How To Finance Your Energy Efficiency Upgrades for Free

happy couple standing in front of their house

As many environmentalists know, the falling price of renewables and energy-efficient appliances has made it possible to reduce your carbon footprint and save money too.

According to the Department of Energy, the average homeowner can save $200 to $400 per year on their energy bill by upgrading their insulation, HVAC, and thermostats. And the National Renewable Energy Laboratory reports that energy efficiency upgrades could reduce America’s carbon footprint by 291 million tons of CO2 per year.

But the biggest hurdle for most Americans is the upfront cost of these upgrades. The energy efficiency improvements that can make the biggest impact often target a home’s insulation, space heating and cooling, and water heating. And making those changes can cost anywhere from $1,000 to $20,000. In a country where 40% of Americans can’t come up with $400 to pay for an emergency bill, it’s not surprising energy efficiency upgrades seem out of reach for most people.

But for some homeowners, their utility provides the perfect solution to this problem: “on-bill financing.”

How On-bill Financing Works

The way on-bill financing works is pretty simple. You tell your utility what improvements you want to make and they give you the money to pay for it. Then they increase your utility bill to make their money back. So instead of going to a bank to get your loan and paying a separate bill each month, your utility becomes the bank.

To demonstrate how on-bill financing can help you cut your carbon footprint and save money, imagine that you want to replace your inefficient water heater with a heat pump water heater.

If you are like 90% of U.S. homeowners, your water heater is incredibly energy inefficient. Virtually all water heaters in the United States have no way of predicting when you’ll need hot water, so they heat water at every hour of the day. That means even if you’re on vacation or asleep, your water heater is heating water in case you need it.

As a result, the average U.S. family spends $600 and emits about a ton of CO2 every year heating water that for the most part, they won’t use.

And while the upfront cost of a heat pump water heater is high, the carbon reductions and cost savings are substantial over the long run. According to NRDC, the average customer who switches to a heat pump water heater can cut their carbon footprint by 600 kilograms per year. That adds up to 9 tons over the 15-year lifespan of a water heater.

With on-bill financing, the decision becomes a no brainer: if you borrowed $1,500 from your utility at a 3% interest rate spread out over 15 years — many utilities offer with on-bill financing programs — a heat pump water heater would cost you $10 per month. Considering that the average U.S. family spends $50 per month on water heating, that results in an immediate savings of $40 per month. Over the water heater’s 15-year life span that would result in $7,200 in cost savings.

Does Your Energy Provider Offer On-bill Financing?

While on-bill financing is increasingly popular, not all utilities or co-ops offer programs. To see if your energy provider does, visit the Environmental and Energy Study Institute map. If they do, visit the link to their program and apply.

If your energy provider doesn’t offer on-bill financing, you may be able to find a similar program offered through your city, county, or state government. To check, Google “energy efficiency financing” + your state.

And if neither your energy provider nor your local government offers energy efficiency financing programs, write an email or letter to your legislators asking them to sponsor policies that bring these benefits to you and your neighbors.

In cities and states across the nation, environmental advocates have been essential in passing energy efficiency policies that enable programs like on-bill financing. And they’ve even been able to do so in conservative states. That’s because energy efficiency, unlike some environmental solutions, is something that legislators on both sides of the aisle often support.

About the Author

Michael Thomas is the founder of Carbon Switch, a social enterprise that helps homeowners reduce their emissions and save money. His work has been featured in magazines like The Atlantic, Fast Company, and Quartz.

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