To catalyze market-level transformation in the energy economy, states should consider designing programs that spur durable market demand for rebated technologies and installations such that they spur the growth of skilled workers in good jobs and innovative businesses.
Market transformation refers to strategic initiatives aimed at bringing about lasting changes in the structure or functioning of a market, or in the behavior of market participants. The objective of market transformation is to reduce barriers to the adoption of energy-efficient practices and technologies, leading to both environmental and economic benefits.
Recommendations for Program Administrators
Workers and businesses will be most interested to engage with these state programs if they see sustainable market opportunities in these types of home energy upgrades. While the funds authorized through the states are substantial, they alone will not support the scope of work needed to broadly upgrade U.S. housing for energy efficiency benefits. Pulling in private and public funding sources for braiding and co-funding that have potential to fill the gap left by the Home Energy Rebates after they are depleted can better ensure manufacturers, distributors, retailers, contractors, and workers that this is a market sector worthy of their investment.
Homeowners can use post-installation Home Energy Scores to demonstrate the value of the rebated projects in future home appraisals and real estate listings. The goal of the Department of Energy's Home Energy Score™ program is to support market valuation of efficient homes, which in turn supports the flow of homeowner investment and mortgage financing for energy efficiency upgrades. Unlocking these capital flows is key to building sustained market demand for energy technologies, which can make participating in this industry as a worker and business more sustainable.
Rebates will help reduce the cost of home efficiency upgrades for a period, but at some point, will be depleted. Consider which costs contractors will need to continue to cover through their business models beyond the tenure of the funds and what activities will encourage participating contractors to improve business efficiencies. Allowing for market competition on some direct costs can spur innovation that will be necessary for these activities to continue beyond the rebates. Learn more about program market positioning and business models in the Department of Energy's Residential Program Guide.
One reason home energy upgrades may be unaffordable for U.S. households is because of high project soft costs. The Department of Energy (DOE) recommends states take action to support project scopes that can be replicated across many households, work with finance agencies to support widescale access to project financing, and assist contractors in targeting good candidate households. States are encouraged to work with DOE, national laboratories, architecture and engineering firms, and others on these efforts to better ensure these solutions persist beyond the rebates.
By focusing on specific product types, programs can work to drive down the cost of equipment through economies of scale. A concentration on specific products may also facilitate training contractors and drive improved installation practices. Key benefits include:
- Reduced project costs and complexity
- Simplified worker upskilling.
Effective but expedited installation and quality assurance approaches may allow contractors to reduce costs and complete a greater number of retrofits in the same amount of time. Remote quality assurance options can also reduce the project costs. Incentivizing contractors to use smart diagnostics upon installation and maintenance may also lead to improved consumer experience and product durability. Key benefits include:
- Reduced project costs
- Improved project value proposition
- Reduced labor hour intensity per project.
Homeowners are more likely to invest in retrofits if projected savings estimates are reasonably accurate. Given that occupant behavior and weather influence utility usage, homeowners need to be made aware that actual savings may vary. Actual results in a specific area from retrofits with specific technologies can be used to improve estimations of savings and may lead to faster assessments. Key benefits include:
- Improved project value proposition
- Reduced customer acquisition costs.
Depending on the variability of the housing stock, pre-designed packages (e.g., insulation + heat pump water heater + air and duct sealing) that are appropriate for specific types of homes may reduce the amount of upfront assessment and modeling and provide more of a commoditized approach to retrofits. Key benefits include:
- Reduced project costs and complexity
- Simplified worker upskilling.
Building owners need credible, clear, and actionable information to help them make good retrofit decisions. In addition to information on quality contractors, products, and how systems are interconnected, transparency on costs—of products as well as installation—is needed to improve competition in this market. Key benefits include:
- Reduced consumer acquisition costs
- Improved project value proposition.
Learn more about educating consumers about home energy upgrades in the Department of Energy’s Residential Program Guide.
Because residential peak demand can represent a threat to grid reliability, states and others may appeal to the public utility commission and utilities to evaluate the potential benefits of time-of-use rate structures. States can also require or allow higher incentives for products that meet the Energy Star Connected Criteria, which deliver meaningful energy performance via efficiency and grid services. Retrofits that include smart technologies can help homeowners optimize when and how they use electricity, thereby improving grid reliability and saving on their utility bills. Markets that allow the aggregation of grid benefits associated with retrofits also signal to investors that there is additional value that can be attributed to retrofits. Key benefits include:
- Improved project value proposition
- Aligned market incentives.
Both Fannie Mae and Freddie Mac offer an incentive to owners of efficient multifamily buildings, thereby encouraging these building owners to invest in upgrades. One barrier to offering a similar incentive to single-family homeowners is the lack of consistent information regarding a home’s energy assets. By requiring energy asset information at point of listing, local and state governments can ensure that buyers are more aware of energy features and provide a data stream that could more readily allow lending institutions, appraisers, insurers, and others involved in real estate transactions to more accurately assess and value the energy performance of homes. Key benefits include:
- Reduced consumer acquisition costs
- Improved project value proposition
- Aligned market incentives.
Relevant Links
- Home Energy Score™: A metric that can be used in concert with the IRA rebates to provide additional value to homeowners. Trained professionals can use DOE’s Home Energy Scoring Tool at no cost and generate a standardized home energy rating and report for their improved home. This score, in turn, can be used by appraisers to value efficiency improvements more effectively. Analysis shows that when homebuyers have access to Home Energy Score information, homes with higher scores experience a sales premium and reduced likelihood of mortgage delinquency. Home Energy Score can also be used to help additional buyers to qualify to purchase the home given expected lower utility bills.
- Bringing Home Energy Information to Real Estate: A Toolkit: A toolkit that provides information about how to integrate home energy information into real estate transactions to promote valuation of home energy features.
- The Advanced Building Construction Collaborative: A DOE-funded initiative working to reduce the time and cost of building energy upgrades, including through the reduction of market and financial barriers to deployment.