Energy efficiency is a powerful, but very misunderstood energy resource. Here at Sealed we see the good, the bad, and the ugly every day. Unfortunately, policymakers, investors, partners, and other stakeholders do not always appreciate the true opportunities and challenges in this market.
The three biggest misconceptions we hear people talking about are:
- Customers care the most about lowering energy bills
- Better financing is the highest impact solution
- Efficiency is too messy and complicated to scale
These misconceptions cause real damage in the market because they lead to policies, business models, and marketing strategies that will inevitably fail.
Energy efficiency shouldn’t be misunderstood. Take it from Kanye:
Sealed and others in the market are solving real “pain” points, which go above and beyond the cost and savings of efficiency improvements. This should be acknowledged and integrated into everyone’s market approach.
Customers care the most about lowering energy bills
Of the three misconceptions, this is the most common. It is of course intuitive and rational to believe that monetary savings is the primary motivating factor for customers to improve the efficiency of their home.
However, this simply isn’t true for most customers. While saving money is always a good thing, the amount of money that can be saved is pretty minimal. Most customers finance their improvements, which means they compare their savings (e.g. $100 per month) to their loan payment (e.g. $75 per month), and they only view the difference ($25 per month) as real savings.
$25 per month of savings simply isn’t enough money to motivate most customers, especially when it involves lots of paperwork and an upfront or long-term financial commitment.
The good news is that customers care a lot more about the comfort and the quality of their home. When you literally can’t use a room in your house during the summer and winter because it is too hold and cold, a situation faced by many of our customers, you are very motivated to solve your problems.
Energy savings are important, but only in the context of solving these comfort and other home problems. The way we put it is that energy efficiency is the only home improvement you can make that will generate a cash-flow stream.
Energy efficiency is therefore even better than solar. Rather than invest in an asset that won’t impact your quality of life, you can invest in energy efficiency improvements that make you more comfortable today, and generate cash in the form of lower energy bills well into the future.
For better or worse, we are all are pretty short-term thinkers. Calculations of discounted lifetime value, ROI, and payback are very abstract compared to the fact that you don’t need to wear a sweater the next time you’re watching football in your living room.
Better financing is the highest impact solution
Another major misconception is that better financing is the key to driving demand for residential energy efficiency. Whether it is PACE, on-bill, or securitization, financial engineering is often cited as the largest leverage point in market growth.
No matter how attractive the financing in terms of lower interest rate, longer term, or easier credit, a loan payment is a certainty. Whether that loan payment is based on a 3% or 7% interest rate does not have a big impact on customer decisions.
What is uncertain to the customer, however, is the savings benefits they will receive so they know what it will “really” cost. Are the savings $100 a month, $50 a month, or $25 a month?
Based on Sealed’s research, customers only believe 25% of the estimated energy savings, literally leaving money on the table simply because they can’t value it in their decision-making.
To put this in perspective, on a project with $100 per month of savings, increasing energy savings confidence from $25 to $75 is the same as lowering the interest rate on a $10,000, 15-year loan from 12% to 3%.
Energy savings uncertainty is therefore the highest impact solution to grow the energy efficiency market. While more attractive financing is a very important piece of the puzzle, customers value “Confidence in Energy Savings” more than twice as much as “Attractive Financing”, according to a study by GDS Associates a few years go.
This is why Sealed has focused on providing an energy savings guarantee to our customers, and are working hard to make energy savings seem just as real as a loan payment.
Efficiency is too messy and complicated to scale
A third misconception is that the process of scoping and delivering energy efficiency improvements is just too messy and complicated to scale. The general thought process is that solar panels are very easy and straightforward compared to insulation, air sealing, and HVAC upgrades.
The truth is that energy efficiency improvements are very straightforward, and only require a few key data points to scope (home dimensions, current insulation levels, and mechanical system specifications). And while installing energy efficiency improvements can certainly be messy for the construction crews, it is actually fairly simple work.
The work itself is hard, but very simple. Air sealing involves using about half a mile of industrial foam in a customer’s attic. Insulation requires spraying cellulose (treated newspaper) into attics and walls. Wall insulation is usually completed by taking off a single panel of siding, drilling a small hole into the sheetrock, and then spraying the insulation into the wall cavities. Millions of HVAC upgrades are completed each year and are fairly standard.
All of the work is therefore done outside or in the nooks and crannies of the home (attic, crawl spaces, basement, etc.). There are many great companies across the country that do this type of work, and are more than happy to hire as many people as they need if they have enough work for them.
Fixing these misconceptions would go a long way to creating the type of market conditions necessary for residential energy efficiency to scale. Rather than focus on energy savings, we can focus on comfort. Rather than putting all of the brainpower into incrementally better financing solutions, we can increase confidence in savings. And instead of worrying about the complications of energy efficiency, we can focus on driving demand.
Sealed is doing our part to change these paradigms, and we hope the rest of the market follows us in that endeavor!