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Energy Efficiency Mortgages (EEM) enable homeowners to add energy efficiency to their mortgage at time of sale, taking advantage of long-term and very low rate financing. To qualify a purchaser must undertake an HERS rating to assess the work scope and calculate payback. It seems like a no-brainer. Target homeowners during a transaction and during a period in which they traditionally spend substantially more on home improvements. One NAHB Study showed that a buyer of an existing single-family detached home tends to spend about $4,000 more than a similar non-moving home owner, including $3,600 during the first year. While focusing on a home purchase a trigger for an energy efficiency upgrade seems extremely logical, it has not been working in the market. This “trigger point” continues to be the focus of government programs, whitepapers, and both State and National legislation, yet EEMs have not achieved more than a toe hold in the market, and the numbers continue to fall. Total US Energy Efficiency Mortgage (EEM) Loans Per Year So the question is, why is something that makes so much sense on paper failing to such a degree in the marketplace?
1) People buy solutions to problems Unlike kitchen, bathroom remodels, and new flooring, energy efficiency and comfort are not visible to a homeowner that has not yet paid a bill or spent a cold winter (or hot summer) in their new home. As the trigger to get people to invest in energy efficiency and comfort solutions for their home tends to be based on solving a pain point, it is hard to motivate a new buyer to take action on issues where they have yet to experience the problems. 2) Buying a house is stressful enough The process of buying a house is full of stressful decisions, complexity, and risk - and for most people constitute their biggest single investment. Adding another moving part to this process, one that will require more inspections and general make transactions take longer is just not a priority for most home buyers. 3) There's no money in EEMs Nationally, Energy Efficiency Mortgages add and average of only $7,500 for energy efficiency upgrades onto the base mortgage (based on data from HUD). When you consider that time is money, and that the brokers and realtors who are shepherding the transaction through the process get paid when it is completed, there is no wonder we don’t see realtors jumping up and down excited to promote EEMs. On the typical EEM, realtors make no money, as their commission is based on the sale price, not the added value of the EEM. Realtors make no more money on an EEM than a traditional mortgage yet they incur risk, extra time, and expense. As usual the answer is simple - follow the money! I was lucky enough to go the ACEEE Summer Study this year, and among the many interesting conversations and very engaging sessions I attended was a presentation on the DOE Home Energy Score. In this session there was one slide in particular that peaked my interested and got me thinking about use cases. Just how good is good enough? The following slide in particular raised some questions for me. If the these various tools have the degree of variance that the stud presents (HES wrong by greater than 25%, 39% of the time, Rem/Rate wrong by greater than 50%, 25% of the time), what is the use case for these labels? While many tools seem to be doing well on predicting how pools of homes function, individual homes are a different story with wide variance. If you are one of the homeowner that receives a label that says your house is 50% worse than it is (which will include potentially millions of American homeowners if we roll any of these systems out), you probably don't really care that the label is right on average.  My question is simple. How should we use any score that has the potential, on a given house, to be wrong by such a large degree?
