What we learned running a Home Energy Rebate pilot in Detroit
10 learnings and 10 homeowner and contractor stories. Plus, recommendations for policymakers and our peers in the energy efficiency ecosystem
“Equity in Electrification” - a Home Energy Rebate pilot program
Hi, we’re Jake and Evan (founders of Detroit-based Pearl Edison).
We launched Pearl Edison in 2024 with the goal of accelerating beneficial electrification, starting with efficient heating and cooling - that is, projects with kitchen-table benefits like comfort or savings, in addition to climate benefits.
We partner with corporate, government, and community partners that have earned homeowner trust or authority on the topic of energy efficiency, to help the homeowners they serve buy the right efficient HVAC system for their unique home and priorities, at a fair price that reflects all the rebates and incentives they’re eligible for, from a qualified, vetted installer. We deliver fully contracted, fully designed jobs for our contractor partners - not flimsy leads - which reduces their cost of customer acquisition. Our software makes it easy! You can learn more on our website.
This year, we partnered with Michigan Central, Newlab, and Google Nest on a Home Energy Rebate pilot program serving low-income homeowners. This program, called the Equity in Electrification Fund, was modeled on the Home Electrification and Appliance Rebates that State Energy Offices will implement later this year, funded by the Inflation Reduction Act.
We had three goals for the Equity in Electrification Fund -
Generate learnings - for policymakers, contractors, enterprise and community partners, ourselves, and the entire energy-efficiency ecosystem - on how to serve low-income homeowners.
State Energy Offices will implement these rebate programs later this year. Our goal is to help them maximize the impact of this unprecedented investment.
Better understand the full “toolkit” of financial products required to ensure that Home Energy Rebates have their full intended effect - making home electrification affordable for low-income homeowners.
Pearl Edison isn’t a lender, but we’re eager to support the work of mission-aligned lenders. The EPA recently released $20B in grant funding for public / non-profit lenders, and we’re proud to be working with a few of those recipients.
Provide a tangible kitchen-table (non-climate) benefit for at least 30 Detroit families
Most common - reduced bills, improved comfort, or first-time air conditioning. This is our way of saying “thank you” to the community in which our company was born.
Recently, a partner asked us what we learned. We learned a lot! As a result, a very long email response to his question became this very long Substack article instead.
We teamed up with Brynn (“The Air Doctor” - and Owner of Air Doctors Heating and Cooling), the Contractor Partner we worked with most closely through this program, to summarize key takeaways, tell the stories of the homeowners we served and the contractors we worked with through this program, and make a few recommendations to peers and policymakers. Brynn and his team at Air Doctors are the best of the best - in Michigan (or anywhere).
Note: Names are pseudonyms, to protect the privacy of our customers and partners.
10 Learnings + 10 Stories
(1) Home electrification is important - but not inevitable. Buying a heat pump is a terrible experience for homeowners, and the economics are brutal for contractors. This is fixable - but Home Energy Rebates alone won’t fix it.
It’s true - retrofitting a home that was designed for a furnace with a heat pump is (usually) more expensive than just buying a new furnace, and Home Energy Rebates will bring heat pumps closer to cost parity (for those that are eligible).
However, thinking that these rebates are a silver-bullet fix to the urgent problem of accelerating home electrification would be a mistake.
Cost Parity ≠ Complexity Parity
For as long as they’re available, Home Energy Rebates will address the first and most important barrier to electrification - cost. But if cost is the first major barrier to electrification, then complexity is a close second. The fact is, the path of least resistance is usually a like-for-like replacement, not an energy efficiency retrofit - it’s easier for both homeowners and contractors.
Buying a furnace to replace your furnace is easy. It’s easy to find a contractor - you could contact pretty much any contractor, by searching Angi or by calling the phone number on the appliance sticker, and they’d be willing to take the job. It’s easy to get multiple bids. The timeline to install will probably be faster - which is particularly valuable if you’re shivering (or sweating) in your home. The install itself is easier, so your chance of a botched install is lower. And after the install, the new system will operate essentially the same as your old system, but it will be marginally more efficient.
Compare this to the process for an energy-efficiency retrofit. It’s hard to figure out what system to buy - and even harder to get clear guidance on the impact of your new system on your utility bills and energy consumption. It’s hard to find a contractor that is excited to take the job - most will try to talk you out of it. You’ll have to compare quotes, without a clear understanding of what they include. You’ll have to haggle more on price. You’ll probably wait longer for an install. And when the new system is installed, it will be unfamiliar - you’ll have to relearn how to work the system that heats and cools your home.
A like-for-like replacement is easier for contractors too. There’s no meaningful system design work to be done when you replace a furnace with a furnace. The system is easier to sell, because the benefits are easier to characterize - “it’s like your old system, but 5% more efficient.” It’s easier to get your hands on the equipment. The equipment and the scope of work are more familiar, so it’s a clean install - that means fewer labor-hours and a better margin. There’s no post-install product education work to be done. There’s no paperwork to be completed to claim rebates.
For this reason, many homeowners will give up. And many contractors will counsel homeowners not to electrify - even if electrification is in their best interest. Rebates will bring heat pumps to cost parity, but not to “time and effort” parity - for either homeowners or contractors.
Getting to Complexity Parity
This is solvable, but it requires giving the homeowner an “easy button” - at minimum, to streamline system design (and ensure quality), negotiate good pricing, and distinguish good contractors from bad contractors. It also requires helping qualified contractors to reduce cost of customer acquisition - their cost to see leads, their cost to qualify leads, and the rate at which they convert leads.
This is a north star for the Pearl Edison platform. (You can learn more here.)
But it is also instructive for states, community action agencies, and contractors - rebate awareness is an important part of the story, but not the whole story. We believe that Home Energy Rebates will only be as impactful as the homeowner and contractor engagement to support the program.
Maria’s story
Maria is a single mother based in Detroit. When we met her, she was trying to transform a dilapidated house into a cozy home for her kids, on a limited budget.
Two major appliances were dead and needed a replacement - the furnace and the water heater. The ductwork also needed to be modified to reach the second floor.
Initially, Maria did all her own research. She mapped out the scope of work, sought multiple bids, and hired a contractor to modify the ductwork and install her new natural gas furnace and water heater.
Maria’s contractor modified the ductwork as planned, and she scheduled installation the furnace and water heater. However, as install day approached, the contractor told her that the price of her project would increase, and no longer include the water heater - she’d have to buy that separately.
