University of Minnesota
University of Minnesota
Energy Transition Lab

An Assessment of Innovative Financing Structures for Minnesota

The Energy Transition Lab led a project that evaluated the potential for a tariffed on-bill (TOB) financing program to expand residential energy efficiency investments. The study was initiated and funded by the Institute for Local Self-Reliance (ILSR) and the City of Minneapolis who looked to the Energy Transition Lab to convene an Advisory Committee to ensure the study had robust stakeholder input and a balanced approach to measure screening selection. The analysis was conducted by The Cadmus Group, a uniquely qualified consulting firm who was able to work with the Advisory Committee to capture the complexity of Minnesota’s cold and varying climate, multiple utility models, and multiple energy delivery systems. The project had utility partnership and cooperation with Xcel Energy, CenterPoint Energy, East Central Energy Cooperative, Minnesota Power, and the City of Warren. The project also received financial support from Xcel Energy, the City of Warren, and the Marcy-Holmes Neighborhood Association.

The purpose of this effort was to draw on the best available information from prior TOB programs implemented in other jurisdictions, as well as the wealth of energy planning information available and regularly used in Minnesota, to assess the feasibility of TOB in Minnesota. This study primarily considers economic and financial elements of program feasibility, though it also serves to catalog key policy and regulatory items that were flagged by working group participants and which must be addressed in any future program design process.

The results of the study show that some defined customers and market segments could likely benefit from a TOB program in Minnesota, allowing them to reduce their household energy costs and enjoy the benefits of cleaner and more efficient energy systems, without barriers such as credit scores and in some cases, without upfront capital investments.

Measures Included in Analysis

The study looks at discrete market segments (e.g. homes with electric resistance or propane/oil heating) in the state of Minnesota and specific utility or political jurisdictions within the state, to demonstrate the potential effects of TOB programs.  In this analysis, the list of measures included in existing Conservation Improvement Programs in Minnesota was used as the starting point to develop a measure list. This list was filtered to remove measures that are not typically permanently installed in a home (such as room air conditioners), and was further modified based on stakeholder input.

Key Takeaways:

  • The greatest opportunity for TOB financing is in envelope measures. This is consistent with participation records from prior PAYS programs, where envelope improvements have accounted for the bulk of program participation. In homes heated by electricity or propane, financing for envelope improvements is attractive in a home with standard insulation levels, and dramatically so in a home with poor insulation levels. The low cost of gas heat makes applicability more difficult, but there are still ample opportunities for financing envelope improvements (especially wall insulation in poorly insulated homes). In several cases, envelope improvements may be combined with other measures that are cost effective but not fully financeable to develop an attractive financing package. It should be noted that there is a wide range in the costs and savings of home envelope measures, which is demonstrated in program data from current utility CIPs, and so evaluating the specific opportunity for cost-effective energy improvements in a given home is critical.
  • Opportunities to finance HVAC improvements must be considered on a case-by-case basis. It may be difficult to fully finance HVAC equipment on a standalone basis in many cases, though there are several opportunities to do either in specific circumstances or in combination with measure packages. In electric-heated homes, ductless mini-splits may be an attractive candidate for financing given their modular nature and relatively low cost, especially when combined with envelope measures or used as a partial heating source. Opportunities to finance heating systems in gas-heated homes are more limited but do exist. TOB may be an attractive tool to drive the purchase of efficient furnaces, for example, in cases when an existing heating system has failed and the homeowner must purchase a new furnace regardless, with financing being used to cover the incremental cost of a more efficient system.
  • Other discrete potential applications for TOB financing are available. For example, financing Heat Pump Water Heaters in homes with electric water heaters may be a viable option, as well as financing refrigerators or rooftop solar systems (especially in the case of customers that qualify for existing solar rebates such as Xcel’s income-based Solar Rewards incentive). TOB financing may also be an attractive tool to support the joint Xcel-CenterPoint Multi-Family Building Efficiency program by addressing a large portion of the cost of a complex building upgrade.

It should be noted that, in existing TOB financing programs, opportunities for financing are not evaluated on a prescriptive measure-level basis using average building performance characteristics as they have been here, but rather on a home-by-home basis with the aim of identifying a financeable package of upgrades (relying primarily on building envelope improvements and small cost-effective measures) that would not require a co-payment. As indicated above, there is likely to be such an opportunity to develop a package of financeable measures in many targeted households in Minnesota, particularly those with electric heat or poor existing levels of insulation or building tightness.

The report also includes policy and program design considerations for next steps in implementation discussions, as well as a review of several elements of Minnesota law that have been highlighted by stakeholders.

Download the full report here: Minnesota TOB Financing

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