Direct-Install Programs Gateway to Market Transformation

December 29, 2013
January/February 2014
A version of this article appears in the January/February 2014 issue of Home Energy Magazine.
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Like many states, Maryland has a home performance participation problem. Our residential energy efficiency program, EmPOWER Maryland, provides exceptional incentives to participate in home performance. However, fewer than 1% of eligible homes have participated. Our customers pay just $100 for a BPI-compliant home energy audit (the BPI-certified auditor receives $300 from the utility). Customers who proceed with improvements are eligible for 50% rebates up to $2,000 per home for air sealing and insulation enhancements. Since 2008, EmPOWER Maryland has completed 10,869 energy audits and 4,083 jobs statewide. In a state with 1.6 million single-family homes, we have barely scratched the surface. Members of Efficiency First—a national home performance trade association—from around the country are telling similar stories, and forcing us to ask, “Where are all the customers?”

Mario explains home performance to the customer. (Ecobeco LLC)

Nanda installs a CFL. (Ecobeco LLC)

Jay installs water heater pipe wrap. (Ecobeco LLC)

QHEC Results for Homes with Gas Water Heaters

Figure 1. The average Ecobeco QHEC customer with gas water heating will achieve $1,315 in savings.

QHEC Results for Homes with Electric
Water Heaters

Figure 2. The average Ecobeco QHEC customer with electric water heating will achieve $1,711 in savings.

Rebecca shows a customer a smart power strip. (Ecobeco LLC)

Daniel installs CFLs in the customer’s bathroom. (Ecobeco LLC)

Rebecca educates a customer about other utility programs. The customer looks happy. (Ecobeco LLC)

Rebecca installs a faucet aerator. (Ecobeco LLC)

In Maryland, we have tried conventional marketing-driven customer acquisition approaches. Utility-sponsored energy efficiency mass marketing, which we believe follows industry best practices, conveys generic, feel-good themes about saving energy, saving money, saving the environment, or improving comfort; however, it does not connect with consumers deeply enough to motivate action. Overwhelmingly, and despite millions of dollars in marketing expenditures, people we meet at community events have never heard of home performance, or of the generous incentives that go with it. It seems that energy efficiency, safety, durability, and comfort are complex themes that are hard to communicate in traditional ways. We need a new marketing approach.

Our industry needs a marketing mechanism that feels like a first date—a short, low-pressure interaction where the auditor and customer can determine fit and compatibility in both directions. This interaction should be the first of many positive experiences with program actors (such as home performance contractors or utility representatives) and energy-efficient products that build the home performance “relationship.”

Said another way, it is important for home performance contractors to remember that all of the utility programs—appliance rebates, demand response, HVAC—help convince customers that pursuing home performance is a good idea. These small, positive experiences build on each other and create a virtuous cycle that can lead consumers to prefer energy-efficient solutions. When large numbers of consumers change their preferences and their purchase behaviors, we call it market transformation, which is the ultimate goal of any energy efficiency program. For home performance, a transformed market would be a large and self-sustaining market for energy-efficient solutions for the home—one that would not rely on publicly funded incentives. Instead, the market would sell what consumers demand, and consumers would demand energy-efficient whole-home solutions.

Maryland’s direct-install program, the Quick Home Energy Check-up (QHEC), which installs efficiency measures and provides education during a one-hour visit at no cost to the homeowner, is the perfect “first date.” This program has a 98% satisfaction rate, and it begins the process of building trust and changing preferences. Homeowners we visit consistently express a desire to save energy and reduce bills, and readily admit to not knowing how to turn that desire into action. They are also unfamiliar with utility incentives to help them get started. Over the past few years, after completing tens of thousands of these services, we have come to the conclusion that this program helps create a market for home performance in Maryland. Further, this program is cost-effective for ratepayers and has received tremendous support from all stakeholders in Maryland.

Quick Home Energy Check-ups

One of the most successful residential programs in Maryland, QHEC was designed and is managed by ICF International on behalf of its utility clients. In the past four years, about 30,000 owner-occupied single-family homes and 185,000 multifamily condominiums, apartments, and rentals have undergone QHECs, mostly in the last year and a half. For customers, the QHEC program costs nothing beyond the standard EmPOWER energy efficiency surcharge that customers pay each month. All QHEC providers are home performance companies, and the individual providing the QHEC must have BPI Building Analyst certification. In addition to installing energy efficiency products, QHECs include a whole-home visual inspection that identifies opportunities for homeowners to participate in other EmPOWER programs, and also gives customers an opportunity to ask specific energy efficiency and comfort questions. During the QHEC visit, which typically lasts one hour, auditors create a customized program path for the customer based on actual observations and customer input during the visit. In addition, BPI-certified auditors may identify health and safety issues during the visit that relate to mold, moisture, or combustion safety.

Since more than 85% of Maryland’s housing stock is at least 20 years old, a common recommendation for owner-occupied homes is for customers to obtain the $100 home energy audit and pursue home improvements that include rebates through their utility’s Home Performance program.

