[Reposted] Energy Savings Guarantees 101 (Part 3)

(This is originally posted on Mike Rogers’ Omstout blog)

Part 3: To guarantee savings you need #OpenEnergyData

Savings guarantees are important, but are very hard to implement in a manner that is impactful. So where does that leave the home performance industry, policymakers and other stakeholders?

Luckily, there is a lot that can be done to make energy savings guarantees more prevalent and powerful. This starts and ends with data. In order to best guarantee savings, data on homes undertaking home efficiency improvements is needed to quantify actual savings, variance and other aspects of risk. Unfortunately, this data is difficult to obtain, combine and normalize, with various stakeholders holding different pieces of the puzzle.

The first challenge is simply obtaining data related to home performance improvements. Energy usage data is held by utilities, who typically require confidentiality  agreements and/or customer authorization. Obtaining energy usage data therefore either entails long, complicated negotiations with utilities or persuading homeowner’s to find and share their utility account information and/or usage history for the purpose of research. This has to be done for all energy companies, including hard to track fuels like heating oil and propane in many cases.

Once energy usage data is collected, home and project characteristics must be matched. Most utilities do not have this data, which is instead held by individual home performance contractors and the software used for home energy assessments. Homeowners themselves usually only receive a report that summarizes the assessment findings, so they can’t directly provide this data.

After pre- and post-improvement energy usage and the home and project characteristics are combined, the data must be normalized by weather and energy prices, as well as scrubbed for obvious data entry or modeling errors. This is a tall order, and not something most individual stakeholders can accomplish in isolation.

Currently, the only stakeholders that ever have regular access to all of this data are evaluation, measurement, and verification (EM&V) consultants, although they often are not able to obtain all of the necessary data to perform a comprehensive analysis. EM&V consultants are also limited by a mandate to evaluate entire programs, including many considerations like free-ridership that are not relevant to individual homeowners or savings guarantees. Most EM&V reports therefore simply show average savings across an entire program, not the variability or other factors.

So as with most things these days, the answer lies in a hashtag: #OpenEnergyData.

More specifically, #OpenEnergyData means multi-stakeholder efforts to aggregate, clean and sort relevant data sets into a master Energy Data Center, a concept first proposed in California. More recently, DOE’s Buildings Performance Database(BPD) and  the National Renewable Energy Lab (NREL) with the Building America Field Data Repository (BAFDR) have taken national leadership on this front.

Screenshot 2014-03-09 17.59.54

A screenshot graphing a slice of the data from the DOE Buildings Performance Database

Unfortunately, there does not seem to be the appropriate sense of urgency in allowing access to these data sets. The BPD in particular has a policy of only allowing derivative analysis, not being able to analyze the raw (anonymized) data. You can see Sealed’s comments to the BPD here. The bottom line is they should be asking their data partners to allow the raw data to be shared.

The BAFDR (which will theoretically feed into BPD) looks to also have a ton of promise. NREL has gathered a good amount of data around home performance results, and are starting to use it to test the accuracy of various software tools. But it will be several years until this data can be analyzed by anyone other than the government, a proposition that is unfortunate given the value it can serve in the private market.

In the meantime, each state and utility company has the opportunity to become a leader. The Investor Confidence Project has been working with several leading state organizations to publish open data on clean energy loan performance. These stakeholders can go much farther by publishing actual energy usage and project characteristic data like air leakage numbers (in New York this was FOIA’d about a year ago – see Ted Kidd’s results here).

There are also many local laws (including New York City’s LL86) to mandate energy disclosure for multi-family and commercial buildings. These energy disclosure laws have already led to innovation and catalyzed new energy startups like WegoWise, which can now publish cool charts. Sealed is trying to do its part, working with the Town of Babylon’s Green Homes Program to publish the variance in realization rates.

Town of Babylon, Sealed, heating fuel, Realization Rates

It is time to bring this level of data transparency to more single-family homes. Sealed is part of the Cleanweb Initiative, and has started a discussion and draft#OpenEnergyData manifesto. Please check it out, give feedback (google doc so you can edit / comment directly), and let us know if you would be willing to sign the manifesto.

