400 — so the county worked with electricity and natural gas company Xcel Energy and a nonprofit partner to offer subsidized $120 audits. Strife says that homeowners signed a utility bill waiver so the county can track greenhouse gas emissions, bills, and savings — information that could be used to guide future customers on the most cost-effective measures.

The Sonoma County Energy Independence Program (SCEIP) in California was launched in March 2009 to finance residential and commercial energy- and water-efficiency projects as well as renewable energy improvements. County residents voted to allow financing to be incorporated into the property tax system for unincorporated areas, and nine cities in the county approved similar resolutions. Assessments are paid back through property taxes over five, 10, or 20 years with a 7% interest rate. The assessment stays with the property. The county evaluates the proposed improvements against its approved list and generates contracts for homeowners to sign. The tax assessment office distributes checks to the owner, who uses the money to pay contractors. SCEIP ( sonomacountyenergy.org) requires that all contractors performing the improvements are licensed with the California Contractors’ State License Board and asks participants to sign a utility waiver to monitor energy savings. The first projects were completed in May 2009, so the county is preparing to analyze a year’s worth of bills.

Program manager Liz Yager says that the county is placing bonds in a long-term investment so the program can continue to provide funds. The program is not only reducing energy consumption, it is creating jobs. A recent report shows that construction-related jobs in Sonoma County increased by 8.4% in time periods after SCEIP implementation, while in adjacent Napa County, jobs declined by 3%, and in Solano County construction-related jobs increased by just 1.3%. “As long as long-term financing capacity is there, we can continue to support growth of jobs,” Yager says.

The town of Babylon, on Long Island, N.Y., expanded the definition of solid waste to include energy waste, says director Sammy Chu, which gave the town access to waste funds for the PACE format Long Island Green Homes program ( ligreenhomes.com). Contractors use modeling software to predict energy savings, with payments scaled to match the estimated monthly savings. The loans average $8,300 at a 3% interest rate. “In most cases, the savings more than cover the payment. We’re putting money in their pocket,” he says.

Homeowners must qualify and pay $250 for an audit to demonstrate their commitment. “If they do the work, which happens 75% of the time, the audit fee is credited,” Chu says, noting that free audit programs have very low closing rates. The city pays the contractor directly and the homeowner receives monthly invoices.

The audits must be completed by one of the town’s eight approved auditors, and the town requires both the auditor and the contractor to be certified by the Building Performance Institute (BPI). The same company that does the audit can do the installation, and the program also requires post-installation audits.

Alure Home Improvements, in East Meadow, N.Y., is an approved auditor. Building analyst Hubie Van Meurs says that the company had the BPI certification required by the PACE program because it participates in Long Island Power Authority’s (LIPA) program, which has the same requirement. LIPA has aggressive rebate programs for its utility clients, Van Meurs says, and now those rebates are applied toward Babylon’s green program. Alure has completed about 24 projects in the Babylon program. He says that Alure uses the modeling software but takes a conservative approach in its predictions because “our mantra is to under-promise and over-deliver.”

Pilot Progress

Michigan Saves ( michigansaves.org), a nonprofit set up as part of a grant to provide statewide energy-efficient upgrades, plans to use third-party lenders to loan money to homeowners and commercial entities, with customers paying back the loan through utility bills.

A centralized entity will process the loan applications and act as matchmaker between homeowner and lender. Contractors would act as indirect lenders, Michigan Saves operations manager Sally Talberg says, and would facilitate the application for the homeowner. Contractors will have to apply to participate and will likely need to meet some minimum standards, including having a license, insurance, and some building science training or certification, but the decision has not been finalized.

Michigan Saves is running a pilot of the program with Cherryland Electric Cooperative and Brown Lumber Installed Sales and Service, which manages a network of contractors, assisting customers through the process. Trevor Williams, department manager with Brown Lumber, says that he had more than 60 subcontractors in his contractor network who met the requirements, so they were able to quickly start working on the pilot.

Williams’ contractors take leads from Cherryland Electric and meet with homeowners to inspect the house. Brown Lumber and the contractor come up with a budget based on the measures they think the house needs, and the contractor helps the homeowner fill out the loan application. If it is approved, the homeowner signs an energy audit agreement. For the first 50 people who participate in the pilot, the audit is free. The contractor uses the audit to create a contract, which he sends to the credit union. The credit union writes a check endorsed to both the homeowner and the contractor, which the homeowner usually signs over to the contractor.

“One of the biggest benefits is getting the money up-front,” Williams says. “In this economy, vendors are asking for payment up-front, so this allows materials to come through for a smooth process.” He says that of 97 total inquiries, Brown Lumber’s contractor network has completed six projects with a total of $18,969 in loans. Another 13 projects are in the beginning stages, and 78 projects failed to qualify for the program.

—Nina Patel, senior editor, REMODELING.