Expanding Access to Energy Efficient Appliances — Episode 122 of Local Energy Rules

Marti Frank:

I also think that the ideas behind Shift as a concept are applicable to many aspects of climate change policy, where we find the same market conditions holding. So where the efficient or the low carbon or the renewable solution is more expensive. And we’re only seeing adoption among wealthier households, right? The idea of focusing our resources on improving affordability and increasing adoption by our least resourced households that has really big, cascading benefits.

John Farrell:

Energy efficiency programs have long relied on the rebate model to motivate folks to buy energy efficient appliances. But getting money back six to eight weeks later only works for those who can afford the higher upfront costs. According to Marti Frank, principal at Efficiency for Everyone and director of the Shift Consortium, more than half of Americans simply buy the least expensive oven refrigerator or washing machine they can find. The result is that energy efficiency rebates paid for by everyone are only useful to wealthier households. I spoke with Marti in October, 2020, about how to shift the rebate model in cooperation with local appliance retailers and how it saves more money and energy for everyone. I’m John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self-Reliance. And this is Local Energy Rules, a bi-weekly podcast sharing, powerful stories about local, renewable energy. Marti, welcome to Local Energy Rules.

Marti Frank:

Thank you for having me.

John Farrell:

So I was hoping to just start off with understanding a little bit more about your background and like, why did you start looking at these issues of energy efficiency, programs, appliance energy efficiency, and who is able to access the programs?

Marti Frank:

Right? Well, my background is actually as an historian, that’s my training, but I started working in the energy efficiency industry in 2002, mostly because I wanted what we would now call a green job. I wanted a job where I could be contributing to environmental causes and doing something I felt good about. And at that time I was working for a nonprofit that did technical research on building commissioning, which is a really important quality assurance process for buildings. And a few years later, around 2008, after I finished my PhD, I switched over and started working as an evaluator.

So the evaluators are the people who get called in often by the utilities. And even more often by the regulators to examine how well utility energy efficiency programs have gone. And, you know, I was new to the field of evaluation. And so one of the first projects my boss handed me was a study of electronics: plug load products, things that, you know, you plug into the wall radios, TV, dehumidifiers, and as typically happens in consulting, you do one project on a topic and the next one comes in on that topic and they hand it to you again.

And sure enough, that was something that I developed, I guess, kind of an expertise in. And it was in doing project after project about electronics and appliances. I discovered there was this mystery to be solved at the, at the heart of it. And I kind of got hooked on it to the point where 10 years later, I’m still working on appliances.

John Farrell:

That’s great. Thank you for some of that background. Now, one of the things that you have sort of helped pioneer in this journey that you’ve been taking on appliance efficiency is to identify new ways to make energy efficient appliances like clothes, washers, and refrigerators available to everybody. And I’m kind of curious, like what was the problem that you needed to solve? What was that mystery? Why can’t everyone just buy an ENERGY STAR® appliance? For example, I know they’ve got that label out there. What is stopping people from being able to buy something that’s energy efficient?

Marti Frank:

That was the question that we were trying to answer as researchers, but that kind of unveiled this mystery to us. I mean, why wasn’t everybody buying? Let’s just say ENERGY STAR® refrigerators, you know, the market share of those products was around 50%. So half of people weren’t buying them.

And yet you look on a retailer’s website and it seemed like every refrigerator was an ENERGY STAR® and we do interviews with retailers and other experts. And we say, well, okay, what’s the problem here? And they’d tell us one of, one of two things either there are no barriers or it’s cost. And over the course of that same period, I think I probably did around a hundred interviews with manufacturers and looking for specifically technical opportunities, right?

One of the things we uncovered was the opportunity to make more efficient voltage regulators, right? And the client got really excited about this idea, but I got something really different out of that research because with the manufacturers, when we were asking, where are the opportunities to make things more efficient?

