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Jun 26, 2024

Real Energy Savings Matter the Most to Low-Income Households

Done right, IRA Home Energy Rebates can make a big impact, particularly for low-income households that want to adopt cleaner, greener technologies like heat pumps and insulation. 

Tech applying spray foam insulation

The Inflation Reduction Act’s Home Energy Rebates are our biggest near-term opportunity to make national progress on improving the comfort and efficiency of homes. Done right, these rebates can make a big impact, particularly for low-income households that want to adopt cleaner, greener technologies like heat pumps and insulation. 

But as we electrify homes and reduce fossil fuel usage, it’s important that we don’t increase the financial burden for low-income families. The good news is that the U.S. Department of Energy (DOE) and states across the country are thinking about how to make energy efficiency as affordable as possible. 

For starters, every state must include a Consumer Benefits Plan as part of its rebate application to the DOE. The plan must explain how the state plans to protect low-income consumers while achieving Justice40 and workforce goals. 

But states can go a step further by making sure rebates are tied to actual energy savings — a recommendation that comes straight from the National Consumer Law Center (NCLC), one of the most important low-income consumer advocates in the U.S. when it comes to energy use and utility costs, and the National Housing Law Project (NHLP), a leading housing advocacy organization that works to preserve and expand the nation’s supply of safe and affordable homes. According to the NCLC and NHLP, all states should include a measured savings pilot, in addition to the modeled savings approach, as they implement the IRA HOMES Program. (It’s a similar recommendation that we’ve been making at Sealed).

Modeled savings risks over predicting savings shifts the risk onto consumers

Should that happen, homeowners are on the hook for higher costs they didn’t expect. To truly protect low-income consumers and build an equitable workforce, states should include the measured pathway of the HOMES Program.

Measured savings drives project quality   

Ensuring that the IRA rebates drive high-quality home retrofit projects is crucial for a number of reasons. For one, creating demand for high-quality contractors can drive market transformation. On top of that, the IRA rebates are taxpayer money after all, and we want to make sure it’s spent right, and that means spending it on real energy savings. 

But perhaps most important is that high-quality projects matter most to low-income households. When project quality suffers, low-income communities suffer the most.

In addition, high-quality projects can ensure that households receive the health, safety, and comfort benefits of home energy efficiency improvements. These resilience benefits are particularly important to low-income households that experience power outages during dangerously hot or cold weather.

The measured savings pathway, by definition, transfers project performance risk from households and taxpayers to aggregators (learn more about aggregators here!). Low-income households will hugely benefit from this transfer of the performance risk to aggregators, who take responsibility for the success of energy efficiency projects. 

In addition, under the measured approach, states only pay for savings that are quantifiable and can be proven. This creates an incentive structure that rewards high-quality work. As a result, aggregators have an incentive to work with contractors to correct their work in cases where the savings realized afterward aren’t as great as projected. 

After all, a contractor that can demonstrate to aggregators that their projects save more energy than their competitors will get repeat work and more clients. Over time, as energy usage data is collected, the measured approach can help contractors improve their overall project performance.

Measured means more money for low-income households 

On average, the measured approach will provide significantly higher rebates for low-income households. Across the country, we estimate that low-income households could see a rebate of over $18,000 for combined electrification and weatherization projects, which is significantly higher than the $8,000 that low-income households would have received under the modeled pathway. (You can check out our estimates for your state here).

Given the way the measured formula works, low-income households who use the most energy and, therefore, suffer the highest energy burden will receive the largest rebate. More money equals more affordability.

As a bonus, the IRA legislation enables states to value savings based on time, location, and/or greenhouse gas emissions. States can value savings based on one or more of these factors to create an incentive mechanism under the measured pathway that can cover most or all of the project cost for low-income households. 

A lower (and aggregated) savings threshold means more opportunities for weatherization  

Weatherization is especially important for low-income homes, many of which are too warm in the summer and too cold in the winter due to a lack of insulation. Weatherization is not only a great way to save money, it’s also something that should be done before or at the same time as electrification. And in some cases, weatherization-only work is most important, and should be prioritized, for low-income households to avoid potential bill increases from electrification. 

Under the measured approach, a portfolio of homes must achieve at least 15% energy savings. On the other hand, every project on the modeled pathway must achieve a 20% savings — a level of savings that will be difficult to achieve in many states through weatherization alone. 

In Wisconsin, for example, it’s projected that only the measured savings pathway will lead to a rebate for families pursuing weatherization work and heat with natural gas, electricity, or propane. That means that in some states that only pursue the modeled pathway, the rebate for weatherization is projected to be zero dollars on average, which will hurt low-income families that may not be able to afford a bigger electrification project.

And since the measured approach is based on portfolio savings, aggregators can take on more weatherization projects that save less than 15% as long as they also include higher savings projects to make up for them. 

Weatherization deep-dive

Measured savings empowers new, early-stage contractors  

From a contractor perspective, measured savings is easier. Simply put, there aren’t as many barriers to entry. That’s because measured savings are focused on one main output to ensure project quality: energy savings. 

Other program designs often require a lot of input that contractors have to collect to ensure project quality but create a lot of friction in the process. All of that friction creates soft costs for contractors and deters them from participating in rebate programs (learn more about those soft costs here!).

These soft costs tend to hit small (but growing!) contractors that come from disadvantaged communities. With multiple states focused on diversifying the workforce to make sure all communities are served, the measured approach can act as a market catalyst for these efforts, aligning more contractors under state public policy goals and serving to advance Justice40 goals.   

The energy transition, which will be expedited with the IRA rebates, is a significant opportunity to make homes healthier, more comfortable, and better for the planet. While this applies to all households, it is especially true for low-income families: With the IRA rebates, we have to ensure that high-quality projects are installed that save the most energy. In some cases that may mean upgrades like a heat pump. In other cases, that might mean weatherization only — while providing higher rebates to cover a significant portion of the project cost. 

Whatever the approach, we have to make sure that low-income households aren’t left behind. States that include the measured pathway of the HOMES Program will provide the most options to households and contractors — which in turn, will provide the biggest opportunity to help low-income families adopt clean technologies.   

This article was originally published on the Sealed website and is republished with permission.

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