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Should utilities pay the upfront cost of clean energy? A municipal utility in Ipswich is making the investment.

Mark Fitzgerald next to his new clean energy ThermoPride furnace at his Ipswich home.Laurie Swope

IPSWICH — Mark Fitzgerald knew it was time to replace his over 25-year-old oil furnace when he noticed the pungent scent of oil wafting throughout his Ipswich home.

The heat exchanger had cracked — a death sentence for an appliance already at the end of its useful life. Fitzgerald had heard about statewide financing programs for energy efficient upgrades, but he quickly learned that, as a customer of a small, municipal utility, he wouldn’t be eligible.

The Mass Save program, which covers most electric and gas customers in Massachusetts, leaves out customers who aren’t connected to the large utilities that subsidize its efficiency incentives. The Ipswich Electric Light Department, which serves Fitzgerald, is trying a new approach to filling that gap.

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As part of a pilot program, the local utility will pay most of the $22,000 upfront cost to replace Fitzgerald’s oil furnace with an electric heat pump system, allowing him to pay back the principal using the savings from his energy bills.

“I could not have afforded to do this without [the program],” Fitzgerald said. “I probably would have had to replace the oil-based system with another oil-based system because it was a lot less expensive.”

The Ipswich Electric Light Department is offering the new program in partnership with the environmental nonprofit Center for EcoTechnology. Using a model known as tariff-on-bill financing, customers repay upfront costs over time at a rate that’s less than what they’re saving on energy.

Boosters of the Ipswich program believe it could also be a model for helping people cover upfront costs or avoid taking on bank loans to pay for energy improvements. These aspects could help even customers who do qualify for Mass Save or other incentives.

“We’ve got to mobilize hundreds of millions of individual decision-makers to make these totally elective investments,” said Ashley Muspratt, president of the Center for EcoTechnology. “We need to find creative ways to make these investments happen.”

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Although the pilot program is small, currently working with five customers, Muspratt anticipates that if the model proves successful, the offering could eventually expand to cover the entire town’s customer base. Other municipalities in Massachusetts are also currently looking to begin similar programs.

“I think there will be a lot more people [who] would, should, and will take advantage of it,” Fitzgerald said.

The program also opens the door for people to participate even when they don’t own their homes or have low credit scores that make it difficult to qualify for traditional financing.

Instead of the payment being tied to the individual who took out the loan, it’s tied to the electric bill for a particular residence. So as long as the improvements are saving money, the utility can rest assured that it will be repaid — even if another tenant moves in.

As part of a pilot program, the local utility will pay most of the $22,000 upfront cost to replace Mark Fitzgerald’s oil furnace with an electric heat pump system, allowing him to pay back the principal using the savings from his energy bills.Laurie Swope

“It’s this really novel financial mechanism that’s unlike any other that we’re using in the state,” Muspratt said. “So even though they have this tariff added to their bill, they’re saving money compared to their baseline case, while being in a more comfortable home, a healthier home, a higher value home.”

The Ipswich Electric Light Department works with the Center for EcoTechnology to provide home audits that determine what clean energy upgrades will save the resident money. This includes heating, ventilation, and air conditioning upgrades like Fitzgerald’s heat pump.

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The upgrades could eventually include electric vehicle charging stations and solar panel installations, the utility said.

The goal is to keep energy costs lower than 80 percent of what they were before the upgrades, which was proven possible by a 2022 feasibility study, according to Dylan Lewellyn, interim general manager for the Ipswich Electrical Light Department.

And if the pilot program proves successful in Ipswich, the Center for EcoTechnology hopes to implement it in other places, including those served by investor-owned utilities. But for now, the pilot is still ironing out some wrinkles.

It calls on utilities, energy audit providers, customers, and clean energy vendors to work together effortlessly, but that can be challenging, especially for a first-time program.

“Making sure that we can get what we need from all of those various parties is certainly a challenge,” Lewellyn said. “Making sure that the program is flexible enough and rigid enough that we can have a clear cut path for customers, but still anticipate unexpected, real-world solutions … can be a challenge.”

That’s why Ipswich Electric Light Department and the Center for EcoTechnology are working on a comprehensive guide for other communities that are looking into implementing similar programs.

The pilot can work in concert with exiting programs for customers in Ipswich who get gas heating from investor-owned utilities, such as National Grid and Eversource. These customers will be able to take advantage of Mass Save incentives, while also engaging with their municipal utility for extra savings, Muspratt said.

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Even so, customers want to be confident in their investments.

“I think there’s a level of communication and trust building that’s necessary to be able to get consumers willing to make a long-term commitment for relatively big home improvements in partnership with a utility,” said Peter McPhee, senior program director for building decarbonization at Massachusetts Clean Energy Center.

Similar financing programs have been employed in states including Arkansas, Kansas, Missouri, and North Carolina. In 2016, a municipal utility in Arkansas introduced a Pay As You Save system that has decreased residential participants’ monthly electricity usage by 20 percent, averaging in a 12-year cost-recovery period.

Mass Save, by comparison, has a seven-year cost-recovery period for its HEAT Loan rebate.

With a longer cost-recovery period, and little to no upfront costs, this financing model could protect low- and medium-income residents from the financial burden of the clean energy transition, and could be a valuable financial method for all homes that want to reduce their climate impact.

“This is a decarbonization effort, but it’s also an effort to look at innovative financing models that can really help align the state’s work in decarbonization and make this something that is accessible by all households in the Commonwealth,” McPhee said.

Mark Fitzgerald said that without the Ipswich program, “I probably would have had to replace the oil-based system with another oil-based system because it was a lot less expensive.”Laurie Swope

Macie Parker can be reached at macie.parker@globe.com. Follow her @Macieparker22.