Noting that the state’s climate change mediation goals call for investing billions of dollars in energy efficiency, California regulators on Thursday approved $65.9 million to conduct five pilot energy efficiency programs using utility ratepayer-supported financial mechanisms. Pilot programs will be phased in beginning in the fourth quarter.

Under a 2009 state law (AB 758), the five-member California Public Utilities Commission (CPUC) was mandated to study and come up with potential roles for energy utility customer-supported programs that will test market channels for attracting more private investment in efficiency for residential, small business and larger commercial-industrial plants.

Aimed at both residential and nonresidential markets, the energy efficiency pilot financing programs will include an “on-bill repayment” program in which energy efficiency loan repayment obligations could be transferred to the next utility customer benefiting from the upgraded, more energy efficient structure.

There will be separate pilot programs for single-family residential and multi-family, master-metered complexes. Among the nonresidential sector, there will be two programs for small businesses, and an on-bill utility collection program for all sizes of nonresidential customers investing in distributed generation, including solar and demand response programs, as well as energy efficiency.

“With California’s aggressive renewable energy and greenhouse gas reduction targets, we need to invest an estimated $50 billion in energy efficiency improvements in our homes, commercial buildings and industry,” said CPUC member Mark Ferron, who predicted this level of investment will require the attraction of “a huge amount” of private capital.

A major focus in the residential and small business pilots is to use “limited ratepayer funds” to try to give incentives to lenders to extend or improve credit terms for energy efficiency projects. A key objective is to test whether the so-called “transitional ratepayer support” can lead to self-supporting energy efficiency finance programs in the future, a CPUC spokesperson said.

“With the proper protections, ratepayer funds can play a crucial role in attracting the needed funding,” said Ferron, who added that the $50 billion estimate for future efficiency capital needs is more like $80 billion if distributed generation and demand management programs are also included.

California’s Energy Action Plan adopted a number of years ago sets energy efficiency and demand response as the preferred way to meet energy demand in the future. Most global analyses today show natural gas demand tapering worldwide because of stepped-up efficiency efforts during the next 30 years.

All of the pilots are expected to be online by mid-year in 2014, and they will run through 2015.