The best tool for small businesses to lower energy costs may be on-bill financing: paying for energy-efficient upgrades via monthly savings
Clem Piscitelli's proverbial "lightbulb moment" came the summer of 2006. That's when he noticed his monthly electric bill, typically around $1,700, topped $2,600 for the second month in a row—"a nice chunk of change" for his Hamden (Conn.) grocery store, West End Market.
Piscitelli isn't the only small-business owner feeling the squeeze of rising energy prices. Jerry Lawson, director of the Environmental Protection Agency's (EPA) Energy Star program for small business says that within the past year he has seen a noticeable increase in information requests from small businesses looking for ways to become more energy efficient. Actually making that happen, however, is another story. Out of the 12 million or so small businesses that own or rent their own office space, only about 9,000 have joined Energy Star's voluntary network—a number Lawson admits doesn't even scratch the surface.
The problem? Even though more entrepreneurs are becoming wise to the long-term consequences of climate change, finding time in the day to switch gears and focus on energy efficiency is still a challenge—and finding attractive capital to pay for those efficiency upgrades is even harder.
While utility companies and the government typically offer a variety of loans, rebates, and tax incentives to encourage energy efficient-improvements, those incentives often aren't enticing enough to small-business owners. Applying for loans can be time consuming, and a rebate that covers 50% of the cost is still useless to a business that can't pony up the other half.
A Simple Formula
At West End Market, Piscitelli and his business partner took some steps toward conservation—consolidating refrigeration and turning off an unused compressor—but big investments still seemed out of the question. Then one of his customers, an employee at the local utility company, United Illuminating, told him about a program for small businesses that West End Market could use to upgrade to a new, energy-efficient lighting system without paying any upfront costs.
The program works this way: The utility company—with help from the state's energy efficiency fund—finances the upgrades as an interest-free loan, and the loan payments appear as a line item on the monthly electric bill. The payments are scaled to the amount the business saves every month by using energy-efficient equipment, so its monthly bill stays the same. Once the loan is paid off, the bill goes down. For Piscitelli, because the utility company already had a good indicator of his credit— his monthly payments—the loan didn't require loads of extra paperwork.
The strategy, called on-bill financing, has proven successful for small business customers at United Illuminating and another New England utility, National Grid. United Illuminating estimates the program has saved $72 million in energy costs since 2000. And out of the 2,100 small businesses that have participated, fewer than 20 have defaulted on their loans.
A Call to Congress
Now on-bill financing is starting to gain traction across the country. Two California utilities launched on-bill financing programs in the past few months, and similar programs are under consideration in Pennsylvania, Nevada, and Oregon.
The National Small Business Association (NSBA) is supporting the strategy as well. Scott Hague, NSBA's vice-chair of advocacy (and founder of the advocacy group Small Business California) has included a paragraph about on-bill financing in the testimony he'll present Mar. 8 at a hearing before the Senate Committee on Small Business and Entrepreneurship entitled Small Business Solutions for Combating Climate Change. In his written testimony he calls on Congress to extend on-bill financing and other access-to-capital innovations to small business across the country.
Also testifying is Byron Kennard, executive director of the Center for Small Business & the Environment. He calls on-bill financing "the best tool we've found to help small businesses become more energy-efficient" (see BusinessWeek.com, 6/27/06, "Global Warming on Main Street").
Clem Piscitelli, for one, is a satisfied customer. Not only has he cut his energy usage by 30%, but he's gotten compliments from shoppers about the brightness of his new lighting—many of them wondering if he installed more bulbs, rather than fewer. And best of all, he says, it was easy. "All I had to do was make the phone call."