How does PAYS financing for energy efficiency building upgrades work?
The utility invests in cost-effective energy upgrades at customer sites – like better building efficiency and rooftop solar. The customer pays nothing upfront for the upgrades they choose because the utility pays the installer. Using a tariff, the utility puts a fixed charge on the customer’s monthly bill that is less than the estimated savings generated by the upgrade – so the customer enjoys immediate and sustained cash flow. Until the investment is recovered, the tariff for the PAYS charge automatically transfers to future customers at that site.
How can PAYS reach virtually all consumers?
Wherever the grid reaches today, utilities have achieved near universal access by recovering investments through an agreement with customers called a tariff. Vendors for distributed energy solutions don’t enjoy tariff authority, which has led to the use of alternatives such as loans or leases. PAYS clears the biggest barriers to financing because it does not depend on a consumer loan, long-term lease, or a lien on the value of the property.
Without PAYS, renters and low-income households have faced barriers to accessing investment capital for cost-effective energy upgrades, and similar financing challenges have stumped credit-strained companies and local governments. With PAYS, are there any barriers that would still face a utility customer in good standing? Yes, buildings that need major repairs or may soon cease to serve their primary purpose would need to first address those challenges.
How are PAYS financing programs for performing?
Compared to typical debt-based programs, experience shows that Pay As You Save has a bigger impact for four reasons:
1. First, the addressable market is double the size because nearly all customers are eligible.
2. When customers are offered upgrades with the Pay As You Save value proposition, they accept more than half of the time, which is 5 times the typical rate.
3. When customers do accept, the projects they undertake are much larger because the terms are more attractive.
4. The investment is more secure because utility collections have a charge-off rate that is approximately 10 times lower than consumer lending.
Electric cooperatives have led the way on using PAYS financing, and the results for efficiency have been huge: posting an average of 25% savings. Utility regulators in Kansas and Kentucky have already approved tariffs based on the PAYS system. The utility branded names for those programs are How$martTM and How$mart KY. Roanoke Electric in North Carolina has also launched a program this year based on PAYS called Upgrade to $ave.
How do utilities license the PAYS financing solution?
The creators of PAYS financing, Energy Efficiency Institute, Inc., have developed a package of program design documents that can be licensed by any utility. Further inquiries can be made through this website.
Click here for a convenient two-page overview.
For a chart comparing key features of PAYS as compared to PACE and HELP, click here.