On‐Bill Financing Programs to Support Low‐Carbon Energy Technologies: An Agent‐Oriented Assessment

Abstract

On-bill financing (OBF) schemes have been welcomed as innovative mechanisms for encouraging the adoption of low-carbon energy technologies. Yet while the potential effects of these schemes have received growing attention, less is known about their actual performance. Departing from New Institutional Economics and insights from Behavioral Economics, this theory-driven assessment examines the How$mart V R program in Kansas (United States) and the Green Deal in the United Kingdom. The study identifies the mechanisms designed to trigger behavioral change and technology adoption. We focus on market agents, and related market failures and behavioral anomalies that often prevent energy efficiency improvements. The paper adds to our theoretical and empirical understanding of public and utility-driven OBF programs applied to the residential sector. Our findings suggest that simple, carefully designed on-bill programs, where the financing of efficient technologies takes the form of a service rather than a loan, are more effective for the diffusion of low-carbon energy technology and the reduction of transaction costs. At the same time, on bill-financing schemes challenge the core business of utilities, and given the complexities and dynamics of energy efficiency markets and energy use, other policy interventions are needed.

How to finance energy renovation of residential buildings: Review of current and emerging financing instruments in the EU

“…The first PAYS®‐inspired scheme in Europe was implemented in the UK in 2013 with the Green Deal, which enabled owners and occupants to install EE improvements at no up‐front cost. However, the performance of this scheme was not as originally foreseen, with several factors contributing to its failure (Mundaca & Kloke, 2018). A detrimental factor was the high (7–8%) interest rate attached to the Green Deal loan which was considered uncompetitive in comparison with general home improvement loans 11 .…”

“…Energy savings accruing from the installed EE measures, must be large enough, so that the total post-renovation utility bill does not exceed the pre-renovation bill (Henderson, 2012). Given possible challenges that this type of instrument may pose on utility core business models as well as complex tendencies of energy efficiency markets, other policies need to complement this innovative financing mechanism (Mundaca & Kloke, 2018).…”

Technologies and Strategies to Support Energy Transition in Urban Building and Transportation Sectors

“…This mechanism has been in place for more than 30 years in the USA with very successful cases. Oppositely, in the EU there are only a few initiatives, the UK Green Deal was a case of failure [65]. Finally, Delponte et al [66] mentioned the importance of non-energy benefits brought by energy-efficiency measures and the need to include them in the overall assessment of each case.…”

Hot stuff: Research and policy principles for heat decarbonisation through smart electrification

“…These programmes allow the repayment of a loan via a surcharge on the energy bill. While such programmes have had some success outside of Europe, European success is limited [119] with the GB Green Deal seen as a particular failure [120] .…”