Duke Energy will cover upfront costs of home efficiency upgrades

This story was first published by Energy News Network.

North Carolina clean-energy advocates rarely pull punches when it comes to Duke Energy, protesting everything from the utility’s treatment of rooftop solar to its plan to slow-walk carbon reductions required under state law.

But last week, they lavished praise on the company for its response to another provision of that same statute, which calls for an ​“on-utility-bill repayment program” for energy-efficiency upgrades.

Recently greenlit by regulators and finalized by Duke last month, the new initiative will allow homeowners and renters to reimburse the utility over time for more efficient heat pumps, water heaters and other home upgrades. Even while paying for the improvements, customers are expected to see their monthly bills decrease because they’ll be using less electricity.

“Today, we’re excited to finally see a program designed to address the barrier of the upfront costs of residential energy efficiency, while also cost-effectively helping the utility meet its carbon reduction goals,” said Daniel Pate, energy program manager at the North Carolina Sustainable Energy Association, in a press release. ​“This is a win-win for ratepayers and the state alike.”

Though North Carolina’s Roanoke Cooperative and other nonprofit utilities around the country have offered such programs for years, Duke’s offering will quickly establish it as a national leader among investor-owned utilities.

“Our organization applauds the North Carolina Utilities Commission for approving this program,” said Shelley Hudson Robbins, project director at Clean Energy Group. ​“We applaud Duke Energy for being at the forefront on this issue.”

“An important stepping stone”

The product of workshops with a range of stakeholders, the Duke program is designed to help customers overcome a key hurdle to upgrading to more efficient equipment: cash. Though a new water heater or heat pump can significantly cut energy use, it can take years for lower electric bills to cancel out the upfront cost of a more efficient appliance.

Under the program set to begin next year, Duke will buy the new appliance or whatever improvements are deemed appropriate for participating households. Over the course of up to 12 years, customers then pay the company back through their utility bills. Even while paying the tariff, which includes the company’s 8.4% rate of return, the energy savings should lower their monthly costs by 10% or more.

Both renters and homeowners are eligible. If they move, the new occupants of the residence take over the payments. While there’s no income limitation, the program is expected to be most attractive to lower-income customers who need to cut monthly expenses.

“They’re lowering the upfront burden of having to spend a paycheck or two to make the improvements,” said Claire Williamson, energy policy advocate with the North Carolina Justice Center, which is among the groups backing the program. ​“It’s an important stepping stone for moderate-income people.”

Regulators also greenlit an energy-saving pilot for newly constructed apartment units. Under the five-year trial program, developers get a rebate from Duke for installing energy-saving measures. Apartment-dwellers then pay the company back through a monthly fee.

Together, the programs are expected to serve some 3,000 households in the first few years, Duke says. Though just a tiny fraction of the company’s customer base, that figure could still make the tariff-on-bill program the largest in the country, according to the Energy Efficiency Institute.

“Duke is really taking a leadership position here,” said Sydney Roberts, director of technology and market solutions with the Atlanta-based nonprofit Southeast Energy Efficiency Alliance.

Other utilities that have offered or still run such programs have sometimes struggled to find households for which the math works, Roberts said. But rebates for home energy improvements from last year’s Inflation Reduction Act, available in 2024, should help.

For example, Duke told the Energy News Network that a customer could get about $13,000 worth of efficiency upgrades. They could qualify for about $6,500 in rebates, immediately cutting their principal in half. With an upfront ​“copay” of $123, they would then pay the company back $80 per month but save $89 monthly in energy costs, reducing their total bill by $9.

To recruit participants, the company plans to ​“reach out to customers with high energy usage,” a spokesperson said. Roberts believes that customers with electric furnaces should be high on the target list.

According to the Energy Information Administration, 2.5 million homes in the state use electricity as their main heating fuel, but only 1.5 million have heat pumps. Using an electric furnace, Roberts said, ​“is like heating your house with a hair dryer.” Converting to a heat pump, she said, would save 20% to 30% in energy costs.

“It’s not subsidized by others”

While the program is available to anyone and won’t require a credit check, advocates stress that the program shouldn’t take the place of initiatives aimed at very low-income customers with exorbitant energy burdens. Instead, those households should take advantage of completely free programs that are more likely to cut their monthly costs by more than 10%.

“It’s not the solution for people who are unable to afford their bills,” Williamson said, ​“because the amount they’ll end up saving is not dramatic enough to help people who might get disconnected.”

The Justice Center and other advocates did, however, urge Duke to make the program available to customers who’d fallen behind on their bills, pointing out that even households earning more than 200% of the federal poverty level, or $60,000 for a family of four, could face unacceptably high energy costs.

Neither the utility nor regulators accepted the suggestion, at least for now.

“Duke notes that allowing a customer who is already having difficulty paying their electric bill to participate may add risk to the program and additional uncollectible expense for all ratepayers,” the order says. ​“The commission is not persuaded at this juncture that there is good cause for adding such uncertainty” to the program.

For some regulators and entities such as the state-sanctioned customer advocate, known as the Public Staff, there’s another appeal to Duke’s new tariff-on-bill program: It is intended to pay for itself, ensuring no other customers are required to chip in for its success. If there are households who do end up getting disconnected for nonpayment, Duke can recover the cost of the equipment in a subsequent rate case.

“The monthly repayment…is an essential part of the electric bill, with a customer’s failure to pay potentially resulting in disconnection,” the Public Staff wrote in its comments, echoing Duke’s initial arguments for the program. ​“This factor ensures that participants bear the primary expense of the upgrades and that the risk of cost-shifting is minimized.”

The specter of ​“cost-shifting” has long been raised in opposition to rooftop solar, energy efficiency and other schemes that subvert the conventional paradigm of centralized power production sold to passive ratepayers — and often unfairly in the minds of most clean-energy advocates.

But the notion is undoubtedly baked into the investor-owned utility regulatory model. ​“Cross-subsidization between customers in the [investor-owned utility] world is real,” said Jen Weiss, an energy policy expert who co-directs the North Carolina Clean Energy Fund. ​“That’s the beauty of it,” she said of the new Duke program. ​“It’s not subsidized by others.”