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Bringing energy efficiency to the middle class

The Pay As You Save model calls for installing improvements free for customers and repaying the cost through utility tariffs.

The single-family middle-income market for energy-efficiency retrofits has proven difficult to crack. One well-known obstacle is access to financing. Middle-income families often earn too much to qualify for state and federal weatherization programs but lack the credit characteristics to receive financing for energy-efficiency retrofits.

The benefits of energy-efficiency retrofits for middle-income households earning between $32,500 and $72,500 per year are well-documented. A 2011 Lawrence Berkeley National Laboratory report (PDF) estimated that retrofitting one-third of the 32 million single family middle-income homes in the United States could save as much energy each year as is used by every home in Houston, Phoenix and San Francisco combined.

In addition, undertaking these retrofits would stimulate $100 billion in localized economic investments and create thousands of living-wage jobs. Some even have argued that expanding energy-efficiency retrofits in the middle-income market is the key to building broad-based political support for federal climate-change legislation.


Pay As You Save (PAYS) is a financing intervention that hopes to address the rural middle-income market by enabling utility customers to purchase and install cost-effective energy-efficiency upgrades without upfront payment, personal loans or property liens. PAYS was one of four interventions that won the Finance for Resilience (FiRe) prize at the Bloomberg New Energy Finance Future of Energy Summit 2015.

According to Holmes Hummel, the lead spokesperson for the project, PAYS is innovating by “allowing utilities to do what they do best … finance infrastructure investment.”

Under the PAYS model, customers could request that their utility install energy-efficiency measures in their homes. The utilities would finance and install the energy-efficiency technologies. Then, the utilities would recover the costs through tariffs for each of the customers’ meters.

Essentially, the PAYS model allows utilities to treat energy-efficiency investments “behind the meter” in the same way they treat energy-infrastructure investments such as power lines or substations. Because the energy retrofits are financed by a tariff on the customer meters rather than a lien on customer homes, PAYS’s website says the tariff will be easily transferred to future customers.

Rural roots for energy efficiency

PAYS plans to start by targeting the rural utilities that currently serve 40 million people in the United States. Hummel said rural homes are underserved by current energy-efficiency programs because rural areas lack the customer density necessary to make specialized loan products economical.

Also, PAYS intends to help rural utilities secure treasury-rate financing to capitalize their behind-the-meter energy-efficiency programs.

PAYS is also starting in rural areas for strategic reasons. Many of these utilities serving rural communities are structured as cooperatives or are municipally owned. Consequently, they have strong internal incentives to deploy energy-efficiency measures that decrease energy consumption.

The investor-owned utilities that serve 68 percent of United States electricity customers may have different incentives than cooperative and municipal utilities do.

Hummel said that focusing on rural cooperative and municipal utilities is an “entry point into the sector.”

However, Hummel said increasingly stringent energy efficiency regulations at the federal and state level will incentivize investor-owned utilities to adopt PAYS-style programs.

Already, PAYS has shown promise in the rural utility market. In the past year, the PAYS model has been used to finance energy-efficiency retrofit programs in in rural Kentucky and North Carolina.

Additionally, programs using the PAYS model are seeing customer adoption at five times the rate of similar debt-based programs.

This article first appeared at Clean Energy Finance Forum.

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