QHECs created controversy in the home performance community at first. Many customers incorrectly believed that the QHEC was the same as a home energy audit, and it caused frustration at trade shows and other public events where people said they were not interested in having home energy audits after their QHECs. Since home energy audits, not QHECs, are required to obtain $2,000 in home performance rebates, some home performance contractors became hostile toward the QHEC product, unaware that QHECs actually increase home performance participation. Over time, we have come to believe that these interactions represented the views of a particular customer segment that was simply not ready to consider the whole-home approach. More recent results are encouraging. In the past year, about 25% of home performance customers started with a QHEC.

Market transformation is about educating people so they make better choices and take a more active role by demanding energy-efficient home improvements. QHECs create a personal, intense, customized interaction that recommends participation in other efficiency programs. We want consumers to learn, retain, and make a habit of making energy-efficient choices. Reading about something or hearing about something is no substitute for doing something. For efficiency concepts to take hold, there has to be sufficient clarity of action and consequence—“I made this discrete purchase or behavior change, and this was the clear result of my action, and the consequence was consistent with my expectations”—along with sufficient repetition and consistency—“I bought this energy-efficient appliance, it met my expectations, and I am happy with it. . . I installed these CFL bulbs, they met my expectations, and I am happy with them. . . I did home performance, it met my expectations, and I am happy with it”—to make people comfortable that they are making good decisions. At the end of the day, customers will decide if they believe in energy efficiency solutions. No government, utility, or contractor can make that decision for them. But without QHEC or a similar program, we know that we will be unable to overcome the lack of customer participation that is holding us back from creating a strong, self-sustaining home performance industry.

QHECs are starting to have an impact on other nonlighting utility programs in measurable ways. In its most recent filing, one Maryland utility showed that 13% of QHEC participants also participated in a nonlighting EmPOWER program. Another utility made phone calls to QHEC participants and achieved a 40% acceptance rate for its demand load control program. This contrasts with a less than 1% acceptance rate for calls to utility customers generally.

Statewide, QHECs have achieved a 98% satisfaction rate, leaving thousands of customers with positive and hopefully lasting impressions. QHECs are a catalyst for success among other EmPOWER programs.

A Cost-Effective Program

Using actual customer results for 775 single-family QHECs provided by my company, Ecobeco LLC, a provider of single-family QHECs in the Maryland suburbs of Washington, D.C., we calculated the present value of electricity, water and sewer, and gas savings over the expected life of the direct-install measures. The average QHEC customer with electric water heating will achieve $1,711 in savings, while the average QHEC customer with gas water heating will achieve $1,315 in savings (see Figures 1 and 2). Utilities are paying approximately $375 per single-family QHEC, including contractor costs; materials costs; and administration, marketing, and evaluation costs, for a program that will return $1,453 on average (35% of homes are all-electric) for participating customers.

The ICF-managed QHEC programs (single-family and multifamily combined) have also been shown to be cost-effective by the program evaluator, Itron, working on behalf of the Maryland Public Service Commission. Itron uses a total resource cost (TRC) methodology that includes benefits for avoided electricity supply, avoided transmission, price mitigation, and water and gas savings benefits.

Scaling QHECs

How do we acquire QHEC customers who are good candidates for home performance? In the initial program years, utility mass advertising that prompted customers to phone in to a utility call center for an appointment drove single-family QHEC customer acquisition. This created some initial buzz that generated tens of thousands of appointments, but over time, utility-generated appointments have waned to a trickle. Further, most of these appointments turned out to be from apartment or condo dwellers, who are not eligible for home performance audits.

Much stronger approaches in use now are contractor-led. These include door-to-door canvassing and telemarketing efforts. It takes time to explain the service, to explain that there is no additional charge beyond the monthly EmPOWER surcharge, to explain how the monthly EmPOWER surcharge funds the program and that customers have already paid for the service so they might as well participate, and to explain how a certified energy auditor will help them save money and educate them about a full suite of residential programs. All of us have experienced the challenge of selling home energy audits, and in many ways the QHEC conversation is much the same, except that QHECs cost the customer nothing, and QHECs will save the average household $1,453. So while most people in our industry rightly oppose free energy audits, our industry should get behind “no additional cost” direct-install programs that provide a cost-effective way to spend one hour with a homeowner who needs significantly more education in order to become a viable future home performance customer. In Maryland, companies that perform QHECs are completing about four appointments per day per auditor, or seven appointments per day when teaming an auditor with a non-BPI-certified assistant. These economies of scale enable us to operate QHECs profitably while setting the stage for future success in home performance.

learn more

Get a closer look at how the author’s company, Ecobeco LLC, administers its QHEC.

Looking Forward

Like most states with aggressive energy efficiency goals, Maryland obtains most of its current residential portfolio savings from subsidizing CFLs sold in local retail stores. Looking forward, our stakeholder groups have realized that deeper, whole-home retrofits must be a significant part of the long-run solution to meeting those goals. We have recognized the need to invest today in educating the mass market, and the QHEC program design provides a cost-effective way to accomplish this goal. The QHEC program is essentially a general marketing program that provides a low-pressure, customized experience for each homeowner—one that begins the process of behavior change. Over time, this program will create demand for home performance and other nonlighting utility programs, and will ultimately help transform the market for whole-home efficiency. In the meantime, the QHEC program creates a diversification opportunity for home performance contractors while we wait for our market to catch fire.

Brian P. Toll is president of Ecobeco LLC, a home performance company in Rockville, Maryland, and is policy chair for Efficiency First Maryland.

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