With many initiatives in full swing to put ratings on homes and buildings across the country, there may be a lesson to be learned from recent cases where consumers have prevailed in suing car companies for promising an MPG that is not based on real-world driving. Before you read any farther, I want to make clear that these models are not the problem, it is actually how they are being applied. Applying any predictive model to an individual building is the problem. It is up to us to use these tools as a way to manage this risk in pools, and avoid driving that risk down to homeowners. Great examples of this can be seen in the success of solar PPA and Leasing models. Most labels, including the National RESNET HERS and California HERSII labeling system and the DOE Home Energy Score, are in fact asset scores that, similar to an MPG, score a house based on a set of average users. These scores have potentially wide variance for any particular building, and have a tendency in many climate zones to over-predict savings. A recently released study called Modeled vs. Actual Savings for Energy Upgrade California Retrofits, analyzes predicted savings based on the CEC’s required energy modeling software, against actual results from customer bills. The study shows that California HERSII is over-predicting by and average of 50%, with a huge amount of variance between winner and losers. Resulting in more than 78% of homeowners not achieving the savings being predicted.  A recent LBNL report on the Home Energy Score called "Accuracy of the Home Energy Saver Energy Calculation Methodology" was announced with an email headline declaring that HES is now within 1% accuracy on average, which is a great result. Of course on closer examination it is clear that there is wide variance for any individual project - perhaps even wider than other tools in the study. Which of course goes back to the original issue that homeowners are truly not interested in the average, especially if they get the bad end of the stick.  This issue is not exclusive to the United States. The Green Deal in the UK has also suffered from estimated savings that are outpacing reality. In an April 11, 2012 article in The Telegraph, called “Green measures for homes 'save less on fuel bills than forecast”
"An official pilot study of 67 homes in Sutton, South London, found all of those who took the 25-year payback package rather than ten years - a third of the owners - faced repayments higher than the savings. Another study of 139 council houses in Sunderland found savings on energy bills were just 12 per cent rather than the expected 19 per cent. Luciana Berger, Labour's climate change spokesman, said the proposals were "complex, confusing and leave customers exposed to mis-selling". "Before anyone takes out the Green Deal they have a right to know how much it will cost them and how much they will save. Relying on guesswork just isn't good enough. If people are promised savings which never arrive, they will think the Green Deal is a con." Both the CA and UK rating systems are based on a faulty notion that relative scores are more important than accuracy. In striving to achieve a relative indicator of performance, and removing behavior (how people actually use their homes) we are left with a system that is really more about policy and theory then what matters to real people - which generally boils down to, how much does it cost, and what will I save. The idea that we are going to put MPG stickers on every home in CA, or the US, at great expense (It will cost $5B to label home in CA alone) is a mistake. At least with a real MPG on a car it is based on actually testing the vehicle, and you are not having to test every single vehicle on the road, vs. labeling buildings where we are attempting to derive energy use from physics calculations and every house needs an expensive custom test. Here is an article on the topic of MPG from the Huffington Post, Hyundai Fuel Economy Lawsuit Filed Alleging Misleading Ads, that I think should have us all worried: "For carmakers, the new trendy thing is to have a vehicle in the lineup that gets 40 mpg. One huge problem is that fuel efficiency figures are not based on real-world driving. And automakers opt to advertise with the fuel economy figures that are most impressive -- for highway driving -- rather than lower city or average mileage calculations, which would make their cars look less efficient. But the Hyundai lawsuit is the second one in recent months to challenge automakers over lofty fuel economy claims. In February, California attorney Heather Peters sued Honda in small claims court over the fuel economy claims for her 2006 Honda Civic hybrid. She said she never got anything close to the 50 mpg she was promised. A judge awarded her $9,867 in the case, which Honda is appealing." In the end our goal is to save energy and drive consumer adoption. There is a distinct risk that all of our efforts may backfire when consumers come to understand how imperfect our ratings are, and when the financial community tries to underwrite investments based on energy savings that don’t really exist. It is time that we start focusing on real data and actual savings, rather than more complicated regulatory schemes. All this is not to say that energy efficiency does not work, instead it should tell us that we need to move from energy efficiency expressed through code and complicated ratings or scores, and instead focus on turning savings into a resource that can be valued and traded. We are in a unique moment in time where we can move past regulatory frameworks, to engage markets that can finance our long-term goals, which are simply too expensive to achieve driven primarily with public dollars. This article is not to say that modeling is worthless or wrong. In point of fact, it is far better at predicting savings than just simple one size fits all deemed savings, and can be very good predictors of a large pool of buildings. However, we need to rapidly move from a model where we have policy anointed solutions based on long regulatory process and instead start measuring and valuing savings predictions based on actual results. Once we have a system that can measure real savings versus predictions, markets can step in, invest, and manage savings risk so that building owners and households don't have to. If you look at the Solar industry as a guide, where in CA residential Energy Service Contracts (Leases and PPAs) are currently 75% of the market, building owners on completely insulated from risk through performance guarantees, private capital is flowing, and quality has become a function of industry. A system built on real proven savings at the meter will drive innovation and investment, which is the path towards a real and sustainable solution that can achieve the promise of energy efficiency in the build environment. Enough talk and theory... get the actuarial data and the market will follow! The Green Deal in the UK is potentially a great source of learning for the US (on someone elses dime!). The basic plan is remarkably similar to the US. Put an asset label on lots of houses. Create financing tools to make it "free" to do upgrades. Require upgrades at time of sale / remodel. Solve climate change. Create jobs in a recession. We all live happily ever after.