Sure. They mentioned right. Things like voltage regulators. And my followup question was always, well, why aren’t you putting them in all of your products, which are the ones that you’re not putting them in.

And they kept saying the same thing and as a researcher, right. When people tell you things consistently, you know, you’re onto something. What they were telling us was, yeah, we don’t put them in the cheap ones. And so I started turning that question back on the retailers and the sales associates and asking them about the cheap products, what they call the opening price points.

And they all said the same thing, “Yeah. We sell a lot of cheap products. In fact, we call this the volume price point.” And that was the point at which the mystery in what, what was the mystery in my mind, right? Why are half of people not buying something that is so widely available, right?

And to which there seems to be almost no barriers to entry that turned out to be not a mystery to everybody in the supply chain, right?

Who makes these products, it’s the cheap ones they sell in the highest volume. They’re pretty much never efficient.

And that, you know, when we start to view these product markets through the lens of that explains what seemed to be really contradictory findings, right? For half of people, the half that are buying the efficient products, the ENERGY STAR® products, there are no barriers, but it’s the other half of the people who aren’t buying them for whom cost is the primary barrier. And it turns out that looking at the market through this lens has really opened up, not just a new understanding, I think, but, but really some opportunities for action.

John Farrell:

So I want to come back to that question of what action we could take to address this problem, but maybe just first to talk about what’s the potential impact that we could have by making sure that everybody could buy a highly efficient appliance. So like you said, half of folks are already buying them and feel like there are no barriers. Half of folks are out there shopping for the cheapest appliance. How, how can addressing this problem, help the buyers? Like what is it that they stand to benefit from if they can buy an efficient appliance, but how can it help everyone? How can I help the electric utility? For example, that’s serving up the energy to run these appliances?

Marti Frank:

There’s a couple of different benefits. And I tend to think about them as kind of like layers. So first layer is just—right?—it’s just energy savings. And for the buyer, I mean, honestly at the individual product level, the energy savings are not huge. Certainly it adds up.

So as a household, for example, changes over more and more of its inefficient products to efficient products. And certainly across the entire country, right? If we start to see the ENERGY STAR® or the efficient product market share at the national level, going up, especially across multiple product types or categories, one of the things we’re going to be working on next year is actually penciling out what this potential is. But back of the envelope, calculation is somewhere between one and 3% of household energy use. So on the one hand, this is not like the climate change, silver bullet, right?

It’s not big enough for that, but it is what I think in the efficiency industry. We often call the low-hanging fruit, right? This is the easy stuff. These are the savings that are basically sitting out there waiting for us to come and get them.

So that’s one level, but there are other benefits to doing this. That to me are just as important. And really that’s the ability to help catalyze a faster pace of change in the appliance industry. Because if we can use our utility rebates, we haven’t talked exactly about how we do this with shift, but if we can use them to drive up demand for efficient products in a really substantial way, and that helps drive down the costs of those products, then it starts to clear the way for our colleagues who do things like setting minimum performance standards, codes and standards, to start upping the requirements for all products. And that essentially locks in those savings that we’ve generated using a voluntary utility requirements. And then as we see the baseline requirements for efficiency go up and what we almost always see is we see manufacturers continue to innovate, right? And to push the efficiency characteristics of, you know, things like the ENERGY STAR® program even higher, right? And then we start the cycle over again, right? We start using our rebates again to continue driving demand and, and helping make these high end products more affordable.

John Farrell:

I know I maybe put the cart before the horse in asking you about impact before explaining how this works, but let’s talk about this Shift Model. How does it make it easier for everyone to purchase an efficient appliance who’s out there that’s already doing it?

