Innovative and Equitable Financing Programs That Enable Maximum Development of Local Clean Energy in San Diego Community Power (SDCP) Service Territory

A case study prepared for:
California Local Energy – Advancing Renewables (CLEAR)
San Diego, California

I. Introduction

Straightforward financial tools that require minimal upfront expenditures by customers – regardless of income level, credit score, or renter/owner status – are a necessary component to assure the realization of the full potential of energy-efficiency and point-of-use renewable energy project upgrades in the San Diego Community Power (SDCP) service territory.

The up-front cost of these measures is often seen as a barrier to implementation by homeowners, business owners, commercial property owners and renters. Financing a major increase in spending on these local clean energy measures also requires access to adequate levels of capital to support the program(s). Local credit unions are a potential source of this capital for SDCP.

This analysis is a brief summary of:

1. Finance program design – specifically on-bill financing – to assure all SDCP customers have equitable access to financing for clean energy projects.
2. Local credit union capability to provide the capital to support an expansive on-bill financing.

The author has direct experience, working with the Energy Trust of Oregon (ETO), coupling ambitious clean energy programs with compatible lending institutions capable of providing the necessary capital. ETO aimed to address this issue in 2008 and 2009 with GreenStreet Lending (GSL) and Clean Energy Works Portland (CEWP). These initiatives offered customers a public and government/utility bill financing solution to address the problem.

Cross Consulting Services was directly involved with both programs as a Special Projects Lead for ETO. This study includes a summary of GSL, evaluates what worked well and what did not with the initiative, examines an on-bill financing alternative – comparable to GSL – as a vehicle to maximize local green power growth under San Diego Community Power (SDCP) and reviews the capacity of local credit unions to supply the necessary capital.

II. Examples of Innovative Clean Energy Lending Programs

A. GreenStreet Lending (GSL) Program in Oregon

The state of Oregon created a non-profit organization in 1999, the Energy Trust of Oregon (ETO), to direct public goods charges collected from utility customers toward energy efficiency and renewable energy projects. ETO became operational in 2002.
ETO information, cash incentives and contractor connections help a range of customers use less energy, generate renewable power and protect the environment. They are a mission-based organization collaborating with utilities, nonprofits and government agencies to deliver clean energy benefits for Oregon.

ETO leadership was able to engage Umpqua Bank (UB) – a commercial bank based in Roseburg, OR – as a financial partner in the initiative. UB has a reputation for being consumer friendly and was widely recognized for innovative marketing programs, including their neighborhood stores. GSL was seen as an extension of the brand, and the program was front and center in all UB marketing efforts for many years.

UB and ETO introduced the GSL program to enable low-interest financing for energy-efficiency improvements and solar energy systems in November of 2008. GSL was the first retail lending program in the country that afforded financing solutions for sustainability improvements – projects focused on energy efficiency, renewable energy or both.

Details of the program are as follows:

• The financial products were for homeowners and businesses – retail lending.
• The products featured no origination fees or closing costs, best available price/no tiered pricing (COM) and interest rate discounts (.25/.50%).
• Regular, quarterly trainings were conducted for ETO Trade Ally (TA) contractors and bank personnel to educate on finance solutions and energy programs respectively.
• GSL was front and center in bank marketing efforts – both in retail stores and online – for years.

The cost of moving forward with energy-efficient and renewable project upgrades was prohibitive in 2008 when the program was introduced. The program launched before the natural gas boom and at a time when the cost of PV was substantially higher than it is today. Market awareness of these technologies was lower. TA contractors were not knowledgeable or adept at taking advantage of the financing programs available. Bankers had a limited understanding of energy-efficient and renewable energy technologies. There were no retail lending tools that specifically catered towards sustainability improvements.

GSL was successful in funding projects, despite these impediments. The GSL program, as of June 2012, had loaned more than $50 million to businesses and consumers, funding more than 200 projects. The GSL marketing efforts were extensive – UB featured GSL prominently in the stores and online, while providing custom collateral for the TAs in the field. Perhaps most importantly, relationships were formed with the TA contractors selling the projects and the bankers intending to finance them.

B. GSL Challenges & Opportunities

The timing of the GSL program was poor. It launched at the onset of the great recession in 2008, a severe economic downturn that slowed all contracting activities. The program was limited to UB’s retail territory in Oregon and did not include stores in Nevada, Washington or California. The bank did not discount the loans for energy efficiency and rooftop solar to reflect the excellent history of utility bill repayment from an underwriting perspective. Utility bill financing programs have low default rates. Also, the bank training and participation was uneven, and the approval process could have been streamlined.

