Scaling Home Efficiency: A Discussion

As promised in the last post, we’re starting a discussion that started online between me (Andy Frank) and Ted Kidd, a home performance contractor based out of Rochester, NY. 

To frame the discussion, we’re going to focus on three main questions:

1. What is the value proposition(s) to homeowners from efficiency improvements?

2. Does the path to scale lie with the proactive (e.g. home performance) or reactive (e.g. replacing boilers) markets?

3. To what extent can prescriptive versus custom-designed projects scale in a world of guaranteed savings?

Ted is going to start off the discussion focusing on the first question around the efficiency value proposition. 

Andy:

Ted, you and I have talked a lot about how homeowners think about the energy efficiency value proposition. To me, I think it really comes down to a combination of three things:

  • Save money on energy bills
  • Improve comfort and health
  • Upgrade my home

How do you the homeowners you work with rank these value propositions? Does it change throughout the process based on information you give and how you sell?

Ted:

Today’s educated consumers have heard the horror stories about “high efficiency equipment” that uses no less energy due to poor design or implementation, and they don’t want to make 15 year mistakes. These are the people that elect to have a comprehensive home energy assessment BEFORE contracting expensive improvements or repairs.  

There is really nothing to show for money spent on energy, and today people really don’t want to be wasteful or spend more than necessary. At the beginning they place a lot of value on saving money on energy. Some will talk about “return on investment” or “payback” at first.  

As the process evolves it often ends up being more and more about fixing problems. Solving comfort and control problems, and/or about proactively dealing with looming equipment replacement (solving those problems without a gun to their heads). Many also want to know they aren’t being unnecessarily wasteful. Ultimately people seem more interested in repair and improvement cost. They understand improvements cost money. They want to know what they can afford and how much they energy savings can be leveraged into helping pay for their Energy Efficiency updates and upgrades.   

The approach I like to take considers the needs of homeowner AND home. I provide designs that address all the issues and opportunities I can think of, then put together multiple packages.  

For example:  

“Package 1” might include everything I can think of that they’d want to do now or in the future.  This is a list of improvements they can refer back to next year or later when they are considering additional  improvements.  

“Package 2” takes the improvements from Package 1 that meet current needs, objectives, and budget.  

“Package 3” might be an alternative to Package 2 that includes additional improvements that, given my understanding of their situation and of the home, I feel deserve conversation.  

These may include opportunities that, if they can stretch their budget, shouldn’t be delayed. Other times these may include health and safety, or durability issues that by bringing them to the homeowners attention and placing extra emphasis on them, I feel absolves me as a Home Performance Professional of that “why didn’t he tell us about that” type of responsibility.  

Andy:

Ted, that’s a great overview of the process and homeowner motivations. If I hear you right, the energy efficiency sales process is basically a sandwich:

1. The initial motivation usually revolves around money, but can be a bit fuzzy

2. Once the energy assessment / education process is complete, the homeowner is much more focused on non-economic issues like comfort, health and safety

3. Once homeowners are being presented with a specific set of options, the amount and confidence in savings becomes key to close the sale

If this is the case, what’s the path to scale deep energy efficiency improvements?

Should we focus on the “proactive” market of homeowners looking for an energy assessment? Or should we put our energy into expanding the scope of the “reactive” market by getting more homeowners looking to replace boilers and air conditioning systems to also seal air leaks and add insulation?

Ted:

To the 1,2,3 sandwich, it’s a chicken or egg issue.  Do they talk money first because that’s of interest, or because that’s how they were marketed to? Certainly they neither believe nor prioritize the money savings, so if that’s where the conversation starts maybe it’s a trust vetting test?

I think trusting in the savings would increase closing rate, and job size.  But feedback from various sources currently is the savings do not seem to be believed so they do NOT factor into the decision. Terrible program realization numbers suggests this is wise thinking on the consumers part!   

I believe most are thinking “this work probably makes sense, the incentives and financing are nice, and we will probably have lower energy bills.”  But I don’t think they put any faith or count on the savings. They look at that as fun money, not as count on money.  

To me, that means missed opportunity.  Energy savings opportunity not optimized due to (currently justified) lack of confidence. This lack of trust is impediment to the way I work. Means I can’t fully leverage savings because consumers don’t think I can deliver.  

Our terminology is all over the place. “Deep Energy Retrofits” to me implies going way deeper than most of my clients. “Reactive” to me implies a broken furnace in heating season, or broken AC in cooling.  

To the reactive vs proactive market, I think we do both. There really is not reason a comprehensive assessment and thoughtful design can not be part of reactive, and hoping prescriptive incremental sale will succeed at any level seems highly speculative. A window AC unit costs under $100 and most can survive with one for a few days. You can get 3-4 electric heaters for that. $100 worth of heaters is not much if it allows $10,000 boiler replacement to slow down and be properly implemented. Urgency encouraged by the salesperson is falsely magnified for self serving reasons.  

On the other side, if you add energy efficiency measures prescriptively, do you really think savings automatically appear? They don’t. I have lots of experiences indicating that fails, and suspect if we put accountability on contractors for savings, they won’t promise any for “a furnace and rim joist”. 

