October 25, 2022

Reported and Evaluated Field Experience for PAYS in the United States

By: Jamie Dunlap

Inclusive utility investment programs using the Pay As You Save® (PAYS®) system generate net economic benefits for participants and the utility. This summer, a paper co-authored by Clean Energy Works, “Pay As You Save system of inclusive utility investment for building efficiency upgrades: Reported and evaluated field experience in the United States” was included in the European Council for an Energy Efficient Economy’s (eceee) peer-reviewed Summer Study proceedings. This paper categorizes the growth and development of PAYS programs throughout the country and features summaries of all utility reported program data by utility type.

Utilities in 10 states have offered inclusive utility investment programs, some since 2002. These programs are more accessible to occupants because the programs remove the barriers typically experienced by renters and low- or medium-income occupants which prevent them from participating in crucial energy efficiency upgrades. Of the utilities that have reported data on customers who accept the utility’s upgrade offer after receiving a savings assessment, each reported that more than two-thirds of assessed customers accepted the offer. That metric is six times greater than participation rates in traditional debt-based upgrade programs. 

With inclusive utility investments, any utility with an approved tariff can invest in site-specific upgrades and recover the full cost at each site over time through a charge on the bill that is less than the estimated savings. For the currently offered PAYS programs, utilities use their own or borrowed capital financing to invest in pay for energy, water, and other cost-saving upgrades and then recover their costs over time. 

PAYS programs have produced very high participation rates, a necessity for achieving net-zero goals. The overall offer acceptance rate is 60-75%; 90% where the offer includes no upfront participant contribution, 25% to 75% for offers with a co-payment. To date, the cost-recovery rate for these projects exceeds 99.9%, meaning utilities can provide these upgrades with very low risk to their capital.

Through 2021, U.S. utilities with inclusive utility investment programs have cumulatively deployed more than $50 million for building efficiency and electrification upgrades to nearly 6,000 locations. More than $170 million is committed for similar deployment over the next three years. Utilities of all types are offering PAYS programs – investor owned utilities, rural electric cooperatives, and municipal utilities.

In the last several years, a flurry of new PAYS-based programs have been offered or proposed by investor-owned utilities, largely as a result of increased calls from community advocates, legislators, and regulators to assist in building energy upgrades with equitable solutions with strong consumer protections. 

Rural electric cooperatives often operate in regions where poverty is persistent, the energy burdens are high, and utility or public funding for home energy upgrades are unavailable or extremely limited Cooperatives pioneered implementation of PAYS programs for building upgrades in order to be able to provide improved health, comfort, and cost savings to those who need it most. PAYS programs provide access to building upgrades for those who are beyond the reach of traditional financial approaches that require upfront funds or prime credit to access loans.

Municipal utilities have a unique combination of opportunities and barriers when it comes to accessing funds. Challenges around city budgets and securing approval for bond issuances have limited municipal utility adoption of PAYS programs for building upgrades, however, PAYS programs have proven valuable and helped provide access to many water saving upgrades for municipal utilities.

Recent research has shown that the value of each upgrade to the utility is between $1,300 and $3,000, with savings for residents ranging from 2,559 – 5,202 kWh per year per home. Ultimately, the cost to remove all emissions from homes and commercial buildings in the United States to achieve net-zero results is estimated to be nearly $3T. Inclusive utility investment programs can be combined with traditional methods to improve participation rates and provide access to necessary upgrades to those who cannot or will not utilize loans or savings. 

These self-reported results show how inclusive utility investment programs using the PAYS system are generating net economic benefits for the utility in addition to generating benefits for participants, even after taking into account all program costs. Altogether, the field data presents a striking picture of a solution that can reach underserved markets even in areas of persistent poverty. It also provides examples for more states, utilities, regulators, policymakers, and communities that want to reduce greenhouse gas emissions from the buildings sector.

Read The Full Paper

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