Marti Frank:

This is the brass tax, right? I’ve mentioned that the key insight that I had as a researcher was that the inefficient products that were still left out there are the cheap ones. And we now know because it’s a research project that the Shift Consortium sponsors did this year. We know who’s buying cheap products, right? We know that these households have lower median incomes than people who buy more expensive products. We know that they have lower educational attainment. They’re much more likely to have very low incomes incomes under $50,000. We know that they’re more likely to be people of color and renters. And what is the one thing, right? That they have in common because their, you know, their demographics do vary. The thing they have in common is that they’re shopping based on price. They are resource constrained. And we also know that the incremental costs, the added amount that you have to pay to get an efficient product at these lowest price points is really substantial.

And this was one of the biggest mind shifts that, that I went through when I started working on this is, you know, we had been hearing from people actually in our own and in the energy efficiency industry, like, Hey, you can get an ENERGY STAR® refrigerator or clothes washer at any price point. It might cost $50 or $100 more, but they’re widely available. And it turns out that $50 or $100 is a lot of money for someone who wants to pay $450 or $500 for their appliance, that’s a 20% incremental cost. And so the shift that we had to understand was that it wasn’t the absolute dollar amount that we needed to be thinking about. It was that proportionate, incremental cost. And so a shift we’re using this understanding of the market to solve the problem that customers are having. And it’s quite simply a problem of cost and affordability.

So we do a couple of things that are slightly different than what you might see in a more typical rebate program. So the biggest difference with Shift is that we are very, very highly targeted and data-driven, we’re using the retailer sales data to understand what baseline efficient models they’re selling right now. And then we’re identifying a comparable but more efficient product or a set of products. And then we’re calibrating the amount of the rebate to the cost difference between the two. We can’t always cover all of the costs and sometimes we’ve found we actually don’t need to cover all of it. The point is that we’re trying to allow our most resource constrained shoppers—our bargain shoppers—to upgrade to ENERGY STAR® or to the efficient product without having to pay more.

John Farrell:

It’s important too, to note that when you talk about like a traditional rebate program, it’s not just that you’re covering that incremental costs. That might be smaller relative to the cost of the fridge. So if I buy a $1,200 refrigerator, maybe my rebate is 50 bucks. It’s a very small portion of the cost of the refrigerator, but I’m also getting that money six to eight weeks later. I’m not, I’m not getting the money right there. I’m having to wait for it. And when you’re talking about already price-sensitive shoppers, the idea of getting that money back as a rebate later is probably not as successful as for example, offering that money right there at the point of sale. Like you said, you’ve tailored it to the cost difference, but that’s the other piece is that you’re actually offering it right there in terms of the actual price that that person pays at the store, right?

Marti Frank:

Yes. So we work directly with the retailers so that at the point of sale at checkout, that dollar amount is taken off and then the utility essentially trues up or pays back the retailer on a regular basis. So they’re, yeah, you’re not waiting around and, and hoping right that your application was processed and that the check didn’t get lost in the mail. But the other thing, John, honestly, is if you’re paying $1,200 for a refrigerator, you’re not going to get a shift incentive because if you’re, if you’re paying that much, then there is no incremental cost to you for efficiency. And in all reality, you probably can’t find a product or a refrigerator that is not efficient. When we look, when we started doing this work and for the first time kind of dis-aggregating the retail product assortments and looking at them, not just as a whole, but by price point, the chart that you can draw is kind of astounding, right?

Because you see, once you get to the, even just the mid tier price points, which right now are around $600, $700, $800. But the vast majority of the products out there, 70%, 80% of them are already ENERGY STAR®. They’re already efficient.

But if you’re down at the lower price points, we’re talking at something like, you know, 20%, maybe 30% of products. And so for these shoppers coming into the store, if you want to pay under $600, you’ve got maybe five models to choose from, if that. And you’re going to be lucky if even one of them is efficient, it’s the other problem that we are addressing with Shift. So I’ve talked about the affordability problem, and that is what we are addressing with the instant or the point of sale rebates in retail stores. But there’s, there’s another problem. It’s a much bigger problem. It’s a much harder problem to solve.

