Financing a Clean Energy Future for All

How can we transition to a 100 percent clean energy future when most people face financial barriers to participation?

Climate action plans often call for widespread building, energy efficiency upgrades, rooftop solar, and shared mobility solutions using electric vehicles. To electrify everything while we green the grid, distributed energy solutions like these are essential. Without them, the paths to zero carbon pollution are both slower and more costly.

Yet, most households are locked out of the clean energy transition by barriers to participation rooted in the financial services industry. Questions like, “What is your income and credit score?” and “Are you a renter?” have the effect of systematically disqualifying people from access to financing for energy efficiency and other fossil fuel-free upgrades.

Centering equity in the work to combat climate change requires solutions that remove these barriers, opening access to inclusive financing for upgrades that help people’s pocketbooks and reduce emissions at the same time.

How can we open doors to participation?

High energy bills lead to tough choices between paying for electricity or for other necessities such as food, medicine, and transportation.

Energy burden – the share of income spent on energy bills – is highest for those facing poverty, inadequate housing, and racial discrimination. Energy burden can lead to serious consequences for the health, well-being, and economic security of a household. Imagine having to freeze during the winter in order to be able to afford enough food to eat. Or sweltering through a summer heat wave in order to be able to afford medicine for a chronic condition.

High energy burden is often the result of living in a drafty building with outdated HVAC equipment. These problems can be solved cost-effectively by straightforward upgrades like installing insulation, caulking gaps, or upgrading HVAC equipment. However, the Federal Reserve reports consistently that most households do not have the thousands of dollars of cash on-hand to pay for these benefits. Many of them are not willing to go further into debt to do so – if they are able to qualify for a loan at all.

To make matters worse, low- and moderate-income (LMI) households pay energy bills that fund the very utility-sponsored energy efficiency programs from which they are systematically disqualified from participation. So those facing higher energy burden are also paying for energy efficiency benefits for other ratepayers while having limited options to benefit themselves.

Given an option, how do people respond?

Inclusive financing is unique because where it’s offered, it allows all utility customers the option to access cost-effective energy upgrades using a proven model that benefits both the utility and its customers.

Here’s how it works:  When a customer opts into the program, they pay nothing upfront for the cost-effective upgrades they choose. Instead, the utility pays the installer. The utility puts a fixed charge on the customer’s monthly bill through an agreement called a tariff – the same type of contract document used to establish what is included in your utility bill. The fixed charge is less than the estimated savings generated by the upgrade, allowing the customer to enjoy more cash in their pocket right away. Until the investment is recovered, the tariff charge automatically transfers to future utility customers at that house, apartment, or building.

These programs do not require customers to prove that they are either wealthy enough to qualify for credit or poor enough to qualify for means-tested public assistance restricted to very low-income households – and often has many more people eligible for assistance than funds available.

Utilities like Midwest Energy in Kansas have reported that when the utility makes an offer to invest under an inclusive financing system, the majority of customers accept the offer. Additional data reported by utilities offering similar programs produces a striking picture of how such a breakthrough financing mechanism can expand participation in the clean energy economy, reach underserved markets, and unlock investment opportunities.

Compared to typical debt-based financing programs, inclusive financing has a stronger response because:

1. Nearly all customers to the utility are eligible, including renters and LMI households, because they don’t require customers to take on debt to participate.

2. When customers are offered upgrades with this value proposition, nearly all utilities have reported that customers accept offers more than half of the time. This indicates that if given the chance to have energy efficiency measures installed and energy bills reduced, more customers want to participate, even those risk-averse and constrained by debt.

3. Customers with access to inclusive financing tend to undertake projects that are larger in scope because the terms are more attractive. In turn, this more greatly reduces the building’s energy use, further reducing emissions and providing greater savings to the customer.

The outstanding participation observed with these programs underscores that there is a path to rapid, equitable, inclusive large-scale energy efficiency upgrades, which begins with opening the doors to investment to all. When presented with a genuine opportunity to participate, households say “yes!” to our clean energy future.

With more utilities on board, what becomes possible? 

As inclusive financing supports broader participation in existing efficiency programs, we could expect to see a surge of investment reaching customers who are typically locked out – development in energy efficiency as a resource at levels perhaps reaching those attained during the 2009 American Reinvestment and Recovery Act.

Rural electric cooperatives are leading the way, with programs recently begun in North Carolina, Arkansas, and Tennessee. Increasingly, investor-owned and municipal utilities are considering launching programs of their own. Utilities are also considering innovative applications of this breakthrough financing mechanism, from vehicle electrification of transit and school bus fleets to other grid-edge solutions such as solar, demand-response, and building decarbonization efforts. All of these applications would play a substantial role in accelerating the reduction of emissions and increasing access to clean energy solutions for all.

Organizations across the country are calling for inclusive financing in their communities. Reach out to connect with advocates engaging in the call for inclusive financing today, or attend a Climate Reality training to learn how to pressure your representatives and utility leaders to act at this critical time.

Want to learn more about inclusive financing? Check out Clean Energy Works.