That’s when we got involved. Maria heard about the Equity in Electrification program - she received an instant estimate, then scheduled a confirmatory home assessment.
We recommended a dual-fuel heat pump system. At the home assessment, we determined that we’d need to re-do the ductwork - it was way undersized for the original furnace, let alone a new heat pump. Maria’s new system would have spiked her bills, not reduced them, due to excessive static pressure in the ductwork.
After the rebate, Maria’s new system - including the water heater - cost less than what the original contractor tried to charge her for the furnace installation alone.
Maria was thrilled that a properly-sized system would reduce her heating bill during the winter - and even more thrilled that she would have air conditioning for the first time. (She had planned to defer this investment, based on price.)
Maria may have been the single most motivated, best researched homeowner we met during the pilot. She did everything right. She still ended up with the wrong scope of work, a bad contractor, and a botched install.
Maria’s family is exactly the sort that Home Energy Rebates should serve - but without help, she would have ended up with a natural gas furnace, poorly designed ductwork, higher bills (and much higher attributable emissions), and a less cozy home for her daughter.
(2) Electrification is a critically important step. But, it’s not always the right first step - especially for an energy-burdened, low-income family. This points to two important goals: target outreach to homes that are “electrification-ready” and help the homes that aren’t to get there.
Reducing carbon emissions from home heating and cooling is really important. But it shouldn’t be the only important objective of any electrification program. Bluntly, we don’t think it’s right for low-income, energy-burdened homeowners to pay higher bills to reduce their carbon footprint.
Electrification is often a win-win - good for the homeowner, good for the climate - but that’s not always the case. The ideal order of operations is repair, weatherize, electrify.
When electrification is a win-win
For many people, electrification is a no-brainer. Home Energy Rebates will provide millions of families with an opportunity to install a system at low or no cost, that will improve their comfort and save them thousands of dollars annually.
For others - particularly, homeowners that buy relatively cheap natural gas to heat their homes today instead of relatively expensive electricity - electrification can be a bad first step.
If a homeowner has a functional furnace in an old, drafty home that doesn’t hold heat, it makes much more sense to weatherize than to buy an air-source heat pump. We’ve frequently counseled homeowners against electrification when we believe that it isn’t in their best interest.
Electrification can also be a bad first step for a home that requires heavy investment to be “electrification-ready.” Installing an air-source heat pump isn’t expensive, per se…but the accompanying electrical service panel upgrade, asbestos abatement, ductwork modification, and work to replace knob-and-tube wiring can be really expensive. Unfortunately, these showstoppers are more prevalent among older homes and therefore among lower-income homeowners. Rebates usually don’t cover it all, so these homeowners are frequently priced out. The industry calls these “deferrals” - as in, energy efficiency investments are “deferred” until showstopper issues are addressed - but the reality is that most of these projects are deferred indefinitely because the homeowner doesn’t have the resources to invest in fixing the problem.
In our Detroit program, our ratio of “deferrals” (e.g., an intro to our local weatherization agency) to completed installs was roughly four-to-one. It would have been higher if not for guidance we published to help homeowners and community organizations to determine if their home is “electrification ready.”
How we find win-win - and avoid win-lose
This points to two important goals, and one important “anti-goal.”
First - it’s important to identify the homes that will benefit most and make them aware of their opportunity to electrify and save. A homeowner in Michigan’s “Thumb” region that heats their home with propane will benefit more from an air-source heat pump retrofit than a homeowner in Detroit with five-year-old 96% efficient natural gas furnace. Targeted outreach will be really important! We’re already working with one major utility partner on this kind of targeted outreach.
Second - it’s important to stack and braid every available tool and incentive to help homes that aren’t ready for electrification to get there. (Remember the order of operations - repair, weatherize, electrify.) This means coordinating Weatherization Assistance, low-cost energy efficiency financing, utility affordability programs, philanthropic support, and every other available tool. State and municipal governments (and their partners) have an important role in making this easy. A bad outcome would be handing a flyer for the Weatherization Assistance Program to a homeowner that needs help when they inquire about a new heat pump for a furnace that broke on a cold night in December. A good outcome would be creating an expedited pathway so that such a homeowner can jump to the front of the queue.
Third - it’s important to avoid electrifying a low-income home that isn’t ready, and inadvertently increasing the homeowner’s energy burden. There aren’t enough rebates to go around anyway - in our home state of Michigan, we expect that rebates will provide funding for about 20,000 homes (0.5%). So, why should these dollars ever fund a retrofit that will result in increased bills? The entire ecosystem - state energy offices, utilities and other demand aggregators, and contractors - has an important role in ensuring that these dollars go to families that will actually benefit from them.
Al’s story
Al and his wife love their home, but they’ve faced challenges ever since purchasing it 13 years ago. About an hour after closing on the house and receiving the keys, Al unlocked the front door to find that all of the major appliances had been stolen.
Al had put most of his savings into the down payment. Replacing the stolen appliances would be costly and rose to the top of the list, but other investments were deferred - most notably, a new roof, weatherization, and central air conditioning. Unfortunately, these deferrals resulted in high winter heating bills and uncomfortable summers for over a decade. Today, Al and his wife are both supported by Social Security Disability Insurance and are caring for two school-age children.
Al heard about the Equity in Electrification program, and thought that a heat pump might be a good idea - he’d heard he could save money with a heat pump, and would have air conditioning for the first time.
A heat pump retrofit would have been a really bad first step for Al. The leaky shell (particularly the roof) meant this would have just compounded his high bills.
Fortunately, Al was able to leverage other support. He got a new roof through the City of Detroit’s Renew Detroit Home Repair program, and closed-cell foam insulation for the attic via DTE Energy’s Energy Efficiency Assistance program.
With this work complete, we circled back with Al. Together, roof repair, weatherization, and a heat pump (leveraging Al’s boiler for backup) will mean manageable utility bills and improved comfort, year-round. (A partial scope of work would have meant partial results.) It took three funders and three major projects to get there to get there.
Unfortunately, most similar projects wouldn’t move forward. Stacking incentives worked in this case - but it was painful and manual.
(3) Dual-Fuel is a major improvement when the alternative is a like-for-like replacement - especially when it means avoiding increased energy burden for a low-income homeowner. All-electric absolutism is really unproductive.
