The Biden administration is gearing up to allocate $4.3 billion to states for energy-efficient home renovations, such as heat pumps and insulation, in an effort to reduce energy waste. However, before the funds are distributed, federal regulators must establish guidelines for how states should utilize the money. There are two potential approaches to choose from: one that is projected to save more than double the amount of energy compared to the other, but is relatively new and requires states to try something different; and another option that is already familiar to several states. Due to inertia and a preference for the status quo, there is a risk that the less effective option will be favored, which could limit the impact of this major federal spending package for home renovations and set a weak precedent for future funding programs. This initiative is a significant part of President Joe Biden’s Inflation Reduction Act, a landmark climate-spending law that allocates funding for various purposes, including power plant owners and average homeowners. In fact, according to the International Energy Agency, cutting home energy waste alone could contribute to 40% of the emissions reductions needed to combat global warming. The Department of Energy is expected to provide detailed guidelines this week on how state energy offices should utilize these unprecedented funds. Depending on how the regulations are written, they may either favor the less effective but easier-to-implement option or simplify the more potent but initially challenging method, making it the obvious priority for state regulators. Analysis by aggregator company Sealed indicates that using a measured method to calculate energy savings, rather than the older modeled approach, would result in significantly more energy saved if all 50 states were to adopt it. However, sources familiar with the Biden administration’s plans suggest that the draft regulations may include a rule that could greatly diminish the program’s ambitions and limit benefits for homeowners. Currently, most states offer rebates to homeowners for energy-saving improvements, but only a few require data on the home’s energy usage to determine the amount of funding homeowners should receive. The majority of states simply rely on computer programs that make projections on energy savings based on factors like insulation and furnace replacement. However, this modeled approach lacks precision and allows for contractors to manipulate the system. In contrast, a “measured” approach, as implemented in California, measures energy savings over time, with homeowners receiving financial incentives based on actual reductions in electricity or fuel usage. This system involves aggregator companies financing the up-front costs of home renovations and earning their investment back over time through rebates paid out by the state. This incentivizes high-quality work and ensures that homeowners benefit from reduced energy bills. Studies by New York state officials have shown that contractors tend to increase prices to account for the additional paperwork required for rebates under a modeled program. A measured system, partnered with companies like Sealed, eliminates this burden for small-business contractors while bundling projects to offset potential losses. However, the challenge lies in mainstreaming this measured approach across the vast number of housing units in the United States. To make it work, states need access to energy usage data to establish baselines for measuring post-renovation savings. Obtaining this data has proven challenging, as it took California nearly a decade to force utilities to release it. Nevertheless, measured programs have the potential to lay the groundwork for virtual power plants that use rooftop solar panels and electric vehicles to balance the grid during high-demand periods. Ultimately, these programs can tailor electricity demand to available supply, supporting the integration of renewable energy sources like wind and solar. Nonetheless, there may be concerns about utility companies taking over energy-saving programs once the necessary data is available on a large scale and potentially sidelining third-party companies like Sealed.
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