And the problem of affordability is kind of intertwined with this other problem of availability, right? So there are very few low price, efficient products out there for people to buy. And if you want to talk about like super efficient products, you will not find them at the lowest price points at all. And those two things are really closely related. So I have been referring to it as a vicious cycle. Um, you could think about it also as a negative feedback loop. So, you know, it’s hard to say where it starts and where it is, but low cost efficient products are more expensive. And because they’re more expensive, there’s very little demand for them. Very few people buy them. And because there is very little demand for them, very few of them get designed and manufactured. And because the production is so low, that per unit cost is higher, right.

And those things kind of continue to reinforce one another and they will continue to do that unless we act right, unless we intervene in that cycle to kind of convert it right into a virtuous cycle. And so we’re trying to do that with the incentives that we’re offering at retail, but that alone is not going to increase. We don’t think it’s going to increase demand sufficiently to start increasing that availability.

And so the other big kind of task that we have on our plate for the shift sponsors next year is to work directly with the manufacturers, to appeal to them and encourage them to start designing better rates of efficiency into their lowest cost products.

John Farrell:

We’re going to take a short break. Let me come back. I ask why there aren’t more low cost, energy efficiency appliances about the problem of getting utilities involved when they aren’t operating appliance retailers and how this model of energy efficiency stops leaving people behind.

You’re listening to a Local Energy Rules interview Marti Frank, Principal of Efficiency for Everyone and director of the Shift Consortium about this new energy efficiency model.

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So I had a question about this because it made me think of the process of buying a car. And I have, our family has two cars and one is like the very basic trim level. And the other one was like the medium trim level. And I just remember, as we were shopping for the cars, you have these odd price jumps where it’s like the medium trim level for the car will get you heated seats and like a leather steering wheel and that cargo net that you want in the back, but they’re all combined together in a weird way. And so I’m just wondering, is part of the reason why manufacturers don’t do energy efficiency in a low price product, because they’re trying to get you to pay more for an appliance anyway, cause they got a better profit margin on that more expensive appliance.

Marti Frank:

That’s a really good question. I do not claim to understand how manufacturers think—not yet anyways—but what I can tell you is that there are, there’s really only one reason why these cheapest bare bones products exist. And like, if you picture a clothes washer, right, what do you picture? It’s probably a front-loader maybe it’s like silver, you know, it’s got maybe some Chrome or, you know, bells and whistles on it. It’s digital. That is not what we’re talking about. Okay. The products that are being, being bought are, are being sold every day in this country to one-third to one-half of all buyers, they are white boxes. Okay. They, they are almost indistinguishable from something you may have seen on the, on the shelves 20 or 30 years ago. And these products only exist for one reason. And that’s to serve our bargain shoppers, to serve the people who want to pay the least amount possible.

And so in order to get that product to market at the lowest possible cost, the manufacturer has to strip out everything. But the most essential features, right? So these washers, I mean, there is nothing fancy. There’s maybe three or four cycles on them. And so efficiency right now for these products, it costs more. And so that’s one of the features that goes out the window. It’s also true that our lowest cost efficient products could probably be even lower costs. If we were able to convince the manufacturers to leave out a couple of the bells and whistles that they also add in. So a perfect example of this is refrigerators. When you jump up from your kind of bare bones, top freezer, fridge to your ENERGY STAR® version, you also upgrade from wire shelves to glass shelves and kind of like what you’re talking about with the heated seats. Maybe you don’t really want the glass shelves, but you’re essentially forced to, to pay for them as well as for the efficiency. And that’s one of the things that we are going to begin advocating with the manufacturers about, right? Put in the efficiency, leave out the glass shelves.

