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

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.

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.

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.

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.

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.

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.

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.

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?

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.

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.