Our hot take - a homeowner choosing to offset part of the carbon impact of their home heating and cooling system is preferable to a homeowner choosing to offset none of the carbon impact of their home heating and cooling system.
That doesn’t sound even remotely controversial, but to a segment of the energy efficiency community - we call them “electrification absolutists” - it is. “Get off gas” is their rallying cry, and they ignore the economic reality of this switch for low-income people in colder climates that rely on cheap gas to keep their monthly utility bills affordable. It is bad if we never get off gas. It is also bad if we get off gas in a way that results in higher bills for people that can’t afford them. We think gradual and affordable is better than nothing.
Heat Pump Economics 101
A heat pump is a wonderful piece of technology. Because they move heat, rather than generating heat, they can be 500% efficient or more (depending on outdoor air temperature). Literally, this means that they can put out five times as much energy (as heat) as they consume (as electricity). The theoretical maximum efficiency of a furnace is 100%, and the average we see in the field is more like 70%.
Unfortunately, more efficient doesn’t always mean more affordable - particularly for homeowners that currently have a natural gas system.
For example - in Michigan, electricity is relatively expensive and natural gas is relatively cheap. For a Detroit homeowner that purchases electricity for $0.17 / kWh and natural gas for $0.83 / ccf, a heat pump must be greater than 400% efficient to achieve cost parity with a 70% efficient furnace (before any weatherization).
Only a very efficient air-source heat pump can achieve this, and only at moderate temperatures. Heat pumps are almost always more affordable during the summer for whole-home cooling, but most homeowners that heat their home with natural gas will still see their bills increase on average. (This depends a lot on the price of natural gas, which is volatile, but is a safe assumption short-term.)
Dual-Fuel - the gradual, affordable, transitional solution
To be clear… electrification is still a viable option for a homeowner that is motivated by lowering their monthly bill - but generally only for a dual-fuel system with accompanying weatherization. This is a scope of work that can deliver on better comfort and lower bills, while still reducing the carbon footprint of the home.
A “dual-fuel” system heats the home with an air-source heat pump at moderate temperatures. When it gets really cold and the heat pump operates less efficiently, a backup furnace (typically powered by natural gas) kicks in. This configuration offers homeowners the best of both alternatives - comfort, manageable bills, and a reduced carbon footprint. Depending on climate and operating conditions, a dual-fuel system can reduce site energy usage by 60% or more.
To recommend an all-electric system that will spike a homeowner’s winter heating bill, rather than a dual-fuel system - particularly if you don’t honestly present this impact or make the homeowner aware of other options - is to act in bad faith. You can’t do this if you legitimately have their best interest in mind. Unfortunately, there are too many electrification absolutists that think this way.
We think this is ultimately counterproductive - we can’t place the costs of decarbonization on our poorest families. Everyone needs to get off gas, but it doesn’t need to happen all at once.
Dual-Fuel is good public policy!
In the next few months, State Energy Offices will make important public policy that determines whether dual-fuel heat pump systems are rebate-eligible.
The Inflation Reduction Act allows for a homeowner to continue to use a pre-existing system as backup, provided that the air-source heat pump is Energy Star certified and serves as the “primary heating source” for the home. However, this is an unclear standard, that states will have to clarify - it’s clear that a backup furnace is acceptable, provided that the heat pump is sized to cover the home’s primary heating load, but it’s not at all clear which system needs to operate when to satisfy this requirement. (This will determine how rebate-funded dual-fuel systems are configured, and therefore the impact on the homeowner’s bills.)
We believe it’s really important for states to implement Home Energy Rebates in a way that creates a viable path for participation by natural gas homeowners - and the only way to make this happen is to OK dual-fuel.
Samantha’s story
Samantha has owned her home for 15 years. She maintains it meticulously, and prides herself on being an informed, savvy homeowner. She also cares - deeply and vocally - about climate change.
Samantha’s furnace was on its last legs, and she determined that it was time to replace it. Unlike most homeowners, we didn’t need to explain to Samantha what a heat pump is. She was intrigued by the possibility of installing an all-electric system and cutting her natural gas line, but she also didn’t want to pay a significantly higher winter heating bill. The guidance she found online was conflicting.
With help from Pearl Edison - via Concierge and live consultation with the team - Samantha weighed an all-electric system and a dual-fuel system. She was conflicted. After a transparent discussion of the cost-climate tradeoff she was facing, Samantha ultimately opted for the dual-fuel system. Better tools - and transparency - allowed her to make a pragmatic decision that suited her financial constraints.
Samantha is excited about her new heat pump and relieved that a dual-fuel configuration would prevent unmanageable utility bill impacts during an exceptionally cold Michigan winter. This is what we mean by a “kitchen table decision” - Samantha made an informed choice that was consistent with her commitment to sustainability, without compromising her financial stability.
Depending on how Home Energy Rebates are implemented in Michigan, Samantha’s project might not be rebate-eligible come October.
That would be a bit of a shame.
(4) The “heat pump cowboys” are coming. Consumer protection is about providing homeowners with enough information to make well-informed choices - not just checkbox compliance. Otherwise, these opportunists will sell homeowners a system based on a false expectations and bad energy modeling.
Whenever the federal government supports critical technology with generous incentives, opportunists come out of the woodwork.
Learning from residential solar opportunism
The Energy Policy Act of 2005 created a 30% investment tax credit for commercial and residential solar energy systems. When these incentives came online, a small army of door-to-door salesmen followed - not all of whom were ethical. Driven by commission, these unethical salesmen promised improbable savings based on unrealistic assumptions about energy yield and escalating prices for utility electricity. (A lot of ink has been spilled on this topic.)
Likewise, we expect “heat pump cowboys” to come out of the woodwork when Home Energy Rebates are implemented - absent State Energy Offices and their partners taking steps to combat them.
These heat pump cowboys will make promises about savings that at best lack nuance (e.g., failing to explain to a homeowner how their bills might spike in extreme weather without backup) and at worst are completely dishonest (e.g., selling “average” savings that aren’t applicable to the homeowner).
Protecting homeowners from heat pump cowboys
Consumer protection is usually black and white - it is easy to write rules against telling lies. In the context of electrification, it is a bit harder - guidance that is generic or lacks context can be just as damaging.
As more homeowners become aware of government support for home electrification, we believe protecting homeowners means helping them buy the right system for their unique home, financial situation, and goals, at a reasonable price that reflects all of the rebates and tax incentives they’re eligible for.
