While much attention has been focused on consumer demand as the key barrier to the growth of the energy efficiency industry, program design is actually the greater problem.
It’s hard to call demand the problem when the energy-related home improvement market—comprised of windows, doors, insulation, HVAC, roofing and appliances—is well over a $40 billion a year market. The fast-growing solar market, by comparison, is less than $3 billion a year.
Over the last decades, energy efficiency programs sponsored by states and utilities have focused largely on consumer rebates. Recently, those programs have begun leveraging their rebate dollars by supporting energy efficiency finance programs as well. According to a comprehensive 2013 report by the Lawrence Berkeley National Laboratory (LBNL), spending on these customer-funded energy efficiency programs more than doubled from $2 billion in 2006 to $4.8 billion in 2010. And LBNL projects that spending on these programs will again double by 2025—to $9.5 billion.
Faced with increasing pressure to meet efficiency targets and with goals that require many additional billions of investments, policymakers are doubling down programs that use the same basic prescriptive approach rather than approaching with a flexible model that moves the existing $40 billion market towards more efficient outcomes.
The obvious problem with the prescriptive approach is that it adds several—often cumbersome, time-consuming—steps to the purchasing process. Most consumers and contractors find the process more trouble than it’s worth. Even more challenging, the programs often require lots of lead-time that does not allow for people who are trying to get a project done quickly. Thus, it appears we have a “demand” problem when in fact we simply have a design problem.
Many of the world’s biggest and most successful companies are pioneering new ways of making purchasing easier and integrating new low-cost tools seamlessly into the consumer’s purchasing process. Amazon has made “1 Click” purchasing the industry standard for online sales. Car dealerships integrated easy financing into sales decades ago. And with the introduction of its new electronic payment system, Apple is working to eliminate the need for a credit card—or even a wallet.
We need to fundamentally re-design our approach—away from rebates and prescriptive financing approaches, to programs that deliver low-cost financing in a quick, simple way that is integrated into contractors’ existing sales process. Not only does this leverage limited subsidy dollars, but it actually helps consumers and contractors solve a problem right at the time of sale.
Let me give a few examples where this approach has been used successfully:
In California, residential PACE (Property Assessed Clean Energy) programs have funded more than $250 million in energy efficiency, renewable energy and water efficiency improvements. My company, Renewable Funding, administers the CaliforniaFIRST Program, which operates statewide. We offer participating contractors a sophisticated technology platform that allows consumers to apply and get approved for financing in minutes over the phone or online. The financing is integrated into the contractor’s sales process—allowing them to close deals at the kitchen table. CaliforniaFIRST financing is easy, flexible and fast—and helps contractors close deals. In short, it is all of the things that the traditional approach is not.
In Pennsylvania, the Keystone HELP program has funded more than $100 million in energy efficiency loans for homeowners. Again, the financing process is simple and fast, and it works for both contractors and consumers. The program manages a network of more than 1,000 contractors that offer state-subsidized financing. Keystone HELP is the founding partner in the WHEEL unsecured lending program, which will soon be offering unsecured, publicly-supported energy efficiency loans in a number of states including New York, Kentucky, Virginia, Indiana and Florida. Renewable Funding will securitize its portfolio of WHEEL loans later this year, providing access to even lower-cost capital to finance more energy efficiency loans.
The tremendous boom in solar lease sales had similar characteristics to the public/private programs I just described. In 2007, solar leases were just 10% of the solar market in California. By 2014, they had reached more than 75%—in spite of the fact that it is often more expensive (in the long term) to lease a solar system than to purchase one. Why? Because the lease is easy, fast and flexible for the homeowner and the contractor. Although leasing is fairly complicated and expensive, it was packaged to make it easy for consumers to understand and quick for contractors to sell.
We have learned that simply providing rebates and/or low cost financing does not result in the volume of projects we need to meet our efficiency goals. The problem is not that financing does not work. In fact, the examples above prove that it works remarkably well. Rather, we have learned that inserting financing into a cumbersome process that requires many steps, hurdles and time will never work. Our job is to help consumers make smart, energy efficient decisions, and—used properly—financing is a great solution.
This article was originally published in State & Local Energy Report
