The good news? It's possible for every state to produce a blockbuster film. The IRA Home Energy Rebates could end up being a good or bad movie

When U.S. Secretary of Energy Jennifer Granholm took the microphone at a roundtable a few months ago on the Inflation Reduction Act (IRA) Home Energy Rebates, she asked a simple but important question: What will they look like to consumers when they launch?

(And the good news is that since this roundtable, New York became the first state to launch one of the rebate programs!)

Her next question was equally important. When these rebates do become available, what can policymakers and other stakeholders do to ensure a smooth roll out? 

One way to approach these questions is to think about implementation of the Home Energy Rebates as a movie. Some movies are good, others are bad, and the quality of a movie determines whether we say nice or not so nice things about it. 

With these Home Energy Rebates coming online later this year, the biggest question of all remains: Will consumers be happy with their experience? Or will they give the rebates no tomatoes

The good movie version involves impactful and low friction rebates for everyone

Let’s suppose we’re talking about a typical American family, the Smiths. In September 2024, the Smith family hears that their state has launched its IRA Home Energy Rebates. For them, it comes as a relief: The Smiths’ air conditioner and furnace are both on their last legs. They’ve been thinking about replacing them with a heat pump but are unsure they can afford one before winter.

On the official state rebate website, they discover that they will qualify for at least one significant rebate. They also confirm they’ll likely qualify for additional rebates since the family’s income is considered moderate. After a few quick calls with some local contractors, the Smiths find out that each contractor can offer IRA rebates to install a heat pump and other energy efficiency improvements.

With three quotes in hand, the Smith family notices something interesting: one contractor includes a recommendation for home weatherization as well as the HVAC heat pump. Naturally, this contractor’s quote is higher—but so are the rebates, in addition to the expected energy savings. Instead of a $5,000 rebate for just the HVAC heat pump, this contractor offers a $6,500 IRA HOMES rebate to do both electrification and weatherization.

Notably, this contractor was also able to provide a final quote, one that takes into account the rebates, during a single visit.

For the Smiths, this was a miracle: The fall is always a busy time for the four of them. Even better, though, was that they wouldn’t have to wait around for the rebate, since it was already taken off the top of the invoice. 

And to make matters even better, the contractor was able to confirm that the family’s income level allowed them to qualify for a $4,000 HEAR Rebate to cover the cost of upgrading the home’s electric panel—all too necessary, given the amount of electrical load being added by their new heat pump.

So the Smiths are ready to go ahead with the project. One lingering question, however, remains: Will their new equipment perform well and save energy? 

This is when their contractor’s eyes light up. The contractor informs the family that the size of their rebate is based on the expected energy savings, and they are confident in the predictions because they work with a rebate aggregator that guarantees energy savings. 

If the project saves less energy than expected, the aggregator will lose money. The Smiths really love that someone is putting their money where their mouth is when it comes to energy savings. (Especially considering their tax dollars fund these rebates.) That level of accountability makes the family feel even more confident that they’re making the right decision.

Shortly after, the Smith’s contractor installs the project. The Smiths notice a difference right away. Their home is more comfortable. The air inside even feels cleaner. Their energy bills have plummeted thanks to their new insulation and efficient HVAC systems.

And all this at a price point that fell within their budget, thanks to these instant IRA rebates, as well as the tax credit for 30% of the remaining cost that they feel confident they will receive next April.

The program was so helpful that they start mentioning it to their friends and neighbors, and even go a step further—they ask their local elected officials if the programs can be extended and expanded into the future. 

The bad movie version involves friction every step of the way and lots of consumer uncertainty

Now let’s move onto the Jones family. They see on the news that their state has launched the Home Energy Rebates. The official state website is confusing to navigate and totally unclear as to whether their home will qualify for rebates. 

Calls to local contractors are disappointing. The quotes they collect initially are uninspiring: one from a furnace contractor that doesn’t offer rebates and another from a heat pump contractor that doesn’t offer rebates. But the Jones family is diligent (even if they shouldn’t have to be): After a week of online searches and a half-dozen cold calls, they find a contractor who will install heat pumps and offer IRA rebates.

Yet the price quoted for the heat pump is significantly higher than the quotes from the other two contractors. (The furnace quote is much lower.) This third contractor who offers rebates explains that part of the difference is the quality of work they offer, as well as the need to cover administrative costs associated with offering the rebates. 

The Jones ultimately decide on the third contractor. They want a heat pump and the overall price is lower with the included rebates, though not by much. 