The bottom line is guarantees matter, they are difficult to implement, and we must all work together to build the data sets necessary to create more transparency and trust with homeowners and other stakeholders.

[Reposted] Energy Savings Guarantees 101 (Part 2)

(This is originally posted on Mike Rogers’ Omstout blog)

Part 2: How energy savings guarantees work

Like many things in life, for energy savings guarantees, the devil is in the details. While a guarantee is very attractive to homeowners, offering a guarantee can be difficult. The goal of any guarantee is to give a homeowner confidence in the benefits of the work being proposed. For a guarantee to be valuable, therefore, it must be something that homeowners believe is easy, simple and concrete.

Meeting all three criteria is more difficult than it sounds. Since energy efficiency is by definition the lack of energy, it is hard to measure and manage. Each guarantee balances the value of the guarantee with risk. A guarantee can be valuable to the homeowner, but include unacceptable risk to the company offering the guarantee. A guarantee can also manage all risks, but then be much less valuable to homeowners. A few examples demonstrate this spectrum of risk and value.

One of the first guarantees, cited by Mike in a past post on guaranteed savings, is offered by Bigelow Homes. The Bigelow guarantee can be considered the gold standard of energy savings guarantees. They literally say your annual heating or cooling bills won’t be more than $X each year. If you pay more, they will reimburse you for the difference. The challenge for this type of simple guarantee is that it has to be extremely conservative in order to deal with variance (less of an issue with new homes) and rising energy prices (particularly with volatile oil and natural gas prices). In fact, Bigelow Homes had to make their guarantee more conservative because of rising energy prices.

Energwyise Structures, based in Texas, offers a similar savings guarantee for new construction based on their superior designs. Like Bigelow Homes, they guarantee a cap on energy spending levels. However, Energywise limits the guarantee to HVAC, with metering installed to monitor performance. And while the guarantee agreement references dollar levels, it also cites related energy prices, implicitly making the guarantee neutral as to energy prices.

For existing buildings, a percentage reduction guarantee is much more common. For example, GreenHomes America offers a 25% heating and cooling reduction guarantee, although the details are not available on the website. These details are important, as we will see.

Masco also offers a “Limited Guarantee” to Environment for Living (EFL) homes. This guarantee is also focused on heating and cooling systems, setting a “Guaranteed Usage” heating and cooling amount that the home will not exceed. By defining the guarantee in terms of heating and cooling, EFL then defines the calculations used to determine heating and cooling:

“The following is a description of the method MASCO Home Services uses to estimate your Heating/Cooling Energy use: First, for the claimed Period, MASCO Home Services calculates the average of your three lowest months of energy use when your Home is occupied. MASCO Home Services assumes that this average estimates the energy you used for activities other than heating and cooling your Home. That average is then multiplied by 12 and subtracted from your total energy use during the claimed Period. The remaining amount estimates the Heating/Cooling Energy, which is the energy used to heat and cool your Home during the claimed Period. If appropriate, MASCO Home Services also may adjust the Heating/Cooling Energy to exclude energy use not related to heating and cooling your Home, such as seasonal use of pools and spas, and to account for any change in energy use for heating and cooling your Home related to any change or modification to your Home, its HVAC System or its occupancy.” 

The EFL guarantee also includes a series of homeowner responsibilities that are similar to many of the other guarantees:

“Your actions can greatly affect energy use in your Home. You are not covered under this Limited Guarantee unless you exercise prudent energy management for your Home. As a condition to maintaining this Limited Guarantee, you agree to:

1. Use windows and doors prudently when operating the heating, ventilating, and cooling (“HVAC”) system of your Home.

2. Follow manufacturer’s instructions regarding operation and service of the HVAC system of your Home, including annual inspections and filter replacement.

3. Set the thermostat of your Home at no higher than 72 degrees F during the heating season and no lower than 75 degrees F during the cooling season.

