Despite the benefits of energy efficiency, upfront costs remain a hurdle. The U.S. Department of Agriculture (USDA) recognizes this challenge, especially in areas where homeowners may not have many financing options.

To address that need, the USDA recently announced new loans that incorporate a unique payback mechanism. The loans will provide a valuable financing alternative to utilities and their customers in rural areas.

The USDA's Rural Utilities Service for the new Rural Energy Savings Program (RESP) announced the loans in May. At a combined value of over $14 million, the loans will be made in South Carolina and Ohio.

The loans will be made using a cost-effective mechanism that allows property owners to make payments through their utility bills. With so-called "on-bill financing," participants pay no upfront costs for efficiency improvements.

Loan payments are made through a fixed charge on the monthly bill over a specified period of time. The loan is structured in such a way that customers can afford to make the payments with the money saved as a result of the improvements they are financing. Applicants are screened based on bill payment history rather than credit scores, which expands access to more consumers. Homes must qualify through an energy audit process that determines their potential for energy savings.

Most of the USDA loans will provide assistance to seven electric distribution cooperatives to help them expand their Help My House® residential energy efficiency retrofit programs. Help My House® is an on-bill financing initiative started by the non-profit Environmental and Energy Study Institute (EESI) in South Carolina in 2011.

The cooperatives will have access to up to $13 million in USDA loans through KW Savings Co., a nonprofit organization established in 2010 to serve South Carolina's electric cooperatives and their consumers. KW Savings Co. owns and operates the Help My House on-bill financing program.

The remaining $1 million in USDA loans will be made available to the Northeast Ohio Public Energy Council (NOPEC), a nonprofit regional council of governments, to provide energy improvement loans to small businesses in that region's rural communities.