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On-Bill Financing – Benefit to Both Sides

By September 17, 2013December 26th, 2021Briefs

What is On-Bill Financing

On-Bill Financing is a loan made to a utility customer, and payments are made to the utility via the customer’s monthly utility bill.  The loan is used by the utility customer to fund improvements with the energy savings offsetting some or all of the payment amount.  Most of these programs are targeted at energy efficiency improvements, and some utilities even use them for renewable energy projects at customer sites.

What is the current status for On-Bill Financing

Currently, 22 states have utilities that offer On-Bill Financing, including California and Illinois, which have made it a requirement for utilities in these states.  National Grid (an international electricity and gas provider) has offered On-Bill Financing for small business customer since the 1990s.

On-Bill Financing programs vary considerably depending on the target market (residential, commercial, industrial), funding source (utility ratepayer funds, financial institutions, etc.), regulatory climate, state lending laws, and many others.  However, two basic elements allow this type of program to work:

  • On-Bill loans are tied to the utility service – The customers pay back the loan on their utility bills, and many programs will disconnect service if the bill, including the monthly loan payment, is not paid.
  • The loans require “bill neutrality.”  This is critical as it has no financial or cash flow implications for the customer.

Why On-Bill Financing – the customer view

Many customers do not have the means or resources to fund energy efficiency improvements.  Some reasons for this include insufficient equity in the property to support a loan, lack of surplus income, insufficient credit, and financial capital constraints.

On-Bill Financing can overcome these constraints.  Funding via the utility bill can avoid a company’s capital constraints as some companies do not treat these as capital investments.  Requiring bill neutrality ensures the customers that they will be able to pay the loan cost if they were paying their original utility bill.

Why On-Bill Financing – the utility view

Providing On-Bill Financing can increase participation in energy efficiency and renewable energy programs by allowing customers who could not otherwise pay for improvements.  This will help the utility accomplish its energy efficiency goals and enhance customer satisfaction.

Why don’t more utilities offer On-Bill Financing

Financing loans to customers is not a core competency for utilities.  With the exception of utility bill payments, utilities are not comfortable loaning money as the rules for lending vary considerably from those governing recovery of unpaid utility bills.  Lending to residential customers can be a daunting task considering the paperwork and legal considerations.


On-Bill Financing can be an excellent tool to assist utilities in accomplishing their energy efficiency and renewable energy goals cost effectively.  Customers benefit with less hassle for securing capital through third parties.  However, a thoughtful program design is critical to avoid issues that could make the program untenable.  In addition, a favorable regulatory environment is necessary to protect all parties and ensure the viability of the program.

Michaels Energy

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