4. Notify MASCO Home Services of any change or modification to your Home, its HVAC system and/or its occupancy after the Start Date so that MASCO Home Services, in its discretion, may re-evaluate and make appropriate adjustments to the Guaranteed Usage. You will be charged a fee for any such re-evaluation or adjustment. MASCO Home Services may, in its discretion, refuse to pay a Reimbursement Amount under this Limited Guarantee for any material changes or modifications to your Home, its HVAC system and/or its occupancy.

5. Submit any claims and notices in writing to: MASCO Home Services, c/o Environments For Living program, 2339 Beville Rd., Daytona Beach, FL 32119. Any claim for a Period must be submitted to MASCO Home Services within 30 days of the end of that Period. For example, any claim for the first year of the Limited Guarantee must be submitted within 30 days after the first anniversary of the Start Date. You must include copies of your actual detailed monthly utility statements for your Home for the applicable Period and proof of the HVAC system maintenance and service work with your claim.

6. Permit MASCO Home Services and your builder to access your Home, upon reasonable notice, to inspect, meter and/or to make changes or modifications to your Home in connection with this Limited Guarantee. MASCO Home Services shall not be responsible for performance of and/or payment for any changes or modifications to your Home by your builder or any third party.” 

These conditions certainly reduce Masco’s risk, but unfortunately few homeowners would consider them easy, simple or concrete. The upside of this dynamic is the fact that, historically, very few homeowners make claims on savings guarantee (<1%).

The downside is that this probably means most homeowners don’t believe or value the guarantee. Since most guarantees make it difficult for homeowners to claim, this dramatically reduces internal calculations that it is “real” and therefore something to be factored into a buying decision. Think about all of the cheesy “money-back guarantee” commercials you see each day, and how realistic you think it is that you would ever actually return something.

Making a quote believable is therefore very important to make it valuable. A quote from a recent focus group on energy savings guarantees summed up this sentiment well:

“I just don’t understand how it would work … there’s so many variables. There’s no way that you can do that and actually stay in the black.”

In the last few years the solar industry has found a way to make guarantees believable in the context of Power Purchase Agreements (PPAs), where homeowners only pay for the power delivered (see an example from SunRun). A homeowner is guaranteed to pay based on actual solar power that displaces their utility bills. This billing is done automatically without any requirements for the customer to call the solar company.

Unlike energy efficiency, however, the size of this displacement can be easily metered and measure. In addition, the variance of solar panel generation is much lower than efficiency. In order to deliver a believable (and therefore valuable) guarantee, the issues of ongoing savings quantification and variance must be addressed.

My company, Sealed, is trying to address these issues in order to offer an energy efficiency guarantee for existing homes that is easy, simple and concrete. We do this by replacing a homeowner’s utility bills (electricity and heating fuel) with a single Sealed Energy Bill that is guaranteed to be X% lower than baseline energy bills, defined as a formula of baseload and weather-variable energy usage multiplied by current energy prices.

Sealed energy savings guarantee tableBy replacing utility bills, Sealed solves several problems. First, we remove the variance challenge, smoothing out the savings for each homeowner. In practical terms, this means that some homes will actually save less than the amount we have guaranteed, and some will save more. But any individual homeowner will always pay a guaranteed percentage less than their baseline amount.

In addition, Sealed automatically delivers these savings so that there is no need for the homeowner to monitor performance and contact us to receive the guarantee. Their Sealed Energy Bill always includes guaranteed savings no matter what they do.

Perhaps more importantly, Sealed visualizes the savings each month, making them a concrete number that can be digested and communicated to others. The goal is to give homeowners consistent reinforcement that they are saving money, making it more likely that they will refer friends, family and neighbor to Sealed or a home performance contractor.

Sealed energy savings guarantee offer

Sealed’s challenge is to appropriately manage the savings risk, both in terms of the project performance and any behavioral or moral hazard risk. We also need to change a 100-year pattern of homeowners paying utility bills instead of a new bill that focuses on savings. I can’t guarantee Sealed will meet all of these challenges, but we are certainly going to try, and hope many others will join us in that effort.

