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Why aren’t more contractors participating in rebate programs? Cost and complexity are huge factors. Part 1: The uncomfortable (and expensive) truth about rebate programs

It’s no secret that we need to exponentially increase the speed and scale of retrofitting homes with clean, efficient technologies like heat pumps. And rebates are a powerful tool that can help achieve that.  Already, billions of dollars are spent every year on rebates for retrofitting homes. Add in the $8.8 billion Inflation Reduction Act […]

It’s no secret that we need to exponentially increase the speed and scale of retrofitting homes with clean, efficient technologies like heat pumps. And rebates are a powerful tool that can help achieve that. 

Already, billions of dollars are spent every year on rebates for retrofitting homes. Add in the $8.8 billion Inflation Reduction Act (IRA) Home Energy Rebate Programs, and that’s a lot of money. But how can rebate programs be improved to actually build markets for home energy retrofits?

For rebates to be successful, they must be simple for contractors (and everyone else). Today, rebate programs are anything but simple—too often, they have resulted in ballooning costs and frustrated contractors (and consumers). Ultimately, this can deter contractor participation and hurt consumer adoption of home energy retrofits.

(Explore Part 2 on how aggregators simplify rebate program here.)

Engaging more contractors in rebates is critical for market transformation

When it comes to participation in rebate programs, there are a few contractor personas Sealed considers:

  • Program jockeys are contractors that actively engage in rebate programs and, in many cases, their businesses rely on the availability of specific programs.
  • Program curious contractors may occasionally engage in programs or are interested in opportunities to further engage.
  • Program adverse contractors don’t want anything to do with programs and avoid them at all costs.  

Program jockeys tend to make up the most of the small number of contractors participate in rebate programs. On the other hand, program curious and program adverse contractors represent the bulk of contractors, yet they tend to make up only a small portion of the contractors that participate in programs. 

To build a strong market for home energy retrofits, all of these different types of contractors have to be engaged. After all, the number of contractors that proudly sell heat pumps and other energy-efficiency technologies is an important measure of how well we are accelerating market transformation

So why aren’t more contractors participating in rebate programs? Cost and complexity are huge factors.

Free money isn’t free

Rebate programs aren’t cheap. Yes, there’s the well-spent money given to helping households improve their energy efficiency and electrify their homes. But behind the scenes, money is being spent on far more than rebates. 

Hard costs often accompany rebate programs. These costs are baked into every step of the current rebate program process and can include cost associated with:

  • Planning
  • Contractor management 
  • Quality assurance
  • Marketing
  • Program evaluation  

While many of these costs are both valuable and unavoidable, hard costs cut deeply into the overall rebate program budgets. One recent report from the American Council for an Energy-Efficient Economy (ACEEE) found that energy efficiency programs spent, on average, 34% of program dollars on administrative costs. This is notable because the IRA rebates have a 20% cap on the amount of funding that can be used for administrative expenses.

Soft costs are the hidden tax on contractors and homeowners

Soft costs, on the other hand, are a different story. 

While measurable hard costs are often significant, less quantifiable soft costs that contractors and other market actors have to manage can be even higher—and these have a huge impact on the success of rebate programs and consumer adoption of home energy retrofits. 

For example, one contractor in Sealed’s network spends 4-5 hours on administrative work for every rebate they pursue. This contractor is not an anomaly—across the board contractors spend a lot of time doing administrative work to help their customers access rebate programs. Ultimately, that means that contractors have far less time to do what they do best: sell and install great projects.

“It takes a lot of time to deal with the rebate applications. We don’t offer rebates during the busy season because it just takes too much of our time from the field” 

-New Jersey contractor 

And even when a contractor puts in the time to submit a rebate, they may have missed a piece of information, resulting in a rejected submission. For example, over 40% of rebate submissions in the New York Clean Heat Program were rejected for being incorrect or incomplete, according to the program’s 2022 annual report. 

On top of that, contractors are often waiting weeks to months to get their rebate payments. For example, contractors in our network are waiting anywhere from 6 to 8 weeks for rebates, and sometimes even longer. Contractors who have to wait around for rebate payments find it more difficult to sustain and grow a business that typically relies on consistent cash flow—and this impacts opportunities to scale and expand the home performance contractor workforce.

Some contractors hire extra administrative staff to process rebates, resulting in additional costs that are often passed onto their customers. Other contractors who cannot afford to hire extra staff choose not to participate at all. This is a lose-lose for everyone involved. 

Even if a contractor is committed to offering rebates to their customers, there’s one other big problem: the contractor typically has to leave the home before they can offer the rebate to the homeowner. That violates a well known truism in sales of all kinds: “time kills all deals”. 

In between the first and second visit to the home, a million things might happen that could cause the sale to fall through, which creates significant soft costs for the contractor as a result of lost revenue. 

Program complexity drives high costs

Ultimately, both hard and soft costs are driven by the complexity of rebate programs. (And who can blame them, even program experts get confused sometimes.) 

But balancing program complexity and simplicity is a delicate act. In many cases, administrative work is necessary to ensure that programs are using public money in a responsible way. But too many requirements result in contractors spending more time on paperwork than on installing energy efficiency improvements.

At the end of the day, program complexity is driven by two major factors:

  1. Ensuring project quality and
  2. Estimating energy savings 

Programs typically try to reach these goals by requiring a lot of information from contractors, often including complex testing and modeling that can be subjective and therefore prone to lots of back and forth between contractors and programs. 

“There’s a lot of duplication with the paperwork – we’re often having to take photos of equipment and then also re-enter all that data into the rebate application as well” 

-New York contractor

And then there is the elephant in the room, which is that most contractors are contractors because they like working with their hands, not filling out paperwork (if contractors wanted to do paperwork, they would have become accountants!). Programs are trying to fit a square peg in a round hole when they require contractors to be the only trade ally that can process and receive rebates. 

But there’s a different, simpler way to achieve these results: aggregators.

Explore the full series

In Part 2, we dive into how aggregators can help simplify rebate programs for contractors, households, implementers, and administrators to reduce costs all around.

March 13, 2024