(This is originally posted on Mike Rogers’ Omstout blog)
This is the first in a three-part series of posts about energy savings guarantees. Mike has written on this topic in the past, and these posts will dive deep on why guarantees matter, how they work, and their implications for the industry and policymakers.
Part 1: Why guarantees matter
The thing that makes home performance contractors different from your average contractor is the ability to create trust via building science. Building science breaks down the way homes function, and in particular the way homes use energy.
Blower door tests, infrared cameras and energy modeling software are all tools that home performance contractors use to demonstrate expertise to homeowners. These tools are important proof points during an energy assessment to show the value of the work being proposed.
Ultimately, however, the proof is in the pudding. If homeowners feel that they received value from the work done they will be likely to refer similar work to their friends, family and neighbors. And just like every other product, the more value they think they receive, the more likely they will be to refer to others.
The good news is that home performance work creates value in a number of ways. Most jobs are sold emotionally on comfort, health and safety. Good home performance contractors listen to homeowners, uncover their various concerns, and design a solution to meet those concerns.
The bad news is that homeowners also expect energy savings. While they may want to get the work done, the rational part of their brain needs to understand and believe the economics of the project. Most surveys show that homeowners overwhelmingly cite saving energy as the primary reason to undertake a home performance project.
But energy savings are not only valuable in and of themselves. They are also a measure of trust. If a homeowner does not believe in the energy savings, they will be much less likely to complete work.
In a groundbreaking survey released last year by GDS Associates and prepared for the High Meadows Fund in association with the Vermont Public Service Department, “Confidence that energy savings would be realized” was rated as the single most valuable hypothetical program feature.
Savings confidence was rated slightly higher than rebates, and over twice as highly as attractive financing.
While conventional wisdom says that “cost” and “upfront cost” are the biggest barriers to the greater adoption of home performance, it seems that the benefit (e.g. savings) side of the equation is more important. In other words, homeowners don’t think the cost is worth it if the savings are not there.
Sealed quantified that doubt in a national survey using Google Consumer Surveys. We found that, on average, homeowners believe 25% of the savings estimated by home performance contractors.
The root of this mistrust comes from two primary sources, one qualitative and one quantitative.
Qualitatively, homeowners rarely “see” the energy savings even if they do in fact exist. While the costs of a project are very visible in the form of an upfront check and/or loan payment, the savings are never shown on your utility bill or a separate report. And since energy bills change constantly due to weather and energy prices, determining savings is difficult if not impossible unless you carry a weather-normalization calculator in your pocket.
Quantitatively, the variance in savings and realization rates (actual savings divided by estimated savings) is incredibly high. This means that while the savings communicated to a homeowner may be accurate on average, very few homeowners will actually see those savings. Instead, some homeowners save much more than estimated and some much less.
Energy savings guarantees are therefore an important strategy to fight this mistrust and demonstrate value to homeowners. Part 2 will focus on how savings guarantees work, and how different guarantees are structured.