5 reasons California's residential efficiency program flopped

On paper, Energy Upgrade California looks like a sure winner. Under the program, California utilities have been offering qualified homeowners $4,500 in matching funds to make their homes more energy efficient. Not only do the retrofits lower bills, they can raise the value of real estate. The state received $146 million of federal stimulus money to fund the program, while the state of California and residents (through bill surcharges) kicked in $91 million.

But since the program started in 2011, only about 12,200 homeowners have signed up, says David Baker of the San Francisco Chronicle, well short of the goal of 100,000 participating homeowners at this point. That comes to an average of $19,426 of marketing and administration spent on each project ($237 million divided by 12,200) before you even start counting the cost of the project. The money could have been spent just doing the projects: My wife and I retrofitted our San Francisco home for energy efficiency in 2010. The house got a new furnace and its first insulation. The job cost less than $18,000.

Put another way, on each project, the state spent $14,926 in an effort to give away $4,500. So what went wrong?

1. Location. While California essentially jump-started the building energy-efficiency industry under the guidance of Art Rosenfeld in the mid-1970s with Titles 20 and 24, it is not a great location for trying to reap the benefits of energy efficiency. The climate is too mild. You could live in a treehouse in most parts of the state. (We reduced energy in our residential project, but we were more of an exception. Our home was built in the 1930s and sits in a fog belt: The living room was like a meat locker three months of the year.)

These programs work best in areas such as New England where the homes are old, the weather is cold and many homes still run on heating oil. Next Step Living says it has saved more than $15 million in residential energy costs since 2008, mostly in Massachusetts. It also works in warm, muggy areas where air conditioning is a significant portion of utility costs. PosiGen Solar Solutions has cut energy by 30 percent in New Orleans homes through a combination of solar and efficiency. Interestingly, both companies have achieved these results on middle- to lower-income homes.

2. Measurement and verification. This is the old bugaboo for the efficiency industry. You can predict, with fairly high accuracy, how much energy a solar array will produce for 30 years. By contrast, every efficiency project is different. It's impossible to figure out how much energy a project will yield and how much it will cost until you perform an assessment, which can cost $300. (Some states, including Massachusetts, have funded the cost of assessments.). As a result, efficiency at the residential level is a less certain investment than solar.

3. Paperwork. Contractors who tried to get money for clients said that qualifying for the funds involved a morass of paperwork. Again, it goes back to verification: How do you prove that a particular upgrade will save X number of dollars over the next several years? Under the program, homeowners and their contractors had to demonstrate that the upgrades would cut their bills by 45 percent to achieve the highest rebates.

4. Inertia. "Surveys have shown that the average American spends 9 minutes a year thinking about their electricity, and that's just the time they spend paying the bill every month," Rory Cox, a regulatory analyst at the utilities commission, said in the Chronicle article. "It's going to be a challenge."

It's not easy to get people to spend $18,000 to save $125 a month. Title 20 and Title 24, the groundbreaking efficiency statutes California passed in the '70s, often put the burden on appliance makers. Appliance makers had to meet new efficiency standards to be able to sell refrigerators or dryers in the state. The economic incentive was so powerful that they complied.

5. Marketing. Utilities stink at this. Just look at the smart meter experience. Utilities complain that consumers only think about them when something goes wrong, and they have a point. When a ruptured gas main vaporized a neighborhood in San Bruno, PG&E was hit with an endless litany of complaints.

While most people in the state are aware that they can qualify for rebates from solar companies, I doubt few knew of California Energy Upgrade. Heck, I forgot about it and I've covered efficiency for over a decade. But this will change. Energy service providers and technologies companies — such as AutoGrid, FirstFuel, Bidgely, Silver Spring Networks and Schneider Electric — are coming out with technologies that let you analyze and control energy consumption. Just as important, they will start to take over quite a bit of the marketing and promotional functions. Silicon Valley isn't just a font for technical innovation: It's also the marketing capital of the world.

And I doubt any of them will spend $15,000 on acquiring a customer for an $18,000 project.

Photo of homes in San Jose, Calif., by pbk-pg via Shutterstock