An HVAC system replacement is an investment - for many people, the largest they will make in the year they undertake it. Businesses largely treat HVAC as an investment. Homeowners largely do not, because they lack the tools and expertise needed to evaluate an HVAC system as an investment. It’s really hard for homeowners to get specific, accurate guidance on what their new system system will cost and how it will impact their monthly bills.
If homeowners don’t have access to good tools to evaluate this investment, then too many homeowners will make bad decisions based on bad advice. Uninformed contractors will provide bad guidance by accident. Opportunistic contractors will sell false expectations and disappear when bills increase.
Worse still, because rebate dollars are limited, every project of this sort means one more worthy one will go unfunded. Unlike Home Efficiency Rebates, Home Electrification and Appliance Rebates don’t have an energy savings standard. This is good in an administrative sense - it means projects will get done. It also means that State Energy Offices and their partners have a critical consumer protection role to play in protecting homeowners (DOE has started publishing best practices). Ultimately, this requires tools to support project-level analysis, without grinding every project to a halt for a homeowner that needs a fast solution.
Charlene’s story
Charlene heard about the Equity in Electrification program through a friend. Her friend had a good experience, so she badly wanted a heat pump.
Jake’s last call with Charlene went something like this:
“Charlene, a heat pump isn’t going to help. If you weatherize your home, then a dual-fuel system would be good - but I’d recommend against moving forward until you get that done. There’s a program called Weatherization Assistance that can help, and you’re definitely income-qualified. If they can help, then we’d gladly revisit this and finalize your quote.”
An unchecked heat pump cowboy might have said:
“Sure, Charlene. You’re right to act fast - these rebates will go fast! We can do it at no cost to you - you tell us when you’re available, and we’ll get started.”
We encountered hundreds of homeowners through this program. The thing we observed most consistently was the magnetic allure of a $14,000 rebate - this invariably got the homeowner’s attention, and they were sometimes excited to move forward even when Concierge forecasted a significantly increased bill.
Many homeowners will believe that receiving anything new that’s worth over $10,000 is a good thing - even if they’ve got broken windows and knob-and-tube in the walls, and a heat pump retrofit will hurt rather than help them.
We turned these jobs down - we’d rather turn them these homeowners away than do something that is against their best interest. (This sometimes made homeowners angry - explaining to someone that they’re not going to get the free thing is hard.) An opportunist acting without guardrails probably wouldn’t have.
Guardrails are good. Homeowners need tools to get specific, unbiased guidance on whether a heat pump is a good idea - and the work of helping the homeowner interpret this guidance shouldn’t be left to just any contractor.
(5) Bad system design and bad installs are really common. Unfortunately, the work often goes to the best salesman, not the best engineer or technician.
Homeowners have trouble evaluating whether a contractor is qualified to install the system they’re bidding on.
This is unsurprising - this is a hard, technical thing to evaluate, even if you’ve done the homework. Most homeowners lack the necessary expertise.
As a result, we observe that jobs often go to the company that employs the most convincing salesman, not to the company that generates the best system design and employs the best technicians.
Best Salesman ≠ Best Technician
Selling an HVAC system is a different skillset than designing an HVAC system, and designing an HVAC system is a different skillset than installing an HVAC system.
If you went to a Ford dealer and learned that the salesman had actually worked on the design team for the car he was selling you, then worked the manufacturing line as it rolled through, then showed up to work at the dealership… you’d be surprised, concerned, or impressed, in some combination.
If you think about it, it is not really surprising that these are loosely correlated skills. The problem is that most people are only well-equipped to evaluate their contractor as a salesman (“she really seems honest”). They’re not well-equipped to evaluate their contractor as a technician (“he really gave me a strong answer about how he plans to modify the ductwork, given the high static pressure in my current system and the increased airflow required to support my new heat pump”).
Why a bad design (or a botched install) matters
Retrofitting a heat pump isn’t as simple as a “box swap” (furnace for furnace), and the consequences of getting it wrong are significant. Bad design or a botched install can lead to bad comfort, higher bills, and acute health and safety issues.
Here are a few (non-exhaustive) examples:
We frequently see contractors (>70%) improperly sizing equipment. An oversized single-stage heat pump (or an oversized furnace) will turn on and off frequently (“short-cycle”) to avoid over-heating or over-cooling the home. An undersized heat pump will run hard constantly to maintain temperature. Both can mean a higher bill, shorter equipment life, and a stubbornly uncomfortable home.
We frequently see contractors (>90%) fail to modify ductwork. A heat pump delivers cooler air than a furnace, so it requires more airflow (per delivered btu) to function properly. If the ductwork is undersized, then the heat pump won’t maintain temperature (because the ductwork can’t deliver enough airflow), will spike bills (because the heat pump will continue to try), and kill the compressor, which can result in system failure in just a few years.
We frequently see contractors fail to properly vent remaining fossil fuel appliances. When a natural gas furnace is replaced, the chimney needs to be “resized” by installing a chimney liner, to avoid exhaust back-drafting into the home. Failure to take this step can cause a safety issue.
We frequently encounter refrigerant leakage due to a bad install. Heat pumps are potent weapon in the fight against climate change, but the refrigerant used in most heat pumps is a potent greenhouse gas in its own right. When a refrigerant line set is improperly charged / commissioned, most of the climate impact from the installation of the heat pump evaporates, and the system will function improperly with adverse comfort and cost impacts for homeowners.
Unfortunately, we could fill a book with these stories. These botched installs also have longer-lasting ripple effects - they poison the reputation of air-source heat pumps with both homeowners and contractors. (There’s a reason that misconceptions about the reliability and performance of heat pumps are still widespread.)
How to help homeowners
It’s really important that homeowners pick qualified contractors. However, it’s not realistic to expect most homeowners to do this effectively for themselves.
The solution has two parts. First, homeowners need help finding a contractor they can trust. Second, we need more trustworthy contractors - and the scalable solution for this is proper training. (More on both trust and training in a minute.)
Sammy’s story
Sammy had almost completed his DIY home renovation. He had applied a fresh coat of paint, remodeled the bathroom, and replaced most of the furniture.
Sammy was proud of what he’d done to transform the home with his own two hands, but HVAC was a stubborn problem. His bills were really high in the winter, and he didn’t have air conditioning, so it was warm in the summer while he worked. Sammy didn’t necessarily think there was a problem with his system - lots of people have a high winter bill - but he was intrigued by adding an air-source heat pump, mostly to stay cool in the summer.
