How to make the HOMES Measured Savings Incentives (MSI) program rollout successful (Part 1: Aggregators)
Sealed president and founder Andy Frank recently explained why the Inflation Reduction Act’s HOMES program is the future of energy efficiency, and how supporting aggregators, ensuring data access, and keeping the program simple are three keys to success.
In this follow-up piece, Andy explains why aggregators are critical to the HOMES program, defines what they are, and explains how they operate.
Explore this series in full:
- Part 1: Aggregators: The hidden key to unlocking Measured Saving Incentives (MSI)
- Part 2: For the HOMES program to succeed, energy data must be accessible
- Part 3: Measuring Measured Savings
- Part 4: Incentive flexibility can unlock market innovation
- Part 5: The HOMES program can deliver simplicity for consumers and contractors
Part 1: Aggregators derisk energy efficiency
For 50 years, America has placed the accountability for energy efficiency performance on consumers, contractors, and commissions.
Consumers have been responsible for taking on the energy-performance risk of home improvements like insulation and heating systems.
Contractors have been responsible for taking on the business risk of government and utility incentive programs.
And public utility commissions have been tasked with doing their best to ensure that utilities and state government agencies are spending public dollars wisely.
But the unfortunate truth is that these public dollars are all too often wasted by investing in programs that do not deliver what they promise. That means we, ratepayers and taxpayers, are footing the bill, wasting precious public resources whenever energy efficiency investments underperform.
Public dollars are all too often wasted by investing in programs that do not deliver what they promise.
This is bad public policy from both a consumer protection lens as well as an energy policy lens.
When nobody is truly responsible for energy-efficiency performance, our grid planners can’t count on it to keep the lights on.
This lack of performance accountability is one of the big reasons why energy efficiency has historically been an unattractive and underperforming clean energy resource for utilities and private capital—especially when compared to other resources like wind, solar, and storage.
Fortunately, the passage of the Inflation Reduction Act (IRA) and the HOMES program’s measured savings incentives (MSI) pathway has flipped the script.
For the first time, the federal government has created a template for the private sector, through the use of market “aggregators,” to take on both the risk and accountability for energy efficiency projects, both of which are currently shared by consumers, contractors, ratepayers, and taxpayers.
With aggregators, we can align risk with private capital, enabling energy efficiency to graduate from a compliance exercise into a real clean energy resource.
With aggregators, we can align risk with private capital, enabling energy efficiency to graduate from a compliance exercise into a real clean energy resource.
What are energy efficiency aggregators under the Inflation Reduction Act (IRA)?
Aggregators may be a relatively new concept to energy efficiency, but they are proven commodities in the broader clean energy sector.
For decades they have been essential for derisking clean energy technologies and expanding clean energy markets.
In the simplest terms, aggregators are private or nonprofit organizations that assume the risk and responsibility of procuring a clean energy resource in response to a market incentive.
Aggregators are in charge of:
- Marketing to customers and/or contractors
- Collecting customer energy data (both before and after energy upgrades)
- Predicting energy reductions
- Submitting project information to government programs and market administrators
Aggregators are also responsible for much of the administrative work currently placed on energy efficiency contractors, empowering them to do what they do best: installing great projects.
There is little doubt that aggregators will be essential to scaling energy efficiency and electrification investments in the HOMES program—and beyond.
In the residential sector, demand-response aggregators, like OhmConnect, sell customers on the benefits of demand response (i.e., lower utility bills and cleaner air) in exchange for the opportunity to capture the value of reducing peak energy usage (i.e., keeping the lights on).
Solar aggregators, like SunRun, sell customers the benefits of rooftop solar (i.e., lower utility bills and resilience) in exchange for the opportunity to capture the value of energy capacity into local and wholesale energy markets.
In both examples, Ohmconnect and SunRun enable their customers to benefit from complex performance-based energy markets and government programs. And energy efficiency aggregators are well positioned to do the same in the HOMES program.
The concept of an aggregator may sound strange to traditional energy efficiency market actors and will require new sets of rules, but there is little doubt that they will be essential to scaling energy efficiency and electrification investments in the HOMES program—and beyond.
How do aggregators work?
Very simply, aggregators take on the cost, hassle, and payment risk of program participation from contractors (and consumers)—and, in the case of measured savings, absorb project performance risk.
Aggregators also typically provide other value-add services that can include marketing, customer education, and financing.
In traditional programs, contractors are the only type of company that can process (and often receive) incentives. This can add significant overhead and challenges for companies that are often small and understaffed from an administrative perspective.
In addition, since most programs can take months to process incentives, contractors are often put in the unfair position of carrying the incentive value on their books until they get paid by the utility or state program.
Aggregators typically provide other value-add services that can include marketing, customer education, and financing.
And as everyone in the industry knows, it takes a village to scale energy efficiency projects.
Contractors are arguably the most important stakeholder in this process, since they are doing the hard work of installing projects.
But customer outreach and education, financing, project coordination, and many other aspects also go into establishing a successful program. Some contractors can (and want) to do all of these other things—but many do not, at least at scale.
Aggregators provide a market-oriented stakeholder that is incentivized to support contractors in whatever ways they need in exchange for a fee or some other consideration.
Aggregators can be creative, flexible, and innovative, because they want projects in the ground that save as much energy as possible.
It takes a village to scale energy efficiency projects.
Not only do aggregators provide these value-add services to contractors, but they also make life easier for program implementers charged with designing and managing energy efficiency programs on behalf of state or utility sponsors.
Aggregators also simplify program design, enabling programs to scale mid-stream incentives that provide performance-based payments to market actors rather than directly to customers.
Mid-stream incentives remove the need for lots of command-and-control prescriptive rules in exchange for simple rules that ensure aggregator accountability, provide upfront value to customers, and encourage innovation.
By assuming energy efficiency performance risks, aggregators can convince more people to invest in upgrades like insulation, air sealing, and air-source heat pumps.
Aggregators can maximize energy efficiency and electrification with flexibility
The measured savings approach in the HOMES program will provide aggregators with the tools to scale up residential participation in energy efficiency.
And by assuming energy efficiency performance risks, aggregators can convince more people to invest in upgrades like insulation, air sealing, and air-source heat pumps.
To get there, aggregators will have to be both creative and operationally excellent, bringing to bear a combination of consumer marketing, education, and financing tools, along with a deep network of contractor partners.
They also must create strong customer value propositions, through leveraging measured savings and other incentives, to ensure as many people as possible make their homes more efficient—all while ensuring predicted energy savings are realized.
Aggregators will have to be both creative and operationally excellent, bringing to bear a combination of consumer marketing, education, and financing tools, along with a deep network of contractor partners.
Aggregators can only be successful, however, if they are given the flexibility necessary to access data and leverage incentives.
In our second piece in this 5-part series, we’ll get into the steps that are needed to ensure that household energy data is made easily and effectively available to guarantee the success of measured savings incentives.
Explore the Measured Savings Incentives (MSI) series in full:
- Part 1: Aggregators: The hidden key to unlocking Measured Saving Incentives (MSI)
- Part 2: For the HOMES program to succeed, energy data must be accessible
- Part 3: Measuring Measured Savings
- Part 4: Incentive flexibility can unlock market innovation
- Part 5: The HOMES program can deliver simplicity for consumers and contractors