Loans for Green Homes


States are awash in federal money for energy efficiency — $5 billion to weatherize low-income homes and another $6.5 billion for a wide range of projects from enforcing building codes to researching new energy technologies. But a South Carolina electric cooperative association wants $4.5 billion more to help rural homeowners who they say will otherwise be left out of the green revolution.

Building on an idea pioneered over the past two years in a handful of states, Electric Cooperatives of South Carolina has persuaded a bi-partisan coalition in Congress to introduce a bill that would finance energy efficiency upgrades on 1.6 million homes nationwide, including 225,000 in South Carolina.

Since the Rural Electrification program was created 75 years ago to breathe life into the nation's ailing rural economies, small, non-profit utilities have worked closely with their mostly moderate-income customers to shave dollars off their power bills. But if innovative new financing plans forged in Arkansas, Kansas, New Hampshire, Vermont and Virginia could be expanded to the whole country, it would be a giant step toward achieving the nation's energy efficiency goals, says Dena Stoner, government affairs vice president for the National Rural Electric Cooperative Association.  

Under the fledgling programs, homes are audited to determine what improvements would be most cost-effective. Then a low-interest, no down-payment loan is structured with monthly payments on the customer's power bill that come to no more than the savings achieved from the upgrades. As an added bonus, in some states, homeowners who decide to sell their homes before the loan is repaid get to transfer the remaining payments to the new owner.

South Carolina cooperatives last year experimented with such a loan program, awarding energy makeovers valued at up to $10,000 each to seven families. This month, the Legislature approved a bill that would let utilities offer the loans statewide.  But without federal funding, the cooperatives says the program will die.

Rural cooperative home efficiency loans sound almost too good to be true. They're low risk — since the default rate on utility bills is less than 2 percent - and they fill a need not addressed by low-income state weatherization programs or tax credits for folks who can afford to spend several thousand dollars upfront.

The problem is, only a small number of rural homeowners have signed up in the states that have experimented with the programs — a challenge South Carolina and other states hope to overcome with more effective marketing and outreach.

"We are driven to make this work," says South Carolina cooperative's CEO Michael Couick, "because the payoff means we can postpone the need for new (power) generation. The energy savings we're looking for equals half the output of a nuclear power plant."

South Carolina hopes to entice customers to sign up by allowing them to keep one-third of the money saved on their utility bills while the rest of the savings goes back to the utility to pay off the loan. Once the10-year loan is paid in full, 100 percent of the savings would go to the consumer.

In New Hampshire, where winters are cold and electric rates are much higher than the national average, homeowners should have every incentive to take advantage of energy-saving makeovers. But a loan program offered by rural electric utilities in the state since 2008 has had only a few takers.

"It's not like we haven't tried," says New Hampshire Energy Cooperative president Fred Anderson. "Sometimes it's difficult to convince people of things that are good for them. It's probably a question of priorities. It's a nut we have to crack."

Anderson's 80,000-member rural co-op put up $1 million of its own money to finance loans and the state chipped in $200,000. But two years later, less than half of the money has been loaned out, and most of it has gone to small businesses.

The concept — paying for energy upgrades such as insulation and new heating and air conditioning with the savings generated by the improvements — has long been used by states to finance efficiency upgrades for schools, hospitals, prisons and other state facilities. And the U.S. Department of Energy (DOE) has given grants to states to make low-interest energy efficiency loans to businesses and consumers for decades.

But South Carolina's plan would be the first to make widespread use of the financing tool for middle-income home energy upgrades — something experts say is the key to cutting the nation's reliance on foreign oil and reducing harmful carbon emissions.

"Efficiency, without question, is our cheapest source of fuel," says Dale Hahs, chairman of the non-profit Energy Services Coalition , which advises states on energy efficiency.  He explains that energy efficiency models compare the cost of saving a unit of energy to the cost of producing it. And no matter what the source of energy — fuel oil, electricity or natural gas — the cost to save energy by caulking, installing insulation or purchasing more efficient appliances is cheaper over time than the cost to produce it. For example, weatherization improvements on average amount to about 2.5 cents for every kilowatt hour of electricity saved. That compares to a national average cost of 11 cents to produce a kilowatt hour, according to Hahs.

That's why the Obama administration earmarked more than $20 billion in the federal stimulus package for these state programs, upgrades to federal buildings, research and development and other projects aimed at saving energy.

And if that isn't enough funding, the bill South Carolina is promoting — the Rural Energy Savings Program — is just one of several in Congress that would pump even more money into retrofitting existing homes and other buildings to reduce the nation's reliance on foreign oil, lower greenhouse gas emissions and create hundreds of thousands of new jobs.

Other bills currently under consideration include a so-called Cash for Caulkers program that would provide billions in federal tax credits for homeowners who make energy efficiency improvements, and a municipal bond proposal called the Property Assessed Clean Energy program, or PACE, that would provide cash for counties and cities to finance home-energy makeovers by adding a surcharge to property tax bills.

The fervor and money behind energy efficiency stems from estimates that the nation's voracious appetite for fuel could be trimmed significantly and hundreds of thousands of jobs created by upgrading existing commercial and residential buildings, which account for at least one third of all energy use, according to DOE.

Much of the responsibility for this ambitious transformation resides with state energy agencies, which have been funded by DOE since1975 and have broad leeway to spend the enormous federal cash infusion — more than100 times what they typically receive annually. In addition to conducting energy audits and retrofits, the agencies are charged with enforcing rigorous energy efficiency standards for new construction.

In Kansas, the state energy agency decided to spend $37.2 million of the $47.7 million in stimulus money it received to emulate what experts say was the first green loan program, started by rural cooperative Midwest Energy in Hays, Kan.  Dubbed Efficiency Kansas, the state program will partner with Midwest and other utilities to offer low-cost energy audits and consumer loans.

"There are a lot of obstacles to getting long-term efficiency," says Stoner of the National Rural Electric Cooperative Association. "One of the biggest is that people can't afford to make upfront investments and they worry that they won't get the long-term benefit." These loan programs attempt to get around that problem.



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