We designed a three-ton dual-fuel heat pump system for Sammy. More importantly, we determined that his basement ductwork was way undersized - Sammy’s high bills might be “normal” but they were also totally fixable. We planned to install the heat pump, use his existing furnace for backup, and modify the ductwork to accommodate both.
Unexpectedly, the furnace failed on the day the install was scheduled to begin. The undersized ductwork had caused the compressor to fail, shortening the life of the system by about 10 years. Luckily, his was one of Brynn’s jobs. He threw in a furnace for free to keep the install on track - because he knew a replacement would be really costly for Sammy, and because the Equity in Electrification program has been really good for Air Doctors.
Poor work by the original contractor had already been costly for Sammy, in the form of years of elevated utility bills. If not for the Equity in Electrification program, he would have had to pay for a costly out-of-pocket repair too.
Sammy’s redesigned system included more efficient equipment - but even more important were the ductwork modifications. When we checked in with Sammy after a month, he shared that his bill had been reduced by about 50% (from the same month the previous year).
Good design saves people tons of money. Unfortunately, homeowners view heating and cooling as a commodity, and their utility as the price-setter - it usually doesn’t occur to them that a bad contractor is responsible for their high bill.
Pearl Edison - in partnership with good contractors like Air Doctors - ensure that homeowners get a well-designed, well-installed system that reduces their bills.
(6) Many homeowners don’t trust contractors. (Unfortunately, one bad apple can spoil the barrel.) The entities that have earned a position of trust or authority - ranging from electric utilities to government to local community organizations - have an important role to play.
Almost everyone has had a bad encounter with a contractor in home services. Most people have had multiple. There are enough “bad” contractors - largely due to a lack of proper training - to make this a near-universal experience.
Jesse Smith wrote a really good story about this in Asterisk recently.
Good Contractor, Bad Contractor, Undertrained Contractor… why there’s no trust in HVAC
The prevailing binary stereotype is that there are “good contractors” (ethical, competent) and “bad contractors” (unethical, incompetent).
This is a false stereotype. There are good contractors. There are bad contractors, that discriminate on pricing, upsell you things you don’t need, and aren’t licensed or qualified. But the largest group by far are undertrained contractors - ethical, honest, and perfectly qualified to swap your furnace, but unqualified to install your heat pump.
If it’s your house and your failing heat pump, then the difference between a bad contractor and an undertrained contractor is semantics. Your family is cold, so who gives a damn about the installer’s best intentions?
The role of “demand aggregators” in building trust
The vast majority of homeowners can’t distinguish good contractors from bad or undertrained contractors. So, most people have hired a bad one - if not for their HVAC system, for something else. Many people learn this lesson the hard way - if you need to hire a contractor, then find a disinterested third-party to vouch for them, rather than vetting them yourself.
For this reason, most homeowners that don’t already have a contractor that they know and trust will reach out to a third party that they view as an authority on energy efficiency or that has earned their trust.
This takes many forms - asking their electric utility for help (e.g., DTE), calling a local community-based organization (e.g., EcoWorks Detroit), checking with a government or quasi-government validator (e.g., Michigan Saves), looking for a referral from a government or quasi-government agency (e.g., Wayne County Community Action Agency), or visiting the website of an equipment manufacturer they perceive as trustworthy (e.g., Mitsubishi Electric).
These organizations (potentially) have an important role to play. They could help the homeowner buy the right system (for their unique home and goals), at a fair price (net of rebates and incentives), from a great contractor. They could also elevate the good contractors in their community by helping them win work. (After all, a direct referral from a community organization is preferred by a good contractor to paying $20 per click on Google Ads, and better than competing directly with a bad contractor that undercuts them on price with a homeowner that can’t tell good from bad.)
Why demand aggregators don’t play this role today
We have talked to countless electric utilities, governments, community organizations, and other aggregators. It’s generally not news to them that they could play a more active role in helping homeowners navigate energy efficiency. It’s also generally not news to them that playing this role would align neatly with their mission or commercial interest.
However, most of these organizations don’t feel equipped to play this role. To generalize - they are unwilling to attach the earned trust and reputation of their organization to a customer experience that depends on contractors that aren’t on their payroll doing high-quality work.
Despite the opportunity, these organizations have usually opted out deliberately. Managing a network of trade allies to ensure a high-quality design and a high-quality install is hard work and requires expertise. Some organizations don’t feel equipped - as a function of resource constraints or capability gaps - to play this role.
How Pearl Edison helps demand aggregators
Excuse the infomercial!
We founded Pearl Edison to solve this problem - we de-risk the customer experience by ensuring a good system design and a good install. Our platform makes it easy to help homeowners design the right system, get a fair price, and hire a great contractor.
We’re working with everyone from large investor–owned utilities to small community organizations. We’re looking forward to sharing more about our initial enterprise partnerships soon.
You can learn more (or if you’re an aggregator, get in touch) here.
Natasha’s story
Natasha is a resource navigator at a Detroit community organization. We were introduced to Natasha as we prepared to launch the Equity in Electrification program. We shared a description of the sort of home and homeowner that would typically be a good candidate for a heat pump retrofit, and enlisted her help to find low-income homeowners who could benefit.
Early on, Natasha would frequently direct homeowners to Pearl Edison Concierge, then get a call from those homeowners to answer questions. These homeowners trusted Natasha - they had less interest in speaking with us. Then, she’d pick up the phone and call us.
It wasn’t easy to earn Natasha’s trust - she’s a fierce advocate for the community she serves. But over time, she came to trust us - the software, the process, and the people behind it. Over time, Natasha started answering these homeowners’ questions on their own. She even sat with less digitally savvy elderly neighbors and helped them get an instant estimate.
Natasha realizes the impact - good and bad - that Inflation Reduction Act programs could have for the families she works with. She sees Pearl Edison as a partner (and Concierge as a tool) to make these programs easier to navigate.
We realized something important too. Natasha has earned these families trust by serving them for years - we’re better off giving her the support and tools she needs to serve advise these families well on energy efficiency, rather than trying convince her that she should trust a venture-backed tech company.
As the pilot winds down, we’ve signed a formal partnership agreement with the community organization Natasha works for. (Specifically, Natasha’s organization will launch a branded version of Concierge on a free license.) When the rules for the Home Energy Rebates have been finalized, we’ll help them “pre-qualify” additional community members ahead of implementation. This way, Natasha can ensure that the families she knows will benefit will be near the front of the line.