So why does it seem to be falling on hard times and what can we learn to help us avoid a similar fate? Green deal floundering as home insulation rate plummets Government's own assessment shows it's flagship policy is failing to convince people to adopt energy efficiency measures. Damian Carrington guardian.co.uk, Monday 11 June 2012 The government's flagship green policy to transform the energy efficiency of 14 million homes and create 65,000 jobs appears set for failure, after revelation that its own impact assessment shows the number of lofts being lagged per year will plummet by 83%. Read full Article: http://www.guardian.co.uk/environment/2012/jun/11/green-deal-policy-floundering?newsfeed=true This is a particularly interesting article, written for Fast Company Magazine, as it relates to the current push in many states for a code based energy label for homes. These labels, often referring to a HERS rating, are based on comparing the energy attributes of a building to the same building as built to current code. This is also often referred to as an asset rating, as it rates building and not the behavior or actual energy usage.
While on paper these ratings sound like smart public policy, they are in fact having an unintended consequence, as new homes inevitably have better ratings than older building stock, as new homes are built to current code, the new housing industry has figured out that a HERS rating will in fact drive consumers to buy new home's rather then the existing building stock. These new homes are generally much larger than older homes (meaning that they may be better than existing homes when compared to code AND still use more actual energy to operate), and of course have major embodied energy, etc. It is no wonder that, if you have been following RESNET over the last year, there has been a land slide of MOUs with builders across the country. They realize that a HERS rating will have the impact of driving consumers away from existing homes and into their newly constructed buildings. I think that as we promote HERS ratings as public policy that there is a real unintended consequence that in many cases may work against our macro energy and environmental goals. ------------------------------------------------------------- FAST COMPANY Is It Time To Stop Constructing New Green Buildings? Making a new building is notably worse for the environment than fixing an old one--no matter how many solar panels you put on it. By Ariel Schwartz Step into a new building in certain parts of U.S. and chances are pretty good that it has been built with the environment in mind (and that there is a plaque bragging about it). Maybe there’s natural lighting, a smart HVAC system, or incredible insulation. It doesn’t really matter. No matter what LEED-certified credentials the building can offer, retrofitting the teardown that came before would probably have made more environmental sense. Preservation Green Lab, a Seattle-based think tank, released a study this week showing that, in the think tank’s words, "the greenest building is the one that’s already built, in almost every case." It’s something that intuitively makes sense, but up until now, the evidence hasn’t been quantified quite to this extent. The study uses life cycle analysis (a method of measuring impact from cradle to grave) to compare the environmental impacts of reuse and building renovation versus construction over 75 years of use. Preservation Green Lab measured six building types-- single-family home, multifamily building, commercial office, urban village mixed-use building, elementary school, and warehouse conversion--across four U.S. cities with varying climates (representative of Portland, Phoenix, Chicago, and Atlanta). The results are surprising, if not entirely shocking. It can take 80 years for a new "green" building to make up for the climate impact of its construction process with energy efficient features. If Portland reused and retrofitted all the commercial office buildings and single-family homes it plans to tear down over the next decade, the city could save 231,000 metric tons of CO2. That’s 15% of the country’s CO2 reduction targets for the next 10 years. The report also presents an alarming statistic from The Brookings Institute: one-quarter of today’s buildings in the U.S. are being demolished between 2005 and 2030, creating massive amount of CO2 emissions. But at least some people are getting the hint. According to the U.S. Green Building Council, most buildings across the world that use LEED certification are now retrofits. Up until December 2011, new buildings claimed more LEED certifications. There are numerous high-profile examples of LEED retrofits, including the Empire State Building (it expects to cut energy use by 38%) and San Francisco’s Transamerica Pyramid, which saves $700,000 each year in energy costs thanks to an onsite co-generation plant. And yet, there’s still something exciting about a new tricked-out LEED building. It’s a novelty that will hopefully fade with time. Ariel Schwartz is an Assistant Editor at FastCompany.com. She has contributed to SF Weekly, Popular Science, Inhabitat, Greenbiz, NBC Bay Area, GOOD Magazine and more. |
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