Re-Thinking the Canada Greener Homes Loan Program

Funding for the Canada Greener Homes Loan Program, introduced in Budget 2021, was recently extended. Efficiency Canada mobilized to ensure that it would happen before the recent election.

With a new government in place, it is a good time to consider how existing energy efficiency programs might evolve and improve. Mark Carney’s platform proposed using new funds from a revised carbon pricing system for large emitters to support consumer adoption of retrofits and heat pumps. The platform and mandate letter also call for public finance strategies that prioritize building assets over operational expenses. Repaid loans can be accounted for as assets. 

One of seven priorities in the Prime Minister’s mandate letter includes “bringing down costs for Canadians and helping them to get ahead,” which building retrofits can do. It also includes a priority to make “housing more affordable by unleashing the power of public-private cooperation … and creating new careers in the skilled trades”.

The government’s significant financing capabilities could be used to support these objectives regarding residential retrofits. But to do so effectively, homeowners must be able to access financing when they need it, and contractors must be empowered to adopt business models that deliver higher-value and comprehensive services.

There are two main drawbacks to the existing Greener Homes Loan program.

1. Up-front costs remain a barrier: Customers must pay for upgrades up front. The program will release 15 per cent of the loan value before work is completed to pay a deposit to a contractor. For the bulk of retrofit costs, homeowners need cash on hand unless the contractor is willing to take on a significant financial risk by waiting for the loan to be issued. The typical reason to take out a loan is to eliminate up-front costs. The current system acts more like an incentive paid back rather than a loan that enables people unable to pay full costs to afford retrofits.
2. Financing isn’t available when it’s most needed: Many heating and cooling systems are replaced after an unexpected breakdown, when fast access to financing is critical. The current loan program doesn’t move quickly enough to serve these scenarios. In other situations, homeowners may undertake retrofit measures over several years to cost-effectively time them with different home upgrades (e.g. insulating when cladding needs replacement or during kitchen renovation). However, the program requirements make this difficult because any retrofits not included in the original application cannot be added once a loan is issued.

The ingredients for making home retrofit experiences easier to access and finance have been widely discussed. Ideally, a customer retrofitting their home should expect:

• No up-front costs and same-day financing approvals, similar to how car loans work.
• The ability to combine financing with available government and utility incentives, noting that grants significantly increase participation.
• Accountability for performance. Those doing the work should be required to solve problems that might occur and stand behind promised energy and GHG savings, comfort improvements, etc.
• Protection from aggressive sales tactics, predatory lending, and unfair contracts.

Efficiency Canada’s research on home performance business models outlines what contractors might ideally expect. This includes incentive programs and government loans that enable them to increase sales and improve marketing — not create financial or administrative burdens. Ongoing maintenance contracts and consultations will help build lasting customer relationships that help homeowners prepare for future upgrades or replacements, like when a furnace breaks down.

These outcomes can be achieved through innovative business models. For example, in an energy-as-a-service or comfort-as-a-service model, customers make regular payments instead of paying up-front for equipment or installation. The service provider can own and maintain the equipment and focus on selling warmth, comfort, and other energy services. The service provider can take on some or all responsibility for achieving the estimated energy savings via a performance agreement, agreement to share the benefits of energy savings, and/or replacing part of an energy bill with a stable fee. There are many possible variations. The existing loan program might work well for some customers, but it can also reach more people by offering them more choices.

The energy-as-a-service example is a repayment and contracting method that is more common in large commercial and institutional buildings, where a solution provider can work with a single customer to access low-cost energy savings. The Canada Infrastructure Bank actively promotes these new business models through its low-cost financing, enabling smaller or less energy-intensive buildings to participate.

Traditionally, private solution providers have not offered these options in the residential sector due to high acquisition costs per home. However, this is changing. In the U.S., Comfort Connect offers comfort-as-service backed up by a loan loss reserve by the New York State Energy Research and Development Authority (NYSERDA). 

Here in Canada, the ClimateCare HVAC cooperative offers a “home comfort subscription program” where the customer owns equipment and has the option to pay the cost via a monthly payment. Enbridge Sustain started providing dual fuel heat pumps, solar panels, and EV chargers on a fee-for-service basis in 2022. HVAC and water heater rental programs are established in the Ontario market.

A government loan program could encourage innovative business models by offering zero or low-interest loans marketed through contractors or renovators. This could make it easier for both the customer and contractor businesses. Other partners could include bank-contractor intermediaries like Financeit, utilities with on-bill financing programs, or municipalities running Property Assess Clean Energy (PACE) programs with repayment through the municipal property tax system. The big change is that the government would act as a patient financier to spur private sector transformation, focusing on achieving deeper energy savings and reaching more people.

There are other reasons why the public sector should be involved.

1. Protect customers: Some private sector-led equipment leasing contracts can be unreasonably expensive over the lifetime of equipment and do not present a fair deal for customers. Other places have seen aggressive sales tactics that result in customers locking into unfair contracts. A government providing attractive financing options can refuse to extend this benefit to businesses with unfair contracts or poor track records, providing quality assurance to customers.
2. Increase customer choice and beneficial competition: By providing financing infrastructure that both large and small market players can use, the government can remove the monopoly power that larger players could exercise through their access to finance. Competition would be directed towards customer satisfaction, better energy efficiency, and GHG reduction performance.

Residential loans can be a source of market transformation and business model innovation. The Greener Homes Loan Program can be part of a policy mix that meets the new government’s mandate to “unleash the power of private-public cooperation,” while more effectively bringing “down costs for Canadians.”

Finally, it is important to stress that the program’s beneficial evolution must be rooted in continuity and stability. It is essential that the loan program’s funding is topped up so it can continue without creating confusion and broken trust amongst service providers and customers. The existing loan program’s design can and should continue to be offered to customers who want it. Yet, it is also a good time to think about how residential retrofits could work better for homeowners and contractors.