Modern business tools would make TA training more effective. Social media channels and content marketing would help facilitate community engagement campaigns. Credit unions could decide to employ the program as a means to serve low and low-to-moderate income households (Community Reinvestment Act). A well priced, unsecured loan backed by utility bill payment would be a welcome product addition. It is ideal for renters and homeowners that do not have equity in their homes, or that do not want to commit that equity to these types of projects.

An example of a credit union financing product specifically directed at energy efficiency and solar projects is Puget Sound Cooperative Credit Union’s Energy-Smart Loans.

C. Clean Energy Works Oregon

The City of Portland used $20 million in seed funding from the U.S. Department of Energy’s Better Buildings Neighborhood Program in 2010 to expand its pilot program, Clean Energy Works Portland (CEWP), into Clean Energy Works Oregon (CEWO).

CEWP was a program that provided guidance and bundled services to simplify energy efficiency improvements and provide long-term, low-interest financing to homeowners for whole-home energy upgrades.

The results were promising:

• Grew the OR market for deep energy retrofits by eight times, from less than 200 per year to about 1,600 per year.
• Rapidly expanded statewide, with services available to 82% of Oregon’s population.
• Delivered strong return-on-investment, generating over $100 million in economic activity and 500 new living-wage jobs.
• Served more than 20,000 residential customers, providing deep retrofits to over 5,000 homes, delivering more than 30 percent energy savings per household.

III. On-Bill Financing Alternative

On-bill financing is the use of the utility bill itself as the repayment medium to finance energy efficiency and renewable energy upgrades. SDG&E currently has a limited on-bill financing program for commercial energy efficiency projects only.¹ A comprehensive on-bill financing program was proposed in the California senate in 2013, SB-37,² that would have covered residential and commercial customers, would have included rooftop solar as well as energy efficiency upgrades,, and would have opened financing of projects to non-utility sources of capital like credit unions.

A. Hawaii Green Money Saver On-Bill Financing

The state of Hawaii has implemented an expansive on-bill financing program similar in scope to SB 37, and provides insight into the potential of such an on-bill financing program to accelerate investment in energy efficiency and rooftop solar among all customer categories. The program is known as the Green Money Saver (GEM$).³

The GEM$ program is designed to reach all ratepayers, and includes the following attributes:⁴

• Officially launched in April of 2019, and creatively solves the split incentive problem by tying the repayment obligation for energy efficiency upgrades to the utility meter rather than an individual.
• Participating homeowners, renters, small businesses and nonprofits pay back the cost to install rooftop solar panels, solar water heaters, heat pump water heaters and other energy-efficient equipment via a line-item charge on their monthly electric utility bill.
• Program participants pay no upfront costs – the loan is offered at a fixed interest rate of 5.5 percent with terms lasting up to 20 years.
• Approval does not require a credit check or income verification. Approval is based on a good utility bill payment history — no disconnection notices in the previous 12 months — and an estimate that the project will deliver a minimum 10 percent utility bill savings, including the repayment charge, after installation of the retrofit.
• It is the first on-bill program that allows financing with no upfront cost for renters to finance solar systems and where the payment is transferable to the next renter.
• The GEM$ program is available to all customers of the Hawaiian electric companies including: Hawaiian Electric, Maui Electric and Hawaiian Electric Light Company. Together, they service about 95 percent of the state’s population.

The GEM$ program includes renters by addressing the split incentive issue and offering attractive loan repayment terms. This group is comprised of low income and low to moderate income households. GEM$ helps ensure that these demographic groups are afforded an opportunity to pursue energy-efficient and renewable energy project upgrades. There are limitations to the scope of GEM$ as the program. It is funded $150 million in bonds, and is not currently open to external funding from entities like credit unions.

B. California Senate Bill SB 37 On-Bill Financing

The on-bill financing program described in SB 37 is similar to GEM$, though it was also open to private financing as a vehicle to expand the financial capacity of the program. SB 37 serves as a good model for the type of on-bill financing program that would allow SDCP to accelerate the development of local clean power on homes, businesses, and rental units in an equitable manner. SB 37 included the following elements:

• On-bill repayment program providing financial assistance for energy efficiency, renewable energy, distributed generation, or demand response improvements by allowing for the repayment of the financial assistance to be included in the utility customer’s utility bill (on-bill repayment).
• This bill would additionally require sellers of property or landlords to provide prospective buyers or prospective or existing tenants a disclosure indicating that a portion of the utility bill is subject to an on-bill repayment obligation.
• SB 37 specifically encouraged private financing to support the on-bill financing program.

Active participation in an expansive on-bill financing program of this type by local credit unions would help ensure the program is well capitalized. For example, increasing the installation rate of rooftop solar in the City of San Diego by another 100 MW per year over the current installation rate of about 100 MW per year,⁵ sufficient to allow the City to reach 100 percent clean electric power by 2030,⁶ would require about $300 million per year in financing for the next ten years.⁷

An on-bill financing program of the scope of SB 37 or the Hawaii GEM$ program would be an essential tool in equitably accelerating the deployment of solar and battery storage in the City of San Diego and SDCP service territory.

