From California, the land of policy-backed energy efficiency, comes a new plan to jumpstart investment in making buildings greener and more efficient -- tying repayments to utility bills.

The California Public Utilities Commission is now considering just such an “on-bill repayment” proposal put together by the Environmental Defense Fund. Letting banks and other private investors get paid back on energy upgrades through installments on customers’ utility bills could spur billions of dollars in new investment by lowering borrowing costs and credit losses, EDF says.

The program would apply to both efficiency and renewable energy generation investments, and could work for both residential and commercial buildings, EDF says. To make sure residential projects don’t add to the bills of renters or unsuspecting homeowners, investors would have to promise that energy savings from the project would exceed loan repayments to yield a net decline in utility bills over time.

Think of it as the latest in a long line of clever ideas for making energy efficiency investment easier to pay off, and thus opening the market to more private players. We’ve seen a number of innovations emerge on that front over the past few months on the commercial side, driven both by government push (the White House’s Better Buildings Challenge) and by private sector innovation (new financing models from the likes of Serious Energy, Transcend Equity and Metrus Energy).

Utilities already share the burden of paying for energy efficiency with their customers, in the form of rate increases to support various efficiency projects and mandates. That’s still a lot cheaper than building new power plants. But utility efficiency investment is limited in scope both by regulations and by simple economics -- most businesses don’t want to spend much money to help customers buy less of their product, after all.

Allowing private investors to piggyback on the super-safe utility bill repayment stream could lower financing costs by a significant amount and help spur the market, particularly on the residential side. California’s residential market could see about $2.7 billion in additional annual efficiency investment once the program is mature, according to Brad Copithorne, EDF energy and financial policy specialist.

The big question is whether the idea will run afoul of any snags along the way. That’s what happened with property assessed clean energy (PACE) financing over the past few years. The idea of PACE was to finance solar power and efficiency projects through property tax bills, reducing repayment risk and lowering debt costs.

Many local governments instituted PACE programs in the 2008 to 2010 timeframe, but then mortgage giants Fannie Mae and Freddie Mac announced they would oppose any mortgages that included such provisions, effectively killing the program.

CPUC will hold workshops in February and expects a final decision by April, which could kick the program into gear by early next year. The coming months will give us a chance to see how the industry and other stakeholders in the process respond. Expect to see a lot of consumer groups worried about customers getting stuck with outsize bills, for example.

Another interesting question is, just what equipment and service work gets to be included under the program? Could we see home energy management hardware covered, or even the broadband connections to enable them? Likewise, how will the proposal define rooftop solar panels, micro wind turbines, household combined heat-and-power fuel cell systems, and other such small-scale devices in relation to the program?

Tags: california, doe, efficiency, energy efficiency, green building, policy, smart grid, utilities