10 Key Contractor Takeaways from DOE’s New IRA Rebate Guidelines

The Department of Energy has recently released its highly anticipated guidelines for states to use in designing their IRA rebate programs. These two programs are:

• The Home Efficiency Rebates Program (also known as the Home Owner Managing Energy Savings program, or HOMES)
• The Home Electrification and Appliances Rebate Program (aka the High-Efficiency Electric Home Rebate Act, or HEEHRA)

The dense, 100-page document is a lot to sift through, and we went through some of our key takeaways in a recent webinar. While the guidelines do answer some of our questions about the IRA rebates, there are a lot of finer details left to the discretion of each state.

At Energy Circle, we’ve been dissecting the Inflation Reduction Act since it first passed in August of last year, helping our clients understand and talk with their customers about incentives. If you’re looking for a more in-depth refresher on what’s in the IRA before we dive into these guidelines, click here. Here are our key takeaways from the DOE guidelines for both the HOMES and HEEHRA rebate programs.

1. States Must Establish a Qualified Contractor List

This might be one of the most important takeaways from the IRA state guidelines for contractors. States must create and maintain a networked list of contractors for both the HOMES and HEEHRA rebate programs. The DOE did not give specific qualifications that contractors will have to meet to be listed, and each state will ultimately determine that criteria on its own.

2. States Will Have a “Quick Start” Option For Funding

The DOE guidelines give states the opportunity to make the IRA rebates available to consumers by the end of 2023 through a “Quick Start” program. There are two pathways laid out for states—one in which the state would leverage its existing incentive program and another in which the state can launch a pilot program.

This means that there is a chance that we can see some states rolling out their rebate programs by the end of the year. States like Maine, Vermont, California, New York, and Massachusetts already have strong efficiency incentive programs in place, so they may choose to move forward with the Quick Start option.

Will Any States Opt Out of IRA Rebates?

Unfortunately, we don’t know what states plan to apply for IRA rebate program money. While some states, like Florida, have announced that they do not intend to accept IRA funding, that doesn’t mean the door is completely closed for contractors in Florida. Each state has until January 31, 2025 to apply for funding, and until that date has passed, funds will remain available to them. If states do not apply by the deadline, their funds will be redistributed to the states that have applied.

3. Low-Income Carve Outs

DOE guidelines require that both rebate programs allocate a significant portion of funding towards low-income households—in line with the percentage of low-income households in each state, which is about 39-41%. Each state will also be required to allocate an additional 10% of its funding toward low-income multifamily households. This means that contractors will have a major incentive to market to low-income households if they don’t already.

4. Modeled vs. Measured For HOMES Rebates

The IRA’s performance-based HOMES rebates can be calculated in two ways, by actually measuring the energy savings or by using energy modeling software. The DOE guidelines clarify that each state will be able to choose between these two options or use a combination of both.

Contractors will be able to perform the requirements for the modeled approach on their own to ensure the projected energy savings meet the minimum 20% benchmark. However, it is unclear if that is the same case with the measured approach. Contractors may need to work with an aggregator—which could be a private company like Sealed, utility companies, or someone else—and each state will need to make those clarifications.

5. Home Assessments Are Required For Both Programs

Both rebate programs will require a home energy assessment prior to the upgrades being made—however, states will define their own clear set of rules once the minimum requirements from the DOE are met.

HOMES Assessment Requirements

Assessments are required for both single-family and multifamily homes in accordance with the ANSI/BPI 1100-T-2023 and ANSI/BPI 1200-S-2017 guidelines from the Building Performance Institute.

HEEHRA Assessment Requirements

“Limited assessments” are only required for homes upgrading to a heat pump with an emphasis on using qualified HVAC contractors for proper sizing.

6. Stacking Rebates is Possible—With Limitations

Much of the stacking opportunities with the HOMES rebate programs is dependent on if states will choose to implement a measured or modeled approach to the HOMES rebate program. It is also encouraged to combine both federal rebates with local state and utility rebates when applicable.

While there is clarification still needed on some rebate combinations, here are a few that are certain:

• A household cannot receive HOMES and HEEHRA rebates for the same upgrade
• Measured HOMES rebates cannot be combined with HEEHRA rebates, even for separate upgrades
• Modeled HOMES rebates can be combined with HEEHRA rebates, as long as it’s for different upgrades
• The 25C federal tax credit can be combined with HEEHRA rebates, though it is still unclear if it can be combined with the HOMES rebate program

7. Third Party Verification Is Required for HOMES Rebates

States will need to provide building owners with a post-installation certificate to confirm the quality and effectiveness of their upgrade. The certificate will need to be certified by a third party. Pearl is a likely candidate for third-party home certification, but each state will ultimately determine who can qualify. Contractors simply need to be aware that their work will be evaluated by a third party.

8. ENERGY STAR is Required For Mechanical Equipment

The DOE guidelines state that any mechanical equipment upgrades must be ENERGY STAR certified for both IRA rebate programs, such as heating, cooling, and water heating products. While this is fairly straightforward, there are certain models that will not be eligible, including:

• Central heat pump water heaters – They do not currently have an ENERGY STAR certification because there is not currently any efficiency criteria for them—once that criteria is set and central heat pump water heaters are certified, they will be eligible.
• Room heat pumps – These are different from ductless mini split systems, and they do not currently have ENERGY STAR criteria and testing procedures, meaning they will not be eligible for either rebate program until that is established.
• Dual fuel stoves, cooktops, ranges, and ovens are not eligible for rebates.

9. Direct to Contractor Incentives

Under DOE guidelines, states are required to pay contractors per-household incentives for particular installations under both rebate programs.

HOMES Contractor Incentives

Contractors performing installations in disadvantaged, low-income communities will receive a flat $200 incentive.

HEEHRA Contractor Incentives

Incentives for electrification rebates are slightly more complicated. The maximum a contractor can be paid per household is $500, broken down into the following qualifying activities:

• $200 for a substantial installation within a disadvantaged community
• $150 for installation of one or more electric heat pump water heaters
• $300 for installation of one or more electric ducted heat pumps for space heating and cooling per dwelling unit
• $200 for installation of one more electric ductless heat pumps for space heating and cooling per dwelling unit
• $150 for installation of one or more electric load service center
• $250 for installation of insulation per dwelling unit
• $250 for installation of air sealing and materials to improve ventilation per dwelling unit
• $250 for installation of electric wiring per dwelling unit

States will also have the option to reserve incentives exclusively for low-income households.

10. Tax Credits Should Still Be a Focus

We’re now a step closer to having IRA rebates available, but while we continue to wait the IRA tax credits are available now! With the end of 2023 just on the horizon, homeowners will want to take advantage of these credits for their home upgrades in time to claim the credits when they file next spring. Now is the best time to start marketing these incentives before it’s too late.

This article was originally published in the Energy Circle blog and is republished with permission.