If you fix the front of a boat and the leaks are at the back, the boat still sinks. If you rush half assed into “throwing bad at the customers walls” hoping something sticks, you are encouraging a very sloppy approach.  

This is exactly what is WRONG with the current approach, a big part of why realization sucks.  You just can’t have quick and good. I don’t think ANY savings can be counted on and certainly wouldn’t invest in anything that counted on savings from such an approach.  

Isn’t predictable savings where your leverage is? Leveraging EE from incremental cost? Bad work will not get there, and I just haven’t seen anybody deliver good in a rush.  

You don’t have to slow down much, but it needs to slow down some.

Andy:

Ted, some great points. If I hear you right, you’re saying contractors should do things like loan Window ACs and electric heaters in order to take the time to do a proper home assessment that will lead to a right-sized boiler and hopefully other home performance work. 

I want to dig a little deeper (no pun intended) on the reactive market, especially in the context of guaranteed savings. 

I agree that good design can be more important than the prescriptive technology being installed, but the reality is most home improvement work is done on a one-off basis because something breaks, has a code issue or is a safety hazard. 

So for Sealed, as we look to guarantee savings, the question then becomes whether we are underwriting contractors or the improvements (and not to make it more complicated, but there’s also the issue of auditing software accuracy).

To the extent that there is data (we both agree this is an embarrassing state of affairs), we can get much larger data sets on an improvements basis since each contractor can only perform work on so many homes.

Based on your experience, therefore, how important is the contractor versus the improvement type? Do you think contractors have a good idea of how much energy will be saved in a given home? 

In other words, what is the most appropriate underwriting framework energy savings guarantees?

Ted:

We loaned heaters at Halco, my old company. Even if the homeowner buys them, if it avoids making a mistake that cuts 7 years off the life of equipment, and cuts energy bills in half, seems a pretty small cost for big benefit. HVAC guys will NOT encourage this behavior as a desperate customer is a blank check…

Contractors have absolutely no idea what could be saved. Does a blind man have any clue where they are aiming a rifle? How would they know – they don’t know what the current house uses! They don’t look at prior use, and they never track results. What would possibly qualify them to “project” or estimate savings?  

I think the only way to underwrite savings would be to have accurate audit data with energy consumption that trues to actual. Frankly, I’d want the rigor that Will Schweiger (of the Babylon Program’s) approach uses with pictures, etc…

I think Babylon’s realization is coming in much higher than any other program.  Still a lot of scatter, but let’s face it they use TERRIBLE software and the contractor has no incentive or reward for accuracy or savings.  

Incentive and competition for savings will improve accuracy, and design.  If the program shifts to performance based, you’ll be perfectly positioned.  

Andy:

Great, so I think we’ve focused in on two key challenges to scale energy efficiency:

  1. Create market mechanisms that allow for right-sizing equipment replacements while also exploring air sealing / insulation work that may further reduce equipment needs
  2. Create a contractor incentive system tied to actual results

In terms of the former, I think there is a place for both policy and the market. 

From a policy perspective, state and utility programs NEED to dramatically reduce turnaround times on financing and rebate approvals. A homeowner MIGHT wait a week or so to replace a critical HVAC system, but won’t wait a month. 

From a market perspective, contractors or third parties like Sealed need to institutionalize temporary solutions whenever possible. In my mind, it could work something like this:

  • Contractor presents the homeowner with two initial options: the expensive, but immediate replacement, and the potentially cheaper, but delayed replacement
  • Assuming the homeowner picks the latter option, the contractor loans with no money down the window ACs and space heaters needed to keep the home comfortable in the short term
  • The homeowner pays the loan costs only if the contractor is able to offer an HVAC system cheaper than the cost of the loaned equipment

Is this similar to what you did at Halco?

In terms of the contractor incentive system, here would be my straw-man system:

  • Create a one or two year “baseline” period that has the same rebates / QA as today, but where the contractors know they will be judged based on savings performance
  • After the “baseline” period, the rebates each contractor can offer will be based on their weather-normalized performance, with different tiers of performance within statistically significant bands
  • Rebates will also be tied to savings, not measures, so each rebate will be worth $X / kWh saved, $X / therm saved, etc.

I imagine there would also need to be a “base” rebate amount for new contractors or those that don’t meet the minimum statistical threshold. And while one of the main objections would be that the contractors can’t control homeowner behavior, (a) this is the same for everyone (b) states, utilities and homeowners care about real savings no matter the mitigating circumstances and © homeowner energy education / motivation should be part of the whole-house approach.

What do you think of these approaches? 

Ted:

I completely agree with the idea of quick approvals and contractor incentives for accuracy. Approvals eventually need to be automatic, with no wait.  And customer incentives should be based on projected savings, so reward for contractor accuracy keep projections honest. 

Automatic approval should be one of the rewards for proven accuracy. Contractors who are lower on the accuracy scale would have more jobs reviewed and higher likelihood of delays.  The more accurate contractors would have less job scrutiny.  Have incentive and reward for accuracy and excellence at every step. 

I think initially grading “on a curve” may avoid the “baseline wait period” you mention.  Actually, grading might be best if it was ALWAYS based upon actual range contractors are delivering rather than some arbitrary target.  (Fight rigidity everywhere, it only creates cliffs and cliffs create systemic corruption.)

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