--- title: On-Bill Repayment | What It Is, How It Works, Benefits & Drawbacks description: Learn how on-bill repayment works and why you should consider it for your next energy efficiency or distributed generation project. Read more here. image: https://www.carboncollectiveinvesting.com/hubfs/On-Bill_Repayment.png --- [![Carbon collective](https://www.carboncollectiveinvesting.com/hubfs/raw_assets/public/CarbonCollective_August2021%20copy/images/carbon-collective-green-investing-logo-white.4f6047d4.svg "Carbon collective")](https://www.carboncollectiveinvesting.com/) - About - Employers - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool) - Individuals - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [ETF](https://www.carboncollectivefunds.com/) - Learn - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Blog](https://blog.carboncollective.co/) - [Tools](https://tools.carboncollective.co/calculator/) - Log in - [Carbon Collective](https://app.carboncollective.co) - [Altruist](https://app.altruist.com) [Talk to a human](https://ask.carboncollective.co/f4o5dylkg) [Sign up](https://app.carboncollective.co/sign-up) [Log In](http://app.carboncollective.co/) [![Carbon collective](https://www.carboncollectiveinvesting.com/hubfs/raw_assets/public/CarbonCollective_August2021%20copy/images/carbon-collective-green-investing-logo.53b28bee.svg "Carbon collective")](https://www.carboncollectiveinvesting.com/) - About - Employers - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool) - Individuals - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [ETF](https://www.carboncollectivefunds.com/) - Learn - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Blog](https://blog.carboncollective.co/) - [Tools](https://tools.carboncollective.co/calculator/) - Log in - [Carbon Collective](https://app.carboncollective.co) - [Altruist](https://app.altruist.com) [Talk to a human](https://ask.carboncollective.co/f4o5dylkg) [Sign up](https://app.carboncollective.co/sign-up) [Log In](http://app.carboncollective.co/) **[Home](https://www.carboncollectiveinvesting.com/) > [Sustainable Investing](https://www.carboncollectiveinvesting.com/sustainable-investing) >** On-Bill Repayment # On-Bill Repayment ![](https://www.carboncollectiveinvesting.com/hubfs/zach-stein.jpeg) Written by Zach Stein | Reviewed by [Subject Matter Experts](https://www.carboncollectiveinvesting.com/subject-matter-experts) Updated on October 1, 2024 Fact Checked Why Trust Carbon Collective? ### Table of Contents ## **Definition of On-Bill Repayment** On-bill repayment (OBR) is a mechanism for financing energy efficiency improvements and distributed renewable generation that allows customers to repay the costs through their utility bills. A utility or private lender provides cash to a customer to support energy efficiency, renewable energy, or other generation projects. The capital is returned through regular payments on an existing utility bill. ## **On-Bill Repayment vs. On-Bill Financing** The difference is in the source of funds. OBF programs employ public funds, ratepayer funds, or utility shareholder funds to fund projects, and this funding is often available at very cheap or even 0% interest rates. OBR initiatives rely on private financing from [third-party investors](https://www.investopedia.com/terms/t/third-party.asp). OBR capital typically has a higher interest rate than OBF capital. However, it is frequently less expensive than the market rate for loans due to the increased security offered to investors by tying the repayment obligation to the customer's utility bill. ## **How OBR Works** The funds to construct the project is often supplied to the customer by the utility or investor in an OBR transaction. On-bill schemes may require clients to choose from a list of pre-approved contractors to do the installation. They can occasionally operate in conjunction with [rebate programs](https://www.dsireusa.org/) to decrease the overall cost that must be financed. Once the project is completed, the borrowed funds are reimbursed on the customer's monthly electricity bill for a period ranging from 2 to 15 years. The project's energy cost reductions are frequently sufficient to balance the on-bill payback fee, making the new utility bill equal to or less than the prior rate. The client's responsibility to repay is often collateralized by the installed equipment and the prospect of the utility discontinuing service if the customer fails to pay. ## **Typical Structure** OBR loans are typically structured as either closed-end or open-end. A closed-end loan has a set repayment schedule and a balloon payment at the end of the term. In contrast, an open-end loan allows customers to make additional draws on the credit line over time as needed for energy efficiency improvements. In some cases, the loan agreement may also allow for voluntary prepayment without penalty. ## **![Typical_On-Bill_Structure](https://www.carboncollectiveinvesting.com/hs-fs/hubfs/Typical_On-Bill_Structure.png?width=1920&name=Typical_On-Bill_Structure.png)** ## **Benefits of On-Bill Repayment** The