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February 18, 2010
Energy efficiency may finally have crossed the proverbial tipping point into the public consciousness when President Obama declared that insulation was sexy. Whatever your views on the tantalizing nature of insulation, it is true that simple measures to increase a home’s energy efficiency result in local jobs, reduction of fossil fuel consumption and a few extra dollars in homeowners’ wallets.
Additionally, efficiency is an important energy resource that helps avoid the cost to society of generating additional energy. If not exactly sexy, it’s pretty darned good, right?
According to McKinsey & Co., the residential sector accounts for 35 percent of the end-use efficiency potential. So why do the nation’s 133 million residential buildings (almost 60 percent of which were built in 1979 or before) seem to lag behind the commercial and industrial market for energy efficiency? Why do commercial facilities managers have entire teams of skilled technicians and designers dedicated to wringing every last bit of energy efficiency out of their buildings?
The simple answer is the commercial and industrial markets know it’s worth it.
What’s needed in the residential marketplace is a holistic approach that provides essential information, accessible finance and structural linkages so that homeowners have a clear path to make their homes more energy efficient.
Let’s explore three key steps of this path:
A shared metric
Photo courtesy of G2B Ventures
Rigid foam insulation is placed over an older home’s original undersheeting to improve its energy efficiency. The state of Washington is considering a bill that would put millions of dollars into residential energy retrofits like this one.
Put simply, the market cannot value what it doesn’t know. Information about the benefits of residential energy efficiency is the most important component needed to achieve market transformation.
Property values will reflect a home’s efficiency only when homeowners and buyers have access to energy information that is easily understood. The kind of information I am talking about includes a measurement of the home’s efficiency, not utility bills, which only reflect homeowners’ behaviors. The metrics of a home energy assessment provide crucial information that owners can associate with the value of their home.
Realtors have an opportunity to educate home buyers and sellers on home efficiency, providing a real and direct value to their clients regarding the cost savings and health benefits associated with energy efficiency. It won’t be long before we see homes marketed as “energy fixers,” with information about how to improve the value of the home by driving energy efficiency.
To help spread home efficiency information to the marketplace, the Northwest Multiple Listing Service needs to create database fields for an energy performance score, or EPS.
Progress in this area was made when in 2007 database fields that allow for listing green properties, referenced as “environmental certifications,” went into place. This designation allows for people to find certified green properties.
The next step is having a metric that gives a numerical “miles per gallon” rating for energy efficiency. This sort of listing mechanism is an important tool for highlighting and capturing value for existing home performance.
Currently, utility and government programs focused on education via home energy assessments are rolling out throughout our region. These programs will continue to expand in access and visibility throughout 2010 and beyond.
Beyond the cost barrier
While information is clearly important, it only gets us so far. Once someone has information about what to do to improve a home’s efficiency it is hard to do much without the money to fund those improvements. Local utilities are a source of rebates that certainly help, but upfront costs are a barrier. Help is coming this year in several different forms:
Mortgage loan enhancements: The U.S. Department of Housing and Urban Development wants to roll out the next generation of energy-efficient mortgages. They are starting with Federal Housing Administration loans that will tack on 5 percent to the borrower’s loan limit if the extra money is used to substantially lower the property’s annual energy consumption.
Long-term financing: The city of Portland is working with the Energy Trust of Oregon and ShoreBank Enterprise Cascadia to launch Clean Energy Works to help homeowners overcome the upfront costs of improving a home’s energy efficiency. This program offers homeowners 100 percent financing, at low interest rates, with 20-year repayment terms through the homeowner’s utility bill.
It is smart and simple for the borrower to engage in efficiency. A similar program is in the works through the city of Seattle and ShoreBank, and should be available to Seattle residents sometime this year.
Legislation: Washington state legislators are considering a bill that would allow cities to issue energy conservation loans that would have a superior lien position on the property. If this is voted into law, cities will issue bonds that will fund millions of dollars of residential energy-efficient retrofits.
Bringing it all together
To unlock the full potential of residential energy efficiency, a holistic rather than piecemeal approach that ties together all the existing energy-efficiency components is needed.
There are many pieces that need to come together to accomplish an energy retrofit, not to mention drive demand. From energy assessments to financing to who does the work, energy retrofits simply are a daunting and messy affair. The surest way to create demand for residential energy efficiency and drive adoption of existing efficiency programs in a holistic fashion is through thoughtful legislation.
For example, last year the city of Austin, Texas, passed an ordinance requiring energy assessments to be done during the purchase and sale transaction. As a result of this ordinance, energy-efficiency awareness throughout the city quickly rose, Realtors began educating their clients about the benefits of energy efficiency, and jobs in home performance contracting and residential energy assessing were created or saved.
In Oregon, Senate Bill 79 directs the state Department of Energy to “adopt energy efficiency rating system to be implemented for residential and nonresidential buildings.” We have similar legislation in Washington that is more exploratory and less driven toward timely implementation. However, last year the city of Seattle created a 5,000-home energy audit pilot program using an energy-performance scoring tool, the EPS, which could easily be tweaked into a citywide ordinance for energy assessments at the point of sale.
The regulatory tide focused on energy efficiency is clearly coming, and rather than try to hold it back, the economic benefits that come with it should be embraced. Requiring that information about home energy performance be available to home buyers creates a market reaction that in turn creates value around energy efficiency, saves homeowners and society money by driving down energy consumption, creates jobs and transforms markets.
By integrating the three major steps information, finance and linking all of the necessary efficiency elements together the market will make a major shift toward more efficient homes. If the market can transform around energy efficiency, not only will homeowners be rewarded with lower utility bills and greater comfort, we will create hundreds of jobs along the way. We will also lower our demand for energy, which creates a hedge against future energy cost spikes, and we will increase the value of the efficient home for buyers down the road.
Now that sounds sexy to me!
Aaron Fairchild, CEO of G2B Ventures, is a Seattle-based entrepreneur working in residential energy efficiency.