360° Coverage : Five Reasons California's Energy Efficiency Plan Flopped

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Five Reasons California's Energy Efficiency Plan Flopped
Photo Credit: Forbes Business

Five Reasons California's Energy Efficiency Plan Flopped

Jan 6 2014, 12:08pm CST | by

On paper, Energy Upgrade California looks like a sure winner. Under the program, California utilities have been offering qualified homeowners $4,500 in matching funds to make their homes more...

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33 weeks ago

Five Reasons California's Energy Efficiency Plan Flopped

Jan 6 2014, 12:08pm CST | by

On paper, Energy Upgrade California looks like a sure winner.

Under the program, California utilities have been offering qualified homeowners $4,500 in matching funds to make their homes more energy efficient. The retrofits not only lower bills, they can raise the value of real estate. The state received $146 million of Federal stimulus money to fund the program while the state of California and residents (through bill surcharges) kicked in $91 million.

But since the program started in 2011, only about 12,200 homeowners have signed up, says David Baker of the San Francisco Chronicle, well short of the goal of 100,000 participating homeowners at this point. That comes to an average of $19,426 of marketing and administration spent on each project ($237 million divided by 12,200) before you even start counting the cost of the project. The money could have been spent just doing the projects.

Put another way, on each project, the state spent $14,926 in an effort to give away $4,500. So what went wrong?

1. Location.  While California essentially jump started the building energy efficiency industry under the guidance of Art Rosenfeld in the mid 70s with Titles 20 and 24, it is not a great location for trying to reap the benefits of energy efficiency. The climate is too mild. You could live in a tree house in most parts of the state.

These programs work best in areas like New England where the homes are old, the weather is cold, and many homes still run on heating oil. Next Step Living says it has saved over $15 million in residential energy costs since 2008, mostly in Massachusetts. It also works in warm, muggy areas where air conditioning is a big portion of utility costs. PosiGen Solar Solutions has cut energy by 30 percent in New Orleans homes through a combination of solar and efficiency. Interestingly, both companies have achieved these result on middle- to lower-income homes.

2. Measurement and Verification. The old bugaboo for the efficiency industry. You can predict, with fairly high accuracy, how much energy a solar array will produce for 30 years. By contrast, every efficiency project is different. It’s impossible to figure out how much energy a project will yield and how much it will cost until you perform an assessment, which can cost $300. (Some states, like Massachusetts, have funded the cost of assessments.).

As a result, efficiency—at the residential level—is a less certain investment than solar. Technology will change the picture over the next few years.

3. Paperwork. Contractors who tried to get money for clients said that qualifying for the funds involved a morass of paperwork. Again, it goes back to verification: how do you prove that a particular upgrade will save X number of dollars over the next several years. Under the program, homeowners and their contractors had to demonstrate that the upgrades would cut their bills by 45% to achieve the highest rebates. They also had to use EnergyPro, a software package, for modeling. It wasn’t simply—put in foam insulation, get $1,000. That would have worked. It wouldn’t have been exact, but it would have cut the administrative overhead.

4. Inertia. “Surveys have shown that the average American spends 9 minutes a year thinking about their electricity, and that’s just the time they spend paying the bill every month,” said Rory Cox, a regulatory analyst at the utilities commission, according to the article. “It’s going to be a challenge.”

It’s not easy to get people to spend $18,000 to save $125 a month. Title 20 and Title 24, the groundbreaking efficiency statutes California passed in the 70s, often put the impetus for action on appliance makers. Appliance makers had to meet new efficiency standards to be able to sell refrigerators or dryers in the state. The economic incentive was so powerful that they complied. And it worked. Electricity consumption has remained relatively flat in the state while rising by 40% or more in other parts of the country.

5. Marketing. Utilities stink at this. Just look at the smart meter experience. Utilities complain that consumers only think about them when something goes wrong, and they have a point. When a ruptured gas main vaporized a neighborhood in San Bruno, all people did was complain about PG&E.

While most people in the state are aware that they can qualify for rebates from solar companies, I doubt few knew of California Energy Upgrade. Heck, I forgot about it and I’ve covered efficiency for over a decade. Again, this will change. Energy service providers and technologies companies–ecobee, Schneider Electric, ABB–are coming out with technologies that let you analyze and control energy consumption. But just as important, they are going to start to take over quite a bit of the marketing and promotional functions. Silicon Valley isn’t just a font for technical innovation: it’s also the marketing capital of the world.

And I doubt any of these companies will spend $15,000 on acquiring a customer for an $18,000 project.

Source: Forbes Business

 
Update
2

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