benefits of on-bill repayment include the following: ### **Low-to-Zero Interest Rates** It usually offers customers low or zero interest rates, saving them money on their energy bills. ### **Simple Contract Structure** On-bill repayment contracts are typically straightforward, making them easy for customers to understand. ### **Streamlined Repayment Process** Customers can repay the cost of their energy efficiency upgrades or distributed renewable generation systems through their utility bills, making the repayment process easy and convenient. ### **Improved Cash Flow** On-bill repayment can improve a customer's cash flow by allowing them to spread the cost of their energy efficiency upgrades or distributed renewable generation systems over time. ### **Reduced Upfront Costs** It reduces the upfront cost of energy efficiency upgrades or distributed renewable generation systems, making them more affordable for customers. ### **Increased Access to Financing** On-bill repayment can increase access to financing for energy efficiency upgrades or distributed renewable generation systems by making it easier for customers to obtain the funding. ### **Improved Energy Efficiency** Improves energy efficiency by incentivizing customers to make [energy efficiency upgrades](https://www.energy.gov/eere/why-energy-efficiency-upgrades#:~:text=Increasing%20your%20home's%20insulation%20is,of%20your%20home%20or%20building.) or install distributed renewable generation systems. ### **Increased Renewable Energy Deployment** On-bill repayment can increase the deployment of renewable energy by making it easier for customers to finance distributed renewable generation systems. ## **Drawbacks of On-Bill Repayment** The drawbacks of on-bill repayment include the following: ### **Customer Default Risk** Transfers the risk of customer default to the utility, leading to higher costs for the utility. ### **Increased Administrative Costs** Increases the administrative costs for utilities, leading to higher rates for customers. ### **Limited to Specific Types of Improvements** On-bill repayment is typically only available for specific energy efficiency upgrades or distributed renewable generation systems. ## **Key Takeaways** An on-bill repayment is a financing option that allows customers to repay the cost of their energy efficiency upgrades or distributed renewable generation systems through their utility bills. The programs typically offer customers low or zero interest rates, saving them money on their energy bills. It can improve a customer's cash flow by allowing them to spread the cost of their energy efficiency upgrades or distributed renewable generation systems over time. Moreover, the program transfers the risk of customer default to the utility, leading to higher costs for the utility. ## **FAQs** ### **1. What is on-bill repayment?** An on-bill repayment is a financing option that allows customers to repay the cost of their energy efficiency upgrades or distributed renewable generation systems through their utility bills. ### **2. How does on-bill repayment work?** The customer and the utility enter into an agreement where the customer agrees to repay the cost of the energy efficiency upgrades or distributed renewable generation systems over time through their utility bill. The utility collects the payments from the customer and then pays back the lender. ### **3. What are the benefits of on-bill repayment?** Some benefits of on-bill repayment include improving a customer's cash flow, reducing the upfront cost of energy efficiency upgrades or distributed renewable generation systems, and making them more affordable. ### **4. What are the drawbacks of on-bill repayment?** Some drawbacks of on-bill repayment programs include customer default risk, increased administrative costs, and limited specific types of improvements. ### **5. Is on-bill repayment the right choice?** On-bill repayment might be a good option for those looking to finance energy efficiency upgrades or distributed renewable generation systems and want to spread the cost of the improvements over time. ### Related Topics - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing/) - [Carbon Footprint](https://www.carboncollective.co/sustainable-investing/carbon-footprint) - [Energy Efficiency](https://www.carboncollective.co/sustainable-investing/energy-efficiency) - [Greenhouse Gases](https://www.carboncollective.co/sustainable-investing/greenhouse-gases) - [Net Zero](https://www.carboncollective.co/sustainable-investing/net-zero) - [Renewable Energy Sources](https://www.carboncollective.co/sustainable-investing/renewable-energy-sources) - [Sustainable Development Goals (SDGs)](https://www.carboncollective.co/sustainable-investing/sustainable-development-goals-sdgs) ![Attend Our Next Webinar](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-webinar.12af7b6e.svg) ### Attend Our Next Webinar Join our next Sustainable Investing 101 webinar, get our favorite DIY options, and walk through how we build our portfolios. 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