(7) Turning undertrained contractors into good contractors - “Qualified Contractors” - means properly investing in training.
A heat pump is a very different piece of equipment from a furnace.
A furnace generates heat by burning a fuel. A heat pump moves heat using electricity and a refrigerant. (This is why they can both heat and cool the home.) Functionally, a heat pump is much more similar to your refrigerator than to your furnace.
The upshot is that a technician that is skilled at installing a furnace might not be skilled at installing a heat pump.
It is not that they can’t learn - they just need the right training and experience. If you’re accustomed to swapping a furnace, installing a heat pump is more similar to picking up a new dialect than it is to learning a new language. A contractor that receives proper training will pick it up pretty quickly, but there is a learning curve.
Required training is a reasonable for access to a steady stream of government-funded projects
It is a certainty that if there is any training requirement linked to a Qualified Contractor designation, then a group of (largely bad) contractors will complain.
We think it’s eminently reasonable to ask a contractor to invest time in ensuring that their technicians know what they’re doing if they want to install rebate-eligible systems. It’s a cost of their ability to perform government-funded, revenue-generating work. Who pays for training is a harder question with equity implications.
Training infrastructure exists, but is probably underfunded
There are plenty of good options if you want to be trained as an HVAC Technician or as an energy efficiency professional.
For one, the entire industry is built on an apprenticeship model. Field training is a core component of how most (good) contractors run their businesses today.
Energy Services firms (like Walker-Miller Energy Services here in Michigan) run great programs. So do companies like Brynn’s training business (HVAC U). The Building Performance Institute offers a deep catalog of courses and certifications.
The harder question is how to pay for this training. Asking contractors to pay for this training would be reasonable. However, doing so would disadvantage smaller cash-poor installers that don’t have strong balance sheets like larger PE-owned competitors.
Our view - states should pull whatever levers they can to make this affordable for smaller contractors. That includes leveraging administrative funds included in Home Energy Rebate programs, formula grants through Inflation Reduction Act Contractor Training Programs, and the bread-and-butter programs operated by Workforce Development Agencies and their regional partners.
Margaret’s story
An angry homeowner calls the State Energy Office. “I just received a $900 bill in the mail. My contractor says the system is fine. What do I do?”
This is exactly what could’ve happened on one of our very first installs. Our contractor partner didn’t resize the ductwork, which would have led to years of high bills. We caught this post-install and dealt with it - we fired the contractor and brought in another partner to modify the ductwork.
It was a bad day for Pearl Edison - fixing the problem wasn’t cheap.
Many contractors wouldn’t have recognized the problem. Some would have looked the other way even if they did. (This is certainly the less expensive option.)
Generally, contractors (usually) aren’t doing the wrong thing on purpose. The original contractor we worked with on this project is ethical and competent - but the technician they sent hadn’t worked with heat pumps much, and didn’t know to modify the ductwork. (On many like-for-like furnace replacements, this isn’t even a consideration.)
The best energy modeling can’t prevent this from happening - this requires training.
It cannot be understated that electrification of heating and cooling is a major transition, that goes far beyond swapping in a cleaner fuel source. On most projects, it requires modifying major mechanical and electrical infrastructure in the home. If our experience is indicative, then thousands of technicians are unready for this, and their inexperience will result in bad outcomes for homeowners.
We will probably work with the contractor that botched the install again! But before we do, they’ll be trained - by Pearl Edison or by an organization we trust.
(8) It’s good to be picky. Governments, utilities, and other demand aggregators should elevate good contractors and refuse to do business with bad (or undertrained) contractors.
Fortunately, State Energy Offices have leverage. They can route business to good contractors (either directly or through partners that serve as regional aggregators). They can also encourage undertrained contractors to train up and become good contractors (by withholding Qualified Contractor status until they do so).
The trick is using that leverage effectively - to identify and elevate the best contractors. Advisers - from companies like ours to training professionals like Brynn - can help with this.
Playing hardball
The Inflation Reduction Act places State Energy Offices (and the organizations they choose to partner with) in the position of defining what it means to be a “qualified contractor” for the purpose of Home Energy Rebates.
There will be lots of pressure from the industry to expand this list quickly, in the interest of avoiding perceived “winner-picking” and in the interest of getting installs done more quickly. We’d encourage states to do the opposite - be deliberate and be selective. This will come at the cost of some speed, but deliver better outcomes for homeowners. It will also elevate the contractors that deserve to be elevated.
Tangibly, this could mean -
Starting with a small population of Qualified Contractors - the best of the best - intentionally before opening up the opportunity broadly
Imposing real requirements on installers that want to be approved as a Qualified Contractor - based on real training or field experience
Being quick to revoke Qualified Contractor status from an installer that botches an install to the detriment of a homeowner with post-installation QA/QC
If things move too slowly, then State Energy Offices could consider allowing Qualified Contractors to subcontract portions of the work. (Many already do this.) In this scenario, there’s still a competent contractor that is fully accountable (and financially liable) for the scope of work in its entirety.
What we’re proposing would take real political courage. But there are good examples of this approach working around the country.
Learning from Maine
Efficiency Maine did a great job of this when they launched their statewide rebate program. Their work, in large part, is the reason that Bloomberg recently called Maine the “heat pump capital” of the United States.
This video from Rewiring America details how they did it is a great watch:
Efficiency Maine started small - they recruited ~20 contractors and made them successful. Then, the next 680 contractors beat down their door.
We believe that this is the right strategy - work with a small group to start and deliver them real volume. This does three things:
It gives State Energy Offices (and their advisers) the time and power to define a Qualified Contractor on their terms - terms that protect homeowners.
It will lower the cost of customer acquisition for good contractors, who don’t need to compete with bad contractors anymore.
It will lower the installed cost for customers by aggregating projects and awarding them in groups - which creates leverage to negotiate reduced prices on both equipment and installation.
Amelia’s story
Amelia bought a newly constructed home in 2017, after about two decades of diligently saving for the purchase. (Amelia couldn’t afford homeownership for much of her life.) Once she’d saved the money, the home became a passion project.
Unfortunately, when she moved in, her heating and cooling system made it feel like less than the dream home she’d hoped for. Her new furnace was way oversized for the home, resulting in frequent short-cycling. This kind of short-cycling leads to increased bills - but Amelia’s biggest pain point was that the home always felt cold and drafty.