Pretty soon the whole rebate process turns into a nightmare. In order to finalize the quote, their contractor visits the house three times: the first to give the family a project scope and price estimate; the second to provide a final quote that included the rebate, after conducting some modeling that couldn’t be done at the home; and the third time to collect additional data required by the rebate program. (And months later, during tax season, the Jones try to apply for a tax credit but the process was too complicated so they give up.)

The Jones also learn that in order to see if they qualify for additional rebates, an income verification process has to take place, but the contractor is unable to do that for them.

Even worse: the contractor lets them know that because it takes a long time to receive their money from the rebate program, the family will have to pay in full upfront and wait around for a refund once the contractor is paid out by the program.

Nevertheless, the Jones decided to do the project. They feel lucky they qualified for the rebate, but are still nervous about whether the project will perform and save energy as expected. Then the horror stories roll in. Neighbors tell tales about being told they were eligible for a rebate, only to eventually discover they weren’t eligible after all because they didn’t install the right equipment.

Relatives in a neighboring state also tell them that, as single-family homeowners, they don’t qualify for any IRA rebates because the state decided to only provide rebates to multifamily households. Their family friends in a state across the country offer the most confusing story: They tried to have insulation installed, but were told by their contractor that they couldn’t get a rebate for a weatherization project because it didn’t save enough energy (they later learned the state only offered the HOMES modeled pathway which requires a 20% savings threshold, which can be difficult to achieve with weatherization-only projects).

The contractor tells the Jones that since their project is modeled to have energy savings of more than 20% they qualify for a rebate. The model is based on the family’s past energy usage and government-approved calculations, but the contractor can’t really stand behind it since they aren’t sure how much energy the home will actually save. While the Jones appreciate the rigor, they are still anxious about whether they will get the right return out of their investment.

A few weeks later, the contractor installs the project. The work is good, and the Jones are glad that they’re replacing their furnace with a heat pump before their current HVAC system goes. Shortly thereafter, however, the family begins to notice a few problems. No matter how high the thermostat goes, the house is still drafty. And, alarmingly, their energy bills are much higher than expected, which is tough to stomach given the project’s high upfront cost.

They call up the contractor, and after coming back to their home, the contractor says the obvious: Draftiness and high bills are likely the result of their home not being properly insulated. Budget busted and annoyed beyond belief, all the Jones can do is leave a bad Yelp review for the contractor and survive through the winter, keeping the thermostat as low as possible to save energy and money.

They tell all of their neighbors and friends to not bother with heat pumps or the IRA rebates and to ask their local elected officials to stop running programs like this.

A few months later they hear that the contractor has stopped offering heat pumps and rebates because of similar bad experiences by other households.

The difference between the “good movie” and “bad movie” versions of the IRA rebates are based on important policy and program details

Getting these Home Energy Rebates up and running is dependent on both the U.S. Department of Energy review process and the effectiveness of state program development. Importantly, program access is dependent on state decisions, including the following key decisions:

  • Whether contractors will be able to offer measured and modeled rebates: States should offer both pathways of the HOMES Program. The measured pathway in particular will help protect consumers by ensuring that the actual energy savings are as expected, as well as allowing more weatherization-only projects to qualify for rebates given the lower savings threshold, which is especially important for low-income households.
  • What type of homes (i.e. single family and multifamily) and incomes are eligible for rebates: By making rebates available for both single family and multifamily homes, states can avoid the situation the Jones’ friends ran into where they were ineligible for a rebate because they lived in a single family home. Additionally, while states should focus on low-income households, ensuring that all income levels are eligible for rebates will spark market transformation. After all, these rebates are a big deal, and Americans in single family and multifamily homes are eager to take advantage of them.
  • What technologies are eligible for rebates: Ensuring that a wide range of technologies are eligible for a rebate will help more households find what fits best for them and increase adoption of a broad range of efficient measures. 
  • How income will be verified: Making income verification as simple as possible will be critical for ensuring income-eligible customers can access the rebates and that contractors aren’t overburdened when they participate in programs. 
  • Simple, quality implementation: Details matter, and implementing programs with clear information, simple forms, and minimal friction will help these programs create as much impact as possible.

The more that states restrict eligibility by home type, program options, and technology eligibility, the higher the risk for a Gigli. And the more that states build accessibility, flexibility, and simplicity into their program decisions, the more likely that the positive reviews will come flooding in. 

The stakes are high, and so is the pressure. We’ve never had a rebate program that is nationally available and well publicized. The decisions that matter are coming soon—especially when it comes to how these rebates can be accessed by the average household. The good news, though? It is still possible for every state to produce a blockbuster film.

July 8, 2024