Laura Palombi loves to hear from Michigan Saves customers about energy-efficiency projects that made their home or business look or feel better, or to hear the excitement in their voices when they talk about their lowered energy bills.
As the operations manager of Michigan Saves and a senior consultant with Public Sector Consultants, Palombi brings a strong background in sustainability. Relatively new to the Michigan Saves team, Palombi has spent her first five months on the job managing unique financing solutions for energy efficiency and renewable energy improvements in homes, businesses and public institutions throughout the state.
In addition to holding degrees from Michigan State University and the University of Michigan, Palombi worked with the Clean Energy Coalition before joining Michigan Saves, setting the stage for the space in which she works now — making sustainability happen through innovative products, services and practices in the business world. One key, if often misunderstood, program she focuses on for Michigan Saves is the interest rate buydown programs offered to residential and commercial customers.
Through these programs, Michigan Saves works with lenders and utility partners to lower interest rates for customers. Standard rates available through financing backed by Michigan Saves are already low, as most Michigan homeowners have access to rates as low as 4.25% APR for terms up to ten years. Rates for commercial property owners start at 6% APR for up to five years. The interest rate buydown programs have proven to be a reliable, highly motivating incentive for customers to invest in energy-efficiency improvements to their home or business.
Smart Energy spoke with Palombi to find out more about Michigan Saves’ interest rate buydown program and what it means for current and future customers.
Smart Energy: How does the Michigan Saves interest rate buydown program work?
Palombi: Our interest rate buydown program allows us to work closely with our utility partners and lenders to offer our customers interest rates that are significantly lower than our standard program rates. These lower rates are achieved when the utility partners pay for a portion of the interest due on loans, lowering or eliminating the interest altogether.
Within the guidelines provided by Michigan Saves, our lenders set the interest rates. When the Home Energy Loan Program began, lenders set their rates at 7% — the maximum our cap would allow. When the product was new, most lenders didn’t have a history or portfolio of loans that focused on energy improvements, so it was difficult to evaluate the risk and that was evident in the interest rate. Over time, our lenders became comfortable lowering their rates as we demonstrated success and showed them our commitment as a partner. Now, we have rates as low as 4.25% APR available throughout the state of Michigan. Almost all of our Home Energy Loan Program lenders are offering lower rates from when they started. We have several special interest rate buydown offers right now that make the rate even lower and more attractive to customers. One of our first, and still available, interest rate buydown offers came from the City of Wyandotte’s municipal utility. They will buy down the interest to 1.99% APR for customers in their service territory.
For commercial properties, our standard Business Energy Financing Program allows customers to finance up to $250,000 over a five-year term. Our utility partners (DTE Energy, Consumers Energy, Lansing Board of Water and Light) are currently offering an incentive that allows business customers to finance up to $50,000 at 0% APR for a two-year term. Business owners who have been wanting to invest in energy efficiency but were waiting for the right time are now able to do so with no upfront cost and no interest payments. If business owners want to finance more than $50,000, they can. We’ll use the 0% APR for the first $50,000, and our traditional low rates for the rest. Some business owners may want to spread their payments over a longer period of time, potentially making their project cash flow positive from the onset. Our standard program works really well for these customers.
Smart Energy: What is the motivation behind the Michigan Saves interest rate buydown program?
Palombi: From our perspective, it’s to make energy-efficiency improvements easy, affordable and accessible. And this particular program really amplifies the affordability and accessibility of our product. We want everyone to be able to experience increased savings from energy efficiency improvements, as well as the other benefits of health, safety, and comfort. We often hear from homeowners who add insulation to their attics or do air sealing around windows that they not only have lower heating and air conditioning bills, but they’ve also eliminated drafty areas in their home. One of our business energy financing customers, Amy Zane, a jewelry store owner in Kalamazoo, told us that after an LED lighting project, her customers began to comment on how great her merchandise looked. She loved that feedback, and so did we.
Smart Energy: What do you envision for the future of the Michigan Saves’ interest rate buydown program?
Palombi: As a standalone product, our programs are very competitive and in many cases the terms are better than, say, a home equity loan for a homeowner or small commercial loan for a business owner. The lower rates that the interest rate buydown programs offer are driving demand, so we’ll continue to look for ways to lower rates — whether it’s through a special interest rate buydown incentive or other ways that we can secure loans.
Smart Energy: What is the nature of the partnerships with the utility companies and lenders? Why are they are so important?
Palombi: We have developed strong relationships with our lending and utility partners. Before the Michigan Saves program, most lenders weren’t offering energy-efficiency financing products. And they certainly weren’t offering unsecured loans at these low rates. We bring the security of the loan to the table for lenders. In cases where a customer can’t pay their loan back, Michigan Saves pays the lender a portion of the remaining principal. This security allows our lenders to offer unique features that are really important to the energy-efficiency market — longer terms and lower rates. Utility companies want their customers to make investments in energy efficiency. Without the Michigan Saves financing tools, figuring out how to pay for these investments is difficult, time-consuming and costly. Utilities throughout the state eagerly partner with us to offer easy and affordable options for funding energy efficiency improvements to their customers.
Smart Energy: Why do utility partners choose to work with the Michigan Saves program?
Palombi: Their business is providing safe and reliable gas and electric service. They are not financing experts, nor do they want to invest in building the infrastructure required to offer their own financing programs. And many customers who invest in energy efficiency need a way to finance those investments. The interest rate buydown incentives provide an additional incentive beyond utility rebates, which helps drive demand for the utility’s existing energy-efficiency program.
Smart Energy: How do you respond to skeptics who might not believe utility companies would be willing to lower people’s spending on energy?
Palombi: Even the utility companies recognize the least expensive form of energy is the energy you never use. Energy efficiency is so important because it is the least expensive way to improve and expand the current capacity. Rather than building another power plant, it makes more economic sense to promote energy efficiency.
Smart Energy: What are some of the most significant successes of the Michigan Saves interest rate buydown program?
Palombi: When our lenders started lowering their rates, we saw a big uptick in the residential market. On the commercial side, it’s reaching customers we haven’t before, such as the small business owner who’s reluctant to spend.
Looking at the numbers, it just makes sense for our customers. For example, we have an interest rate buydown incentive sponsored by the Lansing Board of Water and Light (BWL) and Consumers Energy right now for residential customers in the BWL electric service territory. This special offer provides financing for up to $30,000 at 0% APR for up to 48 months. Our average home energy loan is about $10,000. A customer that takes advantage of the interest rate buydown for a project of this size would have a monthly loan payment of about $200 for four years. Some customers may want to borrow more or spread their payments over a longer term. If a customer borrowed $10,000 on a ten-year loan using our regular rates as low as 4.25%, their payment would be about $100 each month. Or if they want to finance larger projects like a geothermal system, they could borrow $30,000 for ten years at a rate as low as 4.25% and have a monthly payment of about $300. Interest rate buydown programs allow us to offer customers a range of options to fit their needs.
But it’s more than the numbers. Our contractors tell us all the time that our programs help them build their local businesses. Providing the tools that help contractors grow their business while also helping homeowners and business owners invest in energy efficiency is what makes this job so rewarding.