Prospering in a Postrebate World

October 30, 2014
November/December 2014
A version of this article appears in the November/December 2014 issue of Home Energy Magazine.
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Every large government program or initiative ever launched has inherent pros and cons, and the American Recovery and Reinvestment Act (ARRA), aka stimulus funds, is no different. A case can be made either way as to whether the expenditure of funds under ARRA have proven to be ultimately beneficial or a waste of taxpayer money. But there is one undisputed fact that energy auditors and raters must face: These funds are all but depleted now.

In truth, this really shouldn’t surprise any of us, since the stimulus funds were specifically targeted to create and/or boost the emerging green-jobs sector and create a sustainable workforce. The ARRA funds were never intended to promote or finance energy upgrades forever, and based on the dismal state of our current financial system, they are not likely to be restored en masse any time soon.

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Author Ken Riead built this energy demonstration home, the Replete Residence, with his wife, Sharla, in 1999. (Ken Riead)

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Solar panels were installed on the back side of the roof; right, the home's sun room with radiant floor heating system. (Ken Riead)

Choices

Residential energy efficiency professionals now seem to have only two choices: Wait and see if these incentives come back and try to resume business as usual, or assume that the incentives will not come back any time soon, if ever, and proceed accordingly. Fortunately, there is an alternative that is nationally available, that has a proven record of success over several decades, and that can stand up our industry again: private-sector financing.

Those of us who have been in residential and small-commercial energy efficiency businesses for more than a few years know that government- and utility-sponsored incentive programs come and go, while the private sector somehow manages to chug onward. Any industry that truly wants to be sustainable for the long run must learn to engage with the private sector, period. Our specialized expertise in developing viable energy and building durability improvement packages should enable us to help homeowners facilitate prudent financial transactions with lenders and investment groups. But to become trusted partners with the private sector, we must think of energy upgrades as great investment opportunities—not simply as a “good thing to do” or a means to get whatever incentives happen to be available.

This trust extends to the homeowner as well. Our skills include testing for combustion safety in the home, improving the family’s comfort level, and providing options for improved indoor air quality (IAQ). We are not just about energy efficiency; our work also makes homes healthy, safe, comfortable, and durable. For the homeowner, there are emotional as well as logical reasons to make these changes.

Private-sector financing can stand up our industry again.

America now has a substantial number of trained residential energy professionals who know how to identify energy, safety, comfort, and durability problems and how to design a plan of action to correct those problems. But these professionals must understand how to optimize and group these upgrades so they can be monetized as investment-grade improvements that private-sector lenders will understand, trust, and finance. It is comprehensive, whole-house upgrades that are needed, with all of these benefits made clear. Without financing, the alternative encourages piecemeal do-it-yourself improvements. Not only do these improvements not support the industry, but they can have disastrous unintended effects. Those rim joist leaks may have been keeping the family alive; those can lights may not be insulated-can, airt-tight (ICAT) rated. A do-it-yourselfer, even one who is following a paid-for written plan, may end up subjecting the family to CO poisoning or a house fire.

Two Key Concepts Must Be Made Clear

  1. The homeowner’s focus must be on energy savings and on increased comfort, quality, and safety—not on the possibility of getting a rebate.

  2. Homeowners need to understand that avoiding the cost of energy upgrades does not actually benefit them. People who live in inefficient housing pay for energy improvements that aren’t installed in the form of higher utility bills and decreased comfort. To paraphrase an old TV advertisement, “You can pay me now or you can pay me later. Either way, you’ll pay.”

Mind-Set Shift

A basic energy audit includes a list of problems found and recommended improvements. The homeowner must then determine whether to incur the expense of making those improvements. Obtaining sufficient financing for a comprehensive energy upgrade, when presented to homeowners as an expense, is proving difficult in many parts of the country. A key mind-set shift must occur. Homeowners must understand that financing energy improvements is not an expense but an investment. Making an investment in optimized energy upgrades can increase net monthly income by significantly decreasing utility bills. In other words, when properly structured, the money produced from the upgrades will more than offset the cost of the upgrades. Luckily for us, most of the existing housing stock is in serious need of deep energy retrofits that will more than pay for themselves.

The choice the homeowner must make is whether to continue paying high utility bills, or to direct that same monthly outlay of cash toward investing in home improvements that lead to comfort, durability, safety, better IAQ, higher resale value, and—yes—permanently lower utility bills. Today’s energy professionals must be able to arm their clients with the strategic information they need to make a logical economic decision, and with the emotional reasons they need in order to follow through.

Yes, you will likely need to charge more for your services, but your services will be worth more.

To do this, the energy professional must begin by performing an investment-grade energy audit. This is the comprehensive energy audit required to develop a plan detailed enough that the bank will underwrite it. Investment-grade energy audits are much more detailed than the basic audit used to satisfy the energy rebate requirements of most incentive programs. However, the results are well worth the effort. If you get nothing else out of this article, please understand this: The cost of the energy improvement package becomes moot if the energy upgrades will pay for themselves. Not only are upgrades costing tens of thousands of dollars possible, but these packages are installed all the time. It has been our experience that emotionally invested people really do want to have extensive energy improvements performed on their homes if the offsetting savings can be fully documented and financed.

The private sector operates in a world of risk avoidance.

Risk Avoidance

The key to producing these packages again and again is an investment-grade energy audit—the thorough examination of a potential set of energy improvements along with their cost and associated financial savings. An investment-grade energy audit will include solutions for health, safety, building durability, and any other energy problems found during the audit. It will include a biddable scope of work, quality standards for the work, and a financial analysis using bids specific to the project to validate the savings expected to be realized. The audit must provide facts on savings versus investment, present value, and payback. Without this key information, a lender does not have the evaluative tools needed to feel comfortable about investing. The private sector operates in a world of risk avoidance. When there is too much perceived risk, there is no investment.

This level of workmanship takes time. It involves understanding that as energy professionals, we are only one part of the entire home performance team, and that the team must work together to produce successful projects. This means we have a vested interest in seeing the project through to completion on behalf of the client and the lender. Achieving the projected energy savings is absolutely mandatory if we want the private sector to feel comfortable lending their trillions of dollars to our projects.

learn more

You can connect with the author on Facebook or LinkedIn using their search functions or on his website at DesignCharrette.com.

Yes, you will likely need to charge more for your services, but your services will be worth more. They will result in safer, quieter, more comfortable, and more durable homes and actual completed comprehensive energy retrofit projects. And they will have a real, positive impact on the environment. Isn’t that the reason we got involved in the first place?

Ken Riead is the editor-in-chief of DesignCharrette.com and EnergyMortgageNetwork.com.

Author Ken Riead built this energy demonstration home, the Replete Residence, with his wife, Sharla, in 1999. Left, solar panels were installed on the back side of the roof; right, the home's sun room with radiant floor heating system.

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