Amelia felt ripped off. She wasn’t able to reach the original HVAC original contractor. Unfortunately, Amelia had no recourse.
When we met Amelia, she was bitter about the experience - and initially very skeptical. We offered an explanation of the problem and a proposed solution - in the end, she decided to move forward largely because the community organization that helped her found us vouched for our work.
With a properly sized system and some targeted weatherization, Amelia’s home will be comfortable.
The story of a botched heat pump installation that can’t be serviced because the original installer is out of business is at risk is really common. Home Energy Rebates will only exacerbate this issue, unless the State Energy Offices do real vetting to ensure that the contractors that install rebate-eligible systems are really qualified.
If that means deploying dollars a little bit more slowly, then so be it.
(9) Maximizing the impact of rebates means paying them out as quickly as possible. (This is hard!) If it can’t be achieved, then short-term financing will be really important.
The intent of the Home Energy Rebates - per the Inflation Reduction Act and subsequent DOE guidance - is clear. These rebates are intended to function as point-of-sale discounts. This was good, important public policy decision - most low-income homeowners can’t tap savings to front a $14,000 rebate to be paid later.
We expect this to be hard in practice - and have a ton of empathy for the State Energy Offices that have been tasked with making this reality.
Why point-of-sale is hard
Our read is that the DOE’s intended order of operations is:
The customer signs a contract
The contractor (or aggregator) submits the project to generate a rebate coupon
The rebate administrator confirms that the project is rebate-eligible - which is determined by homeowner details (i.e., verification of identity, income, and ownership), home details (to be defined by the state), and project details (i.e., verification that the scope of work is a “qualified electrification project”).
Without new tools to help, this doesn’t sound very instant.
In theory, a contractor could assume this risk and start the work anyway. This is dubious. We’d expect very few contractors to be interested in asking their customers for proof of income or the deed to the property. We’d expect still fewer contractors to purchase equipment or start work before they know definitively that a project is rebate-eligible. The risk that the homeowner, home, or scope of work aren’t rebate-eligible isn’t a risk they feel prepared to evaluate, and presents a cash flow issue for the contractor if the rebate takes a long time to pay out.
Why this matters
Here’s a very real worst-case scenario…
A low-income homeowner’s propane furnace fails in the “Thumb” region of Michigan. This customer is among the very best candidates for beneficial electrification. But more acutely, this customer is cold. They know they can save ~$1,000 per year by replacing their furnace with a heat pump. The contractor they’re working with tells them they should be eligible for a Home Energy Rebate, but that they need to wait for the rebate administrator to confirm.
That homeowner faces a choice - do they fix the issue now (and buy a less efficient system that’s available tomorrow), or do they wait for the heat pump?
Everyone agrees that this is a scenario we need to avoid, but states are in an unenviable spot. Determining eligibility based on income, homeownership, and identity is hard - and government programs are frequent targets for fraudsters.
Solutions to point-of-sale challenges
Fortunately, there are good companies working on this problem - optimizing incentives and financing for homeowners, and streamlining rebate administration for incentive providers.
The best, in our view, is Eli Technologies. Eli’s CEO, Jeff, wrote a great blog post detailing the challenges facing contractors and incentive providers last year, founded a company to address these challenges, and wrote another great blog post detailing how their attacking the problem.
Eli (and others) will provide contractors with more certainty around rebate eligibility and will help incentive providers shorten timeline to payout. But if it’s not possible to get the timeline down to a few hours or a few days, then lenders will have an important role to play too - by “pre-funding” incentives. With the right procedures in place to verify homeowner and project eligibility, the risk is trivial (and easily underwritten) - but not if you’re a contractor that doesn’t do this for a living.
This is a good potential use for Greenhouse Gas Reduction fund dollars - $20B of which the EPA distributed in early April to eight non-profit lending consortia.
If green banks and other non-profit lenders don’t provide short-term loan products to “pre-fund” incentives, then others will. Homeowners probably won’t like the terms. For example - another startup that opportunistically pivoted to focus on rebates, Sealed, is pre-funding rebates at a cost of 50% of the total value of the rebate.
We view this as a bad but very real potential outcome.
Brianna’s story
Brianna is a grandmother who lives along in a first-floor duplex in Detroit. Her home is small and only has two outside walls, but her furnace still couldn’t keep the home warm - and ran up a $550 bill during a mild December.
She’d never heard of a heat pump, but the possibility of a better-performing HVAC system was really intriguing.
Our load calculation (via Concierge) suggested a heating load of under three tons (~32,000 btu). Debra’s furnace was oversized at five tons - an issue that could increase her bills a bit, but that didn’t explain why the home was so cold.
The main issue was ductwork - it was poorly designed (i.e., air isn’t routed where it needs to go) and leaky (so it escapes before it gets there). Her furnace was running constantly to try to maintain temperature (and running up her bill).
Brianna’s bill in December should have been ~$150. We designed a dual-fuel system with modified ductwork that would fix the problem.
The installed cost of the project fit easily within a $12,100 rebate envelope. With the rebate functioning as a point-of-sale discount, it was a slam dunk - Brianna was thrilled. We verified Brianna’s income, then fronted the rebate by drawing on a short-term line of credit.
If Brianna’s rebate hadn’t functioned as a point-of-sale discount, it would have been a different story - Debra is on a fixed income and couldn’t have fronted it.
There are thousands of people just like Brianna out there. The stakes for fast payment of rebates - and the case for tools like Eli - is to ensure that she doesn’t have to wait in the cold.
(10) It’s important that home electrification is profitable for good contractors.
Since starting this business, we have frequently been asked questions that are intended to confirm a perception that contractors are greedy.
People see the internet list price for a furnace or a heat pump online, calculate the labor-hours that they watched the install team spend at their house, and conclude that the contractor is pocketing a massive margin at their expense.
This really misunderstands the business reality for these contractors.
HVAC contracting is a really hard business
There are certainly some contractors that will try to get one over on a homeowner if they think they can get away with it. Stories of those contractors circulate widely and give the profession a bad name.
Generally, contractors have the opposite problem - they’re unprofitable, unsustainably so. ~70% of HVAC Contracting businesses fail in their first year of operations. Many of these are (potentially) good contractors - technically competent technicians that made the leap after a decade or two of working for someone else.
