Our Shot on Goal: The IRA and Market Transformation – Part Six

Here is a definition I found that explains the goal

Both a policy objective and a program strategy to promote the value and self-sustaining presence of energy-efficient technologies in the marketplace. It is a strategic process of market intervention which aims to alter market behavior by removing identified barriers and leveraging opportunities to further the internalization of cost-effective energy efficiency as a matter of standard practice. Market transformation has rapidly become the objective of many … publicly supported energy efficiency programs in the United States.

The goal of market transformation is to make energy efficiency ubiquitous in homes nationwide, such that it becomes “standard practice” for home improvements like HVAC. The Inflation Reduction Act is obviously a major public program, and the rebates and tax credits associated with it are a kind of “market intervention” as described above.

These types of market interventions have been in practice for decades (think utility programs), but the IRA delivers a twist when it comes to market transformation: 25% of state IRA funding is tied to the successful approval of a “Market Transformation Plan” submitted to the U.S. Department of Energy as part of the state grant application through State and Community Energy Programs. An important aspect of a state’s market transformation plan is a homeowner’s ability to capture an increase in home value from the rebated improvements, as described below.

A Market Transformation Plan should

Describe how the State program will enable the market to recognize the value of homes that have been upgraded through the Home Energy Rebates, including at time of sale/rental. At a minimum, the plan must include a strategy for aggregating home data from the home assessment…and/or home certification …and making such data available to real estate stakeholders.

Why is an increase in home value important for market transformation, that is to make energy efficiency standard practice? Because it influences consumer purchasing behavior. Many studies and surveys have shown that homeowners take home equity into account when making home improvements, but unfortunately for them, energy efficiency has not routinely enjoyed the same equity enhancing benefits as a kitchen remodel or new deck. Unlike many aesthetic improvements people do, home performance improvements are typically “invisible.” From an HVAC perspective, a silver box looks like a silver box, and many improvements are in places homeowners (and buyers) never go — like attics and crawl spaces.

As a result, homeowners may not realize a return on their investments when it comes to energy efficiency, beyond whatever utility bill savings the improvements have made possible. I’ve heard many homeowners complain that they’ve made $20,000, $30,000, or $40,000 worth of energy efficiency improvements to their home, and their real estate agent didn’t take any of it into account when pricing and marketing their property. It was a frustrating and disappointing experience to say the least.

But what if we lived in a world where home performance was an important, driving factor in a home buyer’s decisionmaking process? Beyond location and aesthetics, what if the home’s energy and water efficiency, comfort, indoor air quality, durability, and resilience (aka home performance) became a visible and valuable set of factors in the resale transaction? The industry’s hypothesis is that it would drive consumer demand for features that enable these quality of life benefits. This means more and better work for contractors in the form of a comprehensive work scope (box swap out and duct reconfiguration, insulation and air and duct sealing), plus a greater willingness for homeowners to pay for performance testing at install. And let’s not leave out regular commissioning. Without a comprehensive approach guided by the home’s performance, the unit may be running, but the homeowner will suffer questionable indoor air quality, lower comfort and higher operating costs.

Push for change with incentives

We need to get the flywheel going! Third-party certification of the energy efficient install, like the kind provided by my company, is key to market transformation. It not only highlights the high-performing features in a home, it makes that data available to real estate agents for inclusion in the multiple listing service (MLS), and it supports the home’s pricing, marketing, and appraisal. Did you know that the IRA’s HOMES rebate program legislatively mandates a certification with every rebated install? It, too, is part of the market transformation goal related to the IRA, wherein we create a market-based mechanism to drive consumer demand in the form of increased equity value for energy efficient improvements.

You’ve probably heard of the famous Wayne Gretzky quote, “Skate to where the puck is going, not to where it’s been.” The industry is going towards a third-party certified install because it can help the homeowner capture value for a return on their investment at refinance or resale. Even if the homeowner isn’t planning on selling soon, building equity and/ or generational wealth is a priority for anyone who owns property. The work heating and cooling contractors do is mission critical for improving a home’s performance; however, for resale and appraisal, the information associated with that installation needs to persist and be verified by a trusted source, as in a certification.

Yes, there’s a lot of money available through these rebate and tax credit programs. But when the last dollar is expended, will we be living in a market transformed? If we do not fundamentally change the way consumers think about their homes to include home performance in the equation, and if we do not help those same consumers recoup the value of their home investments, then the answer will likely be no, just like it was after the ARRA Stimulus program: when the funds dried up, the market went right back to business as usual. Consumer purchasing behavior was driven by lowering the cost of the install, not by increasing the value of the product and service. It’s not a preordained conclusion that this is our fate, and it’s why this concept of market transformation is so important for every contractor and homeowner they serve. It’s our shot on goal.

To learn more about Pearl Certification and read other articles in this series as they become available, visit the Southern PHC Pearl Certification page.