C. San Diego-Area Credit Unions Have the Financial Capacity to Meet the On-Bill Financing Need

San Diego-area credit unions collectively do have the capacity to meet a on-bill financing demand of $300 million per year. The five largest credit unions in San Diego have total assets of over $16 billion.⁸ See Table 1 below. $300 million per year in long-term lending through an on-bill financing program represents less than 2 percent of the total assets of the five largest San Diego credit unions. Credit unions typically commit on the order of 80-100 percent of their assets to high grade, long term loans.

San Diego credit unions are currently offering 20-year fixed home loans at less than 3.5 percent.⁹ This is well below the 20-year fixed interest rate of Hawaii GEM$ program of 5.5 percent. Residential electric rates of the Hawaii investor-owned utilities, at about $0.30 per kilowatt-hour (kWh),¹⁰ are comparable to SDG&E residential rates.¹¹ There is the potential for local credit unions to realize good returns at high volume, relative to other investment opportunities, providing the capital for an expansive on-bill financing program to support local clean power development.

Table 1. Total Assets and Net Income of San Diego’s Five Largest Credit Unions

On-bill financing is a necessary platform to assure equity in access to clean energy for all customers. About half the households in San Diego County are renters.¹² Loan programs offered by banks or credit unions outside of an on-bill financing program structure are unlikely to be available to renters.

IV. Conclusion

The SDCP should incorporate an expansive on-bill financing program into its program design. The most straightforward approach may be to direct SDG&E to expand its existing on-bill financing program to meet the needs of SDCP. A necessary element is opening the on-bill financing program to non-utility capital. Local credit unions should be enrolled as financial participants to provide the capital necessary for the on-bill financing program to realize its potential. Banks are less likely to be viable program partners as they are often regional or national.

Engagement of local credit unions as major partners will drive economic development, provide lending resources to accelerate program implementation, and assist with marketing and community engagement.

Offering a well-capitalized on-bill financing program open to all customers, that reduces customer monthly bills and includes renters, is essential to meet aggressive SDCP clean power program goals with local clean power.

About the Author

Robert W. Cross is the Founder & CEO of Cross Consulting Services. He assists cleantech and renewable energy firms address problems in their business models that could impede scale-up.

Mr. Cross has significant professional experience in clean technology, renewable energy and finance. He has been in leadership positions on five boards and served on numerous committees. He spent more than a decade in Portland, OR working as a business strategy consultant prior to relocating to San Diego. He has a Bachelor of Arts in Communications from Seton Hall University and conducted postgraduate work in Screenwriting at NYU.

More information on Mr. Cross’ current project work is available at crossconsultingservices.com.

¹ See: https://www.sdge.com/sites/default/files/documents/Guide-to-On-Bill-Financing%20.pdf. Any customer receiving a bill from SDG&E, which will include SDCP customers, is eligible to participate in the on-bill financing program.

²See: https://trackbill.com/bill/california-senate-bill-37-energy-efficiency-and-renewable-energy-upgrades-on-bill-repayment-program/434937/#/details=true.

³ https://gems.hawaii.gov/participate-now/for-homeowners/.

⁴ https://www.greentechmedia.com/articles/read/justin-hawaii.

⁵ The current installation rate for SDG&E territory is about 200 MW per year. See: https://www.californiadgstats.ca.gov/charts/. The City of San Diego is approximately one-half of SDG&E’s load. Therefore the current rooftop solar installation rate in the City of San Diego is assumed to be about 100 MW per year.

⁶ This target is five years earlier than the City’s Climate Action Plan mandatory target of 100 percent clean electric power by 2035.

⁷ The cost estimate assumes the average installed present value of residential solar + battery storage installations over the 2020-2030 period is $3 per watt. Therefore, $3/watt x 100 MW/yr x 1,000,000 watt/MW = $300 million/yr.

⁸ Source: San Diego Business Journal – Book of Lists 2020.

⁹ See California Coast Credit Union home loan webpage (click on “View Rates”): https://www.calcoastcu.org/borrow-home-loans.htm.

¹⁰ See: https://www.greentechmedia.com/articles/read/justin-hawaii.

¹¹ See SDG&E Schedule DR – RESIDENTIAL SERVICE Effective 2/1/2020 (last column): https://www.sdge.com/sites/default/files/regulatory/2-1-20%20Schedule%20DR%20Total%20Rates%20Table.pdf.

¹² See “Renter Fraction in San Diego California” (46.51 percent): https://www.deptofnumbers.com/rent/california/san-diego/.