John Farrell:

This is such a fascinating experience for me thinking about the products in my home. ‘Cause when you said, think of a clothes washer, I’m thinking of the one that’s in my house that was here when we moved in and it’s the white box, like that’s what they owned and that’s what I still wash my clothes in. And it’s what I’ve always had. I’ve never had a front loading washer and it’s sort of funny to think about like, I don’t even know what I do with all those extra features, ‘cause all I need to do is wash clothes. And so if they had a really energy efficient model that did that great, that’s what I’d go for. It’s really interesting. Yeah. And obviously a very complex problem. I’m so glad that you’re working on it. I was hoping you could also talk about, you know, you’re talking about these issues with the manufacturers, trying to figure out how to work with them, to get the efficiency features in the lowest cost appliances so that they can serve the population of the bargain shopping folks.

And I feel in some ways it’s a little bit of an injustice to, you know, we talk a lot about racial and economic inequality and a lot of these folks really don’t have any other choice, right? Like they’re not just shopping for bargains. They’re really like the best that I can afford is the cheapest thing you’ve got. But that being said, you’ve got an interesting kind of coordination between retailers and manufacturers and utilities here and utilities who offer rebates, don’t run the retail stores, selling the appliances. What barriers in implementation have you found or what roadblocks or things that you have to work through are important for program administrators to consider administrators, to consider in terms of overcoming as they try to implement this? So let’s say they have the money, the utilities game to do this. You’ve got an appliance that you’ve identified. What else do you have to make sure works so that when folks come into that store, they actually leave with that efficient appliance?

Marti Frank:

I mean, it’s not easy, right? This is not like a energy efficiency, savings, vending machine. It takes a lot of work, but it’s still the same thing that a utility or another program sponsor is going to run into any time they do a retail based program. And now with COVID multiply that times five. So with us, because this is so highly targeted, each retailer is different. They sell a different product mix. They have different rules about what can happen in their stores, what they’re willing to do. So you have to be a bit flexible, right? This is not a one size fits all approach. Retailers are fickle. They change their minds and they change their policies. They change their assortments. And so we have to be able adapt to that as quickly as possible. And that’s, I think really why, where we want to be working is not just with the retailers, but also much further upstream with the manufacturers and with the component suppliers.

John Farrell:

It reminds me a little bit of how utilities have been doing like led bulb rebates that are like built into the price. You go to the store and when you shop for an led bulb, the price already incorporates the rebate. You can see it on the tag at home Depot or ACE hardware or whatnot, but it’s like 17 times more complicated because you’re not just buying a light bulb that screws in. You’re thinking about all of these different pieces. I worked retail sales for a while, some people are on commission and some people aren’t on commission. So that impacts the way that they do it. Products are coming and going. Products can be exclusive to a certain retailer. I just, I can’t even imagine trying to sort all of that out in an efficiency program.

Marti Frank:

No, it’s true. It’s true. I mean, doing this type of work is absolutely complicated. I think we have the advantage with Shift in being so highly targeted. So if a standard or more or more typical rebate program, it would pick an efficiency level. Like just let’s say they pick ENERGY STAR® and then they put an incentive on every ENERGY STAR® product in the store they’re dealing with 30 or 50 or 100 different models that they’re, for example, maintaining stickers or labels on. We’re very, very targeted work. We’re dealing with certainly less than five models in each product category. So for the sales associates, for the field staff that are visiting these stores, there’s certainly fewer moving pieces for them to keep track of.

John Farrell:

Well, that’s helpful in some good news, a lot of folks who are focused on clean energy and climate kind of already pay less attention to energy efficiency. What would you say to them about the Shift Model that could illustrate why it is such an important piece of good energy policy,

Marti Frank:

Energy efficiency in general, but especially when it comes to appliances or really any technology that is already widely available in the market? I think I said this before, but it’s just the easy stuff. Right? Low carbon jet fuel, electrifying transportation in my mind, that’s the hard stuff. This efficiency, improving efficiency of appliances. This is this stuff we can’t afford not to do. Right. And this all hands on deck moment. But I also think that the ideas behind Shift as a concept are applicable to many aspects of climate change policy, where we find the same market conditions holding. So where the efficient or the low carbon or the renewable solution is more expensive. And we’re only seeing adoption among wealthier households, right? The idea of focusing our resources on improving affordability and increasing adoption by our least resourced households. This has really big, cascading benefits. And I think actually it’s really the only way we solve the climate problem.

