$8.5 billion and nowhere to go: If you fund it, will they come?

The new US Inflation Reduction Act provides a significant source of federally funded, consumer-focused energy programmes. Mary Sprayregen, Global Head, Regulatory Affairs and Market Development for Opower, Oracle Energy and Water presents recommendations for how these can intersect with existing state utility programmes.

After decades of leaving climate policy and investments to the states, the US Federal Government made a pivotal shift: enacting into the law the single biggest climate investment in history. The legislation at hand is known as the Inflation Reduction Act (IRA) and the included investments will put the US on a path to roughly 40% emissions reduction by 2030.

One of the most celebrated impacts of the bill is how it will accelerate renewable energy supply. An equally important and often overlooked component comes from changing how people use energy. The IRA allocates $4.27 billion for home electrification and $4.3 billion for home retrofits.

According to research by The Brattle Group, by 2040 consumer action can reduce nearly two times more emissions than clean energy supply alone. Those are actions like energy efficiency, rooftop solar, EV adoption and home electrification. Of these, energy efficiency is the single most impactful climate solution between now and 2030.

In the absence of federally funded investments, states have deployed and funded consumer-focused programmes mostly through utilities and their customers. By most accounts, these programmes have been highly successful. According to Lawrence Berkley National Lab, in 2030 utility energy efficiency programmes have the potential to avoid 38TWh of energy. That’s equivalent to the electricity produced by 7,320 wind turbines running for an entire year.

These programmes cost less than half of the cost of new energy supply.

As climate goals come into greater focus for states, utility programmes are increasingly expected to do more. In many states, utility demand side management programmes are funding home electrification and building retrofits.

In Massachusetts, utilities will be spending more than $800 million over three years to subsidise heat pump adoption. One state, New York, has even redirected one utility’s energy efficiency resources to pay for building electrification budgets.

With the IRA, we now have new and significant sources of federally funded, consumer-focused programmes. This unprecedented support provides policymakers with the opportunity to consider how these new federal programmes and existing state utility programmes can intersect with and support each other.

Intersection between federal and ratepayer-funded energy programmes

The IRA presents a once-in-a-lifetime opportunity to get this right. Ultimately at this intersection between federally funded and ratepayer-funded programmes are two critical considerations:

1. Braiding state and federal programmes. Over 25 states already have energy efficiency goals and corresponding utility programmes. Over a dozen states of these states have also implemented policies to promote home electrification. Consumers – especially in these states – are accustomed to their utility being the primary source of information on energy resources.

   A 2020 Opower survey of utility customers found that over 70% of customers want to hear from their utility about home energy savings programmes. Adding a new set of separate but similar programmes issued by a different entity is bound to create market confusion.

   An alternative is to create mechanisms that would layer the new IRA rebate programmes on top of existing utility rebate programmes. While this approach takes coordination, it will limit consumer confusion and allow programmes to go further, faster.

2. Leveraging the utility -> customer relationship. From both a climate science and political reality perspective, it is crucial that these rebates are deployed as quickly as possible. That means leveraging existing infrastructure and communication pathways. Identifying and effectively engaging with eligible households should not be one of the barriers to deployment.

   States have long attempted to support third-party aggregators and build markets that support a direct-to-consumer model. But the fundamental reality remains the same: the utility that provides electricity and gas to consumers is the only entity that knows every consumer and their usage and has the ability connect with them on a personal level.

   States struggle today to identify, engage, and enrol consumers into energy-related programmes. To help close the gap, states often leverage local utilities to find and engage with consumers. One such example is how a Maryland utility identified and targeted likely income-eligible recipients of Maryland’s Office of Home Energy Programs (OHEP). The utility communication combined a weekly energy usage insight with a promotion of the OHEP programmes. These personalised communications motivated thousands of Marylanders to click through and learn more.

Whatever federal and state agencies decide, the role of utility-run programmes cannot be ignored. This is a time to get it right and scale matters. Without the ability to effectively reach millions of people in a personalised way, we stand the chance of leaving billions of dollars on the table and millions of metric tons of emissions in the air.

About the author: Mary Sprayregen joined the Opower business (a division of Oracle Energy & Water) in 2019 and serves as its Global Head of Regulatory Affairs and Market Development. She has nearly twenty years of experience in energy policy, with past roles including VEIC’s Director of Policy and Public Affairs and Con Edison’s federal lobbyist in Washington, DC.