February 4, 2025 | Ramón Alatorre & Justin Brant
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On January 6, 2025, Xcel Energy filed an application with the Colorado Public Utilities Commission for approval of its first ever Tariffed On-Bill Financing Program (Search Proceeding #25A-0036E). On-Bill Financing (OBF), sometimes referred to as On-Bill Repayment, has been discussed in Colorado for more than a decade so it’s great to see that it is finally starting to come online as a tool that will make the health, environmental, and economic benefits of energy efficiency and electrification accessible to more people in the state, especially those that might otherwise struggle to secure affordable traditional financing.
By providing low-cost financing that is tied to the home’s utility meter rather than to an individual borrower, OBF can be made available to all utility customers regardless of their credit history. In addition, the meter-based design of OBF allows the repayments to automatically transfer to the new resident or owner if/when a tenant moves or the building is sold. With reduced origination burden and payments that are conveniently rolled into the existing utility bill, OBF also has relatively low administrative costs. The low costs and transferability of OBF combine to make energy efficiency upgrades and their associated health advantages and utility bill savings far more accessible to renters, as well as to customers with low income or limited credit.
Colorado’s first OBF program began in 2024 when Tri-State Generation and Transmission Association (Tri-State), its distribution cooperative members, and the Colorado Clean Energy Fund launched an On-Bill Repayment program that secured $75 million in loans for rural energy efficiency measures. In contrast, the new Xcel proposal calls for an initial capital amount of $25 million or less, with the application stating that “the Company finds it important to have sufficient funding available to meet customer interest” but that “…the Company does not know what the customer update rate of the Financing program will be.”
Given that Xcel serves more than four times the number of residential customers as Tri-State, basic multiplication would suggest this amount is likely to fall short of meeting customer demand. This begs the questions: What is the demand? Given the state’s greenhouse gas reduction goals for 2030 and beyond, how big is the OBF opportunity? Not only in the Xcel service territory, but throughout the entire state of Colorado?
The Southwest Energy Efficiency Project (SWEEP) recently completed an analysis that examines the magnitude of the Colorado OBF opportunity, as well as an evaluation of established financing programs in other states. The purpose of this analysis is to support Colorado stakeholders, including local governments, the State, utilities and lenders, as they consider the dimensions of program sizing and design when developing new financing products.
The magnitude of the OBF opportunity
To determine the magnitude of the OBF opportunity, SWEEP started by narrowing the scope to consider only: a) the existing residential building sector and b) heating and cooling equipment at the end of life. As a tool, OBF doesn’t apply to new construction, and while OBF could be utilized by other sectors and for other measures, this was seen as a valuable starting point and baseline. Note then that the total multi-sector financing opportunity is almost certainly greater. With the scope narrowed, SWEEP then asked:
- How much total upfront investment or “sales potential” is being called for in the Colorado Roadmap and Xcel Clean Heat Plan between now and 2030?
- How much of those total upfront costs is being addressed by known and existing Federal, State, and utility rebates?
- What is the gap between the total upfront costs and known rebates?
- SWEEP calls this gap the “financing opportunity.”
Finding #1: Between 2025-30, the residential end of life heating and cooling equipment financing opportunity in Colorado is greater than $6 billion.
- On an annual basis, the opportunity scales to over $1.6 billion/year in 2030.
Finding #2: Between 2025-30, the residential end of life heating and cooling equipment financing opportunity in Xcel Energy service territory is greater than $1.5 billion.
- On an annual basis, the opportunity scales to over $665 million/year in 2030.
SWEEP does note that the total financing opportunity does not need to be filled by OBF alone. Nevertheless, these aggregate and annual figures are useful data points when considering how to size potential OBF initiatives.
Comparison to similar programs nationwide and interest rate buy-down:
After determining the magnitude of Colorado’s financing opportunity, SWEEP looked at established OBF and similar programs nationwide. Perhaps unsurprisingly, the largest programs with the greatest customer uptake and allocation of funds are found when the interest rates are low. For example, between 2021-23 a program in Connecticut distributed over $65 million for their 0.99% interest rate product, compared to less than $6.5 million for their 6-8% interest rate product. Over the same period, the Massachusetts HEAT Loan program distributed more than $654 million in 0% interest rate loans. In comparison, the Xcel Application considers fixed interest rate products ranging from 5.0%-5.99% depending on the length of the repayment period. Noting the importance of low rates to customer participation, particularly for low-income customers, the SWEEP report concludes by analyzing how much it would cost to buy down interest rates to target levels, based on program size. READ THE REPORT
Conclusion
SWEEP strongly supports the continued development and launching of OBF programs in Colorado in recognition of this tool’s potential for providing widespread access to home improvements that benefit the climate, air quality, public health, and affordability. That said, SWEEP assesses the OBF opportunity to be considerably larger than the programs currently being brought forward — by an order of magnitude. SWEEP encourages utilities to lean into this opportunity as they develop their programs. We also encourage the state to partner with utilities, local governments, environmental organizations, community groups, and others to establish a statewide framework and source of funding to enable OBF programs all across the state, so that all Coloradans have an equal opportunity to live in healthier, more energy efficient homes. Finally, given the participation trends observed in other states for low interest products, SWEEP recommends that utilities (as well as perhaps local governments or the state) examine opportunities to use their resources to buy down interest rates, particularly for low income customers, to achieve the greatest uptake and impact.
The post The Colorado On-Bill Financing opportunity: It’s time to go big with this innovative clean energy tool first appeared on Southwest Energy Efficiency Project.