[Reposted] Energy Savings Guarantees 101 (Part 1b)

(This is originally posted on Mike Rogers’ Omstout blog)

As an addendum to the last post on why energy savings guarantees are important, I want to highlight an important new report published by the Center for Research & Public Policy (CRPP), and prepared for the Vermont Energy Investment Corporation (VEIC).

This report is a follow-up to the survey report referenced in the first blog post around the important of savings confidence. It is a summary of Vermont focus groups focused on trust and confidence in savings. I encourage everyone to read it themselves, but below are a few choice quotes from focus group participants that underscore some of the points made in last blog post.

Difficulties calculating savings

“I have not really computed savings. It’s a little trickier than it might seem because you need to account not only for the time but the number of degree days to figure out one winter is warmer than the other, and so the reduction in spending doesn’t necessarily mean that it’s been the result of saving. So we’re happy with the results. The house is more comfortable and less drafty, but we have not tried to compute an actually payout.” 

“It is hard to measure, though. That’s the – You’ve got variable costs on your fuel source, so it’s – Yes, I think we’ve gained on it, because I know the new wing was Energy Star built and all that stuff, but it’s hard to know how much. You just kind of get a feel that it was better than if you didn’t do it. But it’s hard to measure” 

“Our winters are so variable, that it’s hard for me to compare whether I’ve actually been saving money, or whether it was just a warm year, and I didn’t require as much heat during that time. Same with the energy efficiency.”

Lack of trust in estimated energy savings

Going back to the energy audit thing, I had one, and I was not happy with it either. The estimates were way inflated. I wound up doing most of the things that they recommended, but I did a lot of it myself, or I got other contractors, who were more reasonable, to do it.”

“If you’re not – some of us seem unhappy with the report or untrusting of the reports – how much you could even trust those kinds of forecasts. That’s – unless you really can get into the detail behind it, you kind of don’t know what data are they using to arrive at what they’re saying. Because if it’s a great ROI, you might jump at three or four of the things.” 

“It probably does depend on your house and your particular situation as to whether it will save or not, but I don’t think they have really good ways yet to estimate what you will save in part, as the gentleman over there was saying, it’s very complicated to try to figure it out” 

Attractiveness of a guarantee

“MODERATOR: How many would go with the higher savings, without a guarantee? Raise your hand. So the rest of you the would go with the lower savings that were guaranteed. OK, 100%.” 

“But if I talk to my neighbor, he wants a guarantee. He said – he’s an engineer – he wants it guaranteed that if he did similar work he was going to get these kinds of savings. And I said: ‘Well, I don’t – I can tell you what happened to me. But I don’t have a way of giving you a story that is sort of guaranteed by a larger database that this is how it will work.’”

“Yeah, a sense of accountability. Absolutely…Make a big difference…But it also sounds too good to be true.” 

Type of guarantee

“Third party [Guarantee], yes. Contractor, no.”

 ”A third party that was constituted in such a way that you believe that they were operating in your interest and not the contractor’s interest.”

“It’s gotta be somehow in the understanding, the document, that it is what it is at this point in time and if things change then however you address it”

Guarantee challenges

“I just don’t understand how it would work, and I know I’m being difficult but I just – I mean in Vernille [ph] – I used to work in Vernille Energy and there’s no way that, well, it was very – you never really saw companies making guarantees about production for the same reason. It’s just there’s so many variables. There’s no way that you can do that and actually stay in the black.”

“I’d be concerned that if they say you have to keep your heat at 68 degrees or lower, and their system says your heat went up to 70, but you know your thermostat is at 68, like that, to me, to make it void is just way too –”

“And I don’t know how you would factor in the cost of fuel and all that other stuff. It seems like that would be great if someone could do that kind of guarantee, but I think it would be enormously expensive.” 

The focus group participants were also asked to rate different strategies that could improve confidence. Interestingly guarantees scored extremely high except in the “stalled” group.

There are many other good nuggets in the report about trusted information sources, project barriers and investment mentality. I encourage everyone to read the full report to better understand how confidence can impact home performance projects, and ways to communicate with homeowners.