As a contractor it’s easy to get caught up in the day to day operations and not give much thought to rebate programs other than what paperwork is currently required. For better or worse, these programs have become a fact of life. However, there are some real and significant changes happening in the energy efficiency industry today that have the potential to dramatically affect your business.
In California contractors have been a secondary part of the incentive process for years. It seems the only time the program implementers want input from contractors is after they built something that does not work. We have provided many suggestions on program design and more often than not they thank us for our input and go on to do whatever they feel is right, regardless of the impact on business models.
Part of the problem with existing program design is predictive models have long been accepted as good enough. This means we are utilizing the results from computer models to predict how much energy will be saved by retrofits. As you can imagine, what computer models predict and what is actually saved are seldom the same. Even worse is the fact that the models indicate we are saving much more than we are in reality. The end result is we are using ratepayer funds to pay for energy savings that are never realized. This is not a sustainable model.
1. Incentives Based on Real Energy Savings
In October 2015, California’s state legislature signed two important pieces of legislation. Assembly Bill 802 and Senate Bill 350. SB 350 outlined the Governor’s goals for energy savings, doubling down on energy efficiency. AB 802 provided guidelines on how to get there. One key component of Assembly Bill 802 is that energy savings must be based on measured results. No more bad energy models or grossly inaccurate software predictions, no more deemed or prescriptive savings that are “close enough”. The programs are now held to a level of accountability, the incentives they provide need to produce real energy savings.
A direct quote from AB 802: “taking into consideration the overall reduction in normalized metered energy consumption as a measure of energy savings.” In simple terms this means using smart meter data, adjusted for weather, to determine energy savings.
2. Access to Actionable Utility Data
Another component of AB 802 is access to information, specifically utility bill information. AB 802 requires that utility bill data is available to building owners and will be provided upon request. The combination of smart meter data and access to utility bill information pave the way for effective Pay-For-Performance programs.
As simple as this sounds it is a paradigm shift in incentive program design. Until this point no rebate program has ever been accountable for measured energy savings. Think about that for a minute. Personally I have always felt it was a bit ironic that home performance is based on measured results yet the incentive programs have relied on predictions to determine energy savings and incentives.
3. Private Investment in Energy Efficiency
There is a second part to the Pay-For-Performance model that is even more significant than measured savings. To date, the single limiting factor to private capital investment has been our inability to measure or “quantify” savings. The state of California has invested over 2 billion dollars in residential smart meter technology. Tools to measure this information are already in place in most homes in the form of smart meters. We can now use the smart meter data and software tools to accurately measure energy savings. Once we can verify that contractors efforts truly save energy the private sector will be “all in” to provide new solutions. Being able to quantify savings allows us to establish a value associated with those savings, this can lead to a paradigm shift in the market where delivering more savings means increased profits.
4. Energy Efficiency Will Become a Resource
One of the challenges of a Pay-For-Performance incentive program is how do you establish the baseline energy use and how long do you have to measure it afterwards to determine if you made improvements? The California Public Utilities Commission is currently working on both of these issues. The most likely solution will involve a larger entity aggregating the jobs and taking on the bulk of the risk. The combined or aggregated savings have secondary value as they can be sold as part of the utilities procurement requirements. This means, for the first time, energy efficiency will be a resource that can be used to offset energy production.
5. The Risk Shifts Away From the Homeowner
One of the concerns we hear frequently about Pay-For-Performance is that contractors and homeowners will have to wait to be paid. Most of the proposed program designs include provisions where contractors and homeowners get paid up front and the aggregator gets paid for the savings over time. This shifts the risk from the homeowner to the aggregator who can leverage the savings by procurement. Pacific Gas & Electric is currently reviewing residential Pay-For-Performance designs and intends to launch a Pilot program before the end of 2016.
6. Contractors Will Have a Choice of Programs
Using measured energy savings to provide incentives allows a multitude of options to program designers. For the first time the private sector will have the ability to develop its own rebate programs. Incentives could be in the form of low interest or no interest loans. Incentives could be paid to the homeowner, to the contractor, or both. The program designers and implementors would now have a vested interest in their success. For the first time incentive program design and profits would be directly linked to energy savings.
Can you visualize a future where you choose which rebate program works best for you? Believe it or not this is a reality that is taking shape now and it is happening at light speed. AB 802 and Pay-for-Performance will change the energy efficiency landscape in California. Incentives based on measured savings will reward those who do good work and encourage customers to invest in deep retrofit projects rather than the HVAC + insulation jobs we are seeing now. Competitive private markets will build new programs that are designed to help contractors do better work and will reward those who do. The combination of measured savings and private capital might just be what it takes to achieve some real scale in our industry.
We at Efficiency First California have been pushing hard for years to change the system. We have spent countless hours carrying the torch representing the contractor’s point of view. It looks like the powers that be are finally hearing what we have to say. This fact, combined with new regulations that require the policy makers to find better solutions, might be just what we are looking for. We think the future is bright and we are proud to be a part of the solution.
Efficiency First California
Image from iStock.