While on one hand that makes complete sense, on the other we have seen rather universally that access to financing certainly can help close business, and can focus the conversation on payment vs. upfront cost, but generally speaking, it is not a great driver of demand. Simply put, people don't replace a furnace because there is cheap financing - the financing just makes it easier and potentially enables investments in more efficient systems that cost a bit more upfront. But the demand has to be there first.
However, there is a simple but potentially detrimental kink in this plan. Regardless of what fancy low cost financing comes to market. Regardless of loan loss reserves, on-bill repayment, or PACE financing, that could drive low cost creative financing solutions into homeowners reach, there is a simple yet critical issue might mean very little uptake in the market. The vast majority of loans pay a contractor only upon completion of a job. In Home Performance and proactive energy efficiency in general, we are talking about longer and larger projects that often can take weeks or even more than a month to complete - from when parts are ordered and work is conducted to final sign-off on the project. For many of the small business in this market, that requirement to float the financing can be detrimental. These companies are typically not well capitalized, and have little access to credit. Since 2008 credit lines have become much harder to come by, and the costs have increased to where for many business rates look more like a credit card than a business loan.
In talking with some of the leading firms in the Energy Upgrade California program, this float means that in order to keep cash flow where it needs to be to keep the doors open and meet their monthly obligations, they work hard to make sure they are only floating one loan at a time. Any more than that, and it puts their business at risk. Regardless of what low rates or fancy financing structures get developed, these firms make a concerted attempt to not financing more than one or two projects at any given time.
With hundreds of millions of dollars flowing to programs, program implementation contractors, marketing firms, loan loss reserves, and the likes, very little of those funds are ultimately reaching the contracting community in a way that helps the business of energy efficiency contracting reach a level of profit and access to capital necessary to scale.
If we want financing to work, we need to make sure it works for the businesses that ultimately sell it to consumers, or we may be surprised how little things like interest rates, or credit requirements mater!
We need to take some of these funds an use them to provide low cost capital to contractors based on percentage of accounts receivable so that they can manage cash-flow and meet their obligations to their employees and customer. With all our massive investments in energy efficiency, the Achilles heal is that while consultants and implementors have gotten rich, the contractors who constitute the industry, drive all the savings, and employee the workforce have not shared in that bounty. This is the core failure of our approach and until energy efficiency and home performance are good business models and make money, no amount of program infrastructure is going to scale this industry up.