We don’t get to our emissions reductions goals by leaving out this third or half of the population who can’t afford to make these changes on their own. And for me, when I, when I look at it from that perspective climate change, isn’t really an innovation problem. It’s a diffusion problem, right? It’s about getting the right things into each and every household. And, you know, so maybe that using rebates to cover the cost difference between the two it’s, maybe that’s not always the right solution, right. It might not work for more expensive technologies like EVs or ductless heat pumps. But I think the shift perspective is to, is to be asking that question of how do we cover the cost difference for the buyers, right? Maybe it’s no money down, 0% financing, maybe it’s bulk purchases that help get these products help get the cost down to the point where we can cover the differences. You know, I don’t have all the answers by any means, but I think asking these questions and looking at it from the customer’s point of view, that’s one of the ways that we get to new ideas about how to make these really important technologies affordable.

John Farrell:

I just think for folks who pay attention to stuff like solar, you know, it’s sort of the sexy climate technology. There’s a great lesson there, right? Like 10 years ago, solar was super expensive and it was places like Germany that said we will pay what it costs to see this technology develop in order to drive down the price. And it was wildly successful. And really that’s what the Shift Model is about too. I love the way that you put this, that when we get in this ever third or half of folks who don’t normally get to participate initially because of the price difference that it really, it drives down the price for everybody and it makes things available. So I, what a beautiful idea behind a very technical and sometimes complex seeming policy idea. I just really appreciate you laying it out in that simple way. Cause I think that the things that have been successful really follow that model.

Marti Frank:

I appreciate hearing that. I think, you know, one other thing I said, I thought we should talk about, about ENERGY STAR® and I think there’s something else going on here, another potential benefit. And it’s not something that I can describe in this kind of technical or statistical detail.

But what I can tell you is that two numbers to me are really important. And one number is 91%. That is the proportion of people who know the ENERGY STAR® brand. Right? And that’s okay, let’s just say it’s nearly everybody. And then there’s this other number and that’s 44%. And that’s the proportion of people who say they’ve never bought an ENERGY STAR® product, right? So here you have potentially one of the most valuable brands ever created by the federal government of which everybody is aware, but somewhere near half of our population has never been able to benefit from.

And I think about the comment from one of the participants in our, the Shift Consortium’s customer insights study, who did buy an appliance at the lowest price point and did not buy an ENERGY STAR® product. And, you know, she said energy efficiency. I mean, that would be great to have, but I can trade that off if it doesn’t fit into my budget. And so I think the other benefit that we’re talking about providing to people is access to something that they are aware of and that they value, but that they have never been able to obtain before.

John Farrell:

That is great. And I really appreciate you joining me to talk about the Shift Model, Marti, and how we can help folks like that have access to energy efficiency because of its widespread benefits for everybody. So thank you so much.

Marti Frank:

Thank you.

John Farrell:

Thank you so much for listening to this episode of Local Energy Rules with Marti Frank, principal at Efficiency for Everyone and director of the Shift Consortium, discussing an innovative shift in how to sell energy efficient appliances, combining better financial incentives with better coordination with local appliance retailers on the show page, look for links to Marti Frank’s 2016 article for AC Tripoli and her deeper dives into how energy efficiency programs work. On our website, you can also find ILSR’s research, on inclusive energy financing, a crucial partner policy to make home energy efficiency, improvements, accessible and affordable for everyone. Local Energy Rules is produced by myself and Maria McCoy. Editing provided by audio engineer, Drew Birschbach. Tune back into Local Energy Rules every two weeks to hear more powerful stories of communities taking on concentrated power to transform the energy system until next time, keep your energy local. And thanks for listening.