When you pay the extra few thousand dollars that you can’t attribute to equipment or onsite labor, you’re paying for -
The contractor’s marketing budget, without which they will fail as a result of having too few jobs to keep the lights on. (It’s expensive to see a lead.)
The work the contractor does to qualify leads. This includes a home assessment - and if they’re good, the work to perform a load calculation, generate a bespoke system design, provide you a quote, and educate you on your options. Most of this becomes waste-work if the job doesn’t convert. (It’s expensive to qualify a lead, compounded by a low win rate.)
The underutilization of the contractor’s technicians, since it can be really difficult to predict when jobs will and won’t convert - or when a customer will pull the rug and reschedule. (This is a direct consequence of unpredictable lead conversion.)
ServiceTitan coaches HVAC Contractors to charge profit and overhead of 50-55% in order to run a profitable business. This seems insane, but isn’t bad advice.
The problem isn’t greed - it’s overhead.
We need to help good contractors win
These economics are even less favorable for a heat pump install. It’s a more complex system design (more labor-hours), a longer install (more labor-hours), and a more complicated install that presents more opportunity for mistakes that leave the customer unsatisfied and require rework (still more labor-hours).
On its face, making contractors profitable might seem at odds with making electrification more affordable. We don’t see it that way. Reducing overhead and waste-work is good for both homeowners and contractors.
It’s easy to villainize contractors. (Some of the bad ones deserve it.) Generally, we think contractors deserve empathy and support.
The good ones provide an essential service, and are trying to stay afloat in a very hard business. We should all want the good contractors to survive, thrive, and actively participate in driving beneficial electrification. That’s the mission of Pearl Edison.
Air Doctors’ story
Brynn called the “Air Doctor” by friends and peers long before he gave the same name to the company he started. Brynn does the work to design the right system on every project, whether it’s a service call, a like-for-like system replacement, or a heat pump retrofit - even though he knows that not every customer knows enough to appreciate it.
We met Brynn early during the Equity in Electrification program. We had fired an early contractor partner for failing to properly vent a natural gas water heater after the installation of a heat pump, and brought in Brynn to take a look.
Brynn completed two installs with us in January, then became our highest-volume partner in February and March. We love working with Brynn and the team at Air Doctors, because they’re committed to building science and great customer service.
We learned a ton working with Brynn - his expertise has influenced everything from the system design logic in our software to our approach to our commercial strategy. More importantly, working with Brynn clarified an important mission of the company - to elevate companies like Air Doctors.
The partnership has been good for Air Doctors too - and not just on rebate-funded jobs. In Brynn’s words - “Consider us a lifer!”
One of the stated outcomes of the Home Energy Rebate programs is market transformation. The most transformational outcome would be if companies like Brynn’s succeed… because if they do, there will be more companies like Brynn’s. And that will be good for homeowners, long after funding for rebates has run dry.
So, what do we do about all this?
For those that braved 5,000 words, here’s what we’d advise you to consider.
State Energy Offices / Rebate Administrators
Distribute tools to help homeowners figure out what system to buy, how to get it at a decent price that reflects the rebates they’re eligible for, and how to find a good contractor to install the system.
Narrowly target rebates to support beneficial electrification. Demand aggregators - like utilities, community organizations, or lenders - can help.
Do everything in your power to provide an expedited pathway to braid weatherization dollars with electrification dollars. This means formal programmatic collaboration, not referrals.
Accept dual-fuel solutions where they make sense. In many geographies, urban low-income homeowners rely on cheap natural gas. They shouldn’t be prevented from accessing Home Energy Rebates and reducing their carbon footprint, but they also shouldn’t see their bills go up.
Be stingy with your Qualified Contractor designation - and use it as leverage to reward good contractors and to incentivize undertrained contractors to do the work to become good contractors themselves.
Invest in training! This is a better way to accelerate deployment than lowering the bar for “Qualified Contractor” status.
Bring in partners to help expedite rebate payout timing, to ensure that homeowners can make a choice that’s driven by cost and climate rather than acute discomfort.
Demand Aggregators - utilities, municipal government, community organizations, energy services companies, and more…
Play a more active role in driving beneficial electrification! There are strong reasons - commercial interests or mission orientation - for doing this. You can do more than provide an arms-length referral to a long list of contractors - you can help homeowners navigate electrification, and direct work to trade allies that meet a high bar for technical competence and service level. (This is operationally complex, but we can help you.)
Find the homeowners that need the rebates most. You have the data and relationships to identify these families - use it! (This could be a family on propane that can save $1,500 per year, or a 75-year-old woman who has never had air conditioning and heats her home with an open oven.)
Lenders
Lean hard into incentive pre-funding - the tools to ensure that a homeowner and project are rebate-eligible exist. This is our best chance to maximize the impact of Home Energy Rebates (and the various other investments that support electrification, provided by states, municipal governments, and utilities all over the country).
Scale up gap funding loan products. (We know, you’re working on it.) Home Energy Rebates won’t cover the full installed cost in many cases, and won’t be around forever anyway.
Consider playing an aggregator role yourself! Lenders with existing homeowner relationships (and earned homeowner trust) are well positioned to reach homeowners that could benefit from electrification.
Contractors
Train your techs. Access funding for it if you can. It’s a worthy investment!
Work with us. We make electrification more profitable by delivery fully designed, fully contracted jobs - not flimsy leads. Our current partners will vouch - we’ll help you improve utilization, you won’t face unqualified competition, and we’ll ultimately make your business more profitable.
Get in touch
If you’re a rebate administrator, demand aggregator, lender, or contractor grappling with how to meet the coming challenge - get in touch. We’d love to trade notes - or even better, to help. Email us!
Thank you
First and foremost, we’d like to thank the contractors and community partners we worked with on this program. In particular, we’d like to thank McDougall-Hunt Community Association, Bailey Park NDC, Hope Village CDC, Southwest Detroit Environmental Vision, and EcoWorks Detroit. These organizations do vital work, which you can learn more about on their respective websites. The people behind the work are tireless advocates for their community, and we are proud to have worked with them on this program.
This program was funded by Michigan Central, Newlab, and Google Nest. These learnings are a product of their generosity. The Pearl Edison team would like to personally thank Carolina Pluszczynski, Mark de la Vergne, Liz Keen, and Garrett Winther for making this program reality.
 | A guest post by
|
 | A guest post by
|