Solutions to Up-Front Costs for Energy Efficiency

Civil Beat – March 7, 2011
By: 
Senator Mike Gabbard

Each day the headlines scream at us from the highly volatile Middle East. And, as oil rises past $100 a barrel, the voice is getting even louder. All Hawai'i residents are painfully aware that virtually everything we rely on for our daily needs — including gas, electricity, and food — is tied to the price of that dirty, black sludge. It’s ridiculous for Hawai’i, with all our natural resources of sun, wind, geothermal, ocean thermal, and wave energy, to remain in such a vulnerable position as the most oil dependent state in the nation.As Senate Energy and Environment Chair, I’m charged with moving the state toward a clean, renewable energy future. From this perspective, I’m always struck by the fact that although we have the highest energy costs in the country, most Hawai'i families haven’t taken the basic clean energy steps of installing solar water heating systems or making energy savings changes in their homes.In my view, there are several reasons for this. First, the up-front cost of energy efficiency measures can be substantial, and it’s not always easy to compare this to the cost of doing nothing. Second, many properties are rentals, meaning the owner receives little benefit from investing in energy efficiency improvements. Meanwhile, renters who would benefit, can’t be expected to upgrade homes they occupy only temporarily. Fortunately, there are policies that can address these issues. In fact, several have been considered by the Legislature over the last two sessions.During the 2010 session, my colleagues and I worked on a bill, HB 1643, that would have let property owners pay off energy savings measures by increasing their property tax bills. Called “Property Assessed Clean Energy” (PACE), the idea was called one of the "Top 10 Breakthrough Ideas" for 2010 by the Harvard Business Review. HB 1643 would have allowed homeowners and small businesses to borrow money from the counties — who raised it by issuing bonds, not tax increases — to purchase renewable energy and energy efficiency systems and pay back the loan on their property tax bill. In doing so, government would be working together with the citizens of Hawai'i to reduce our dependence on imported foreign oil.HB 1643 passed the Senate, but got tripped up in the House when the mortgage industry objected that PACE liens would supercede the original mortgage lien in the event of a default. Soon after, PACE programs in 22 other states were halted based on this same concern, which was raised by Fannie Mae and Freddie Mac. At this point, the federal government will have to make the fix before we can get PACE back on track.This year, as an alternative, I authored SB 182, which would have supported energy efficiency and solar through “on-bill financing.” The measure directs the Public Utilities Commission (PUC) to develop a plan to provide low-interest loans to residential electric customers interested in making energy-efficient upgrades or installing solar systems, which could be paid off on their electric bills. In essence, a portion of the customer’s monthly savings is applied to repaying the loan over a set term, which will appear on the customer’s bill as a financing charge. Because energy saving measures reduce the overall need to generate electricity, they lessen the need for new power plants and work to lower Hawai'i’s crippling electricity costs. The magic is that the homeowner's energy savings typically exceed the financing cost, resulting in an immediate decrease in the cost of living.Although it appears SB 182 isn't going to make it this session, I'm hopeful that we'll be able to get it moving in 2012. Meanwhile, another option we’re considering this year, SB 704, helps reduce the red tape involved in letting the private sector provide similar services to homeowners. I introduced this bill to clarify the fact that companies that lease solar power systems to homeowners — systems that mitigate up-front costs and make solar more affordable — are not public utilities that need to be regulated by the PUC. This model, in which private sector firms lease PV systems to homeowners over a 20-year period at a reasonable cost, have been highly successful elsewhere. Like PACE and on-bill financing, these programs work by eliminating the need for homeowners to come up with cash up-front. The nice thing about these private programs is that the companies would be responsible for maintenance, repairs, monitoring, and insurance for the solar power systems.All of these measures also help to resolve the landlord-tenant problem. This is because moving the loan repayment for renewable energy and energy efficiency measures on to a bill, be it the property tax or electric bill, accomplishes two things: it eliminates the need for the landlord to make any up-front payment and it clearly identifies the cost that a landlord can pass on to tenants. Meanwhile, tenants can see that they are receiving value in the form of reduced utility costs. If the renter moves, the charge remains tied to the meter, not the customer, and a new tenant assumes the bill. This encourages renters to participate because they pay for energy efficiency solutions only while they benefit from them. Landlords benefit from a wholly financed option to improve their properties.Innovative tools like these will be critical for Hawai'i to achieve its clean energy goals. By removing the up-front cost of solar and energy efficiency, these financing options would make clean energy accessible to households from Hilo to Hanalei and from Honolulu to Hana. These are “game-changing” policies that should be enacted in the near future.