December 28, 2017

Originally published in the News on October 16, 2017

The home energy market is heating up with the steadily increasing number of homes that have undergone energy ratings by certified professionals. The Residential Energy Services Network (RESNET) recently announced that more than 2 million homes in the U.S. have now been rated with a Home Energy Rating System (HERS) Index Score, which is designed to measure a home’s energy efficiency. Meanwhile, the U.S. Department of Energy (DOE) has completed 71,352 Home Energy Score ratings as of Sept. 17 — 25 percent of which have been conducted since Jan. 1.

Both energy rating systems use the comparison of a miles per gallon (mpg)-like approach for homes. Each program has numerous benefits for contractors who offer the service. 

HOME ENERGY SCORE: Nicholas Gersnaker, building analyst supervisor, Allied Energy Efficiency Experts, Cherry Hill, New Jersey, examines an air conditioning unit as he performs a Home Energy Score (HES) assessment (originally published in the News on 10/16/17).

HERS INDEX

Steve Baden, executive director, RESNET, said the HERS Index Score gives potential home buyers the ability to compare the energy performance of one home against another when they’re looking to buy.

“Just as very few people want to buy a car without knowing how gas performance is, future home buyers will also want that same kind of information,” Baden said. “It’s a little bit different because it is total energy used by the home and not a rating for efficiency. So, it’s more like golf than football, the lower score, the better because it shows you use less energy. We figured that made it easier for consumers to understand.

“We created a yardstick where 100 is what we call the reference home,” he continued. “One hundred is basically a home that was built to the standards of 2006. And for every percentile you use less energy, you drop a point. So, if you’re looking at a home that is 20 percent more efficient than a home built in 2006, you will get a score of 80, and it goes all the way down to 0, which means the home is producing as much energy that is consumed. And if renewable energy production saves your home energy use, you’ll go into the negatives, and then vice versa — the more energy the home uses, the higher the score. It goes up to infinity. It’s not a pass or fail. For instance, the DOE estimated that the typical home built in the 1970s has a HERS Index Score of 130.”

While awareness of the HERS Index Score is increasing, it’s not as widespread as mpg ratings. However, of the over 2 million homes that have been HERS rated, a million of them were rated in the last five years, Baden noted.

“More and more people are being exposed to it,” Baden said. “Our goal over the years is when people start seeing scores on new homes; they will start asking the question of what is the score on an older home and creating a force in the marketplace for upgrades.”

Currently, HERS ratings are more popular in the residential construction market, where less than 5 percent of the total market utilizes the rating, Baden noted.

“As this becomes more of a lexicon in the home buying market, I think there will be more and more consumers asking for it,” he said. “And when that starts happening, it will move into the existing homes market. The more tools contractors have in their belts, the more apt they are to control customers’ end products.”

Larry Taylor, a former contracting business owner and HVACR industry advisor and coach, was extremely active in the home-performance market in Texas. As such, he founded an energy auditing company called HERS Raters of Texas that worked in conjunction with his contracting company, AirRite Air Conditioning Co. Inc.

“We created HERS Raters of Texas so we would have a neutral third-party rating organization to go rate homes for realtors or provide leads for our company, Air Rite, for upgrades and or retrofits,” Taylor said. “We were very careful to do the right things and disclose everything about owning the contracting business, and we never had any problems.”

Taylor said offering a HERS Index Score and other energy auditing services helps contracting companies differentiate themselves in the marketplace.

“In the last five years, the market has certainly changed and is growing,” he said. “There’s a much higher interest in energy savings, and I think the thing we often don’t talk about with the HERS rating is the question: ‘Is this really going to help the situation?’ And, it will, but only if the work is done. The HERS rating is like going to get a physical, and the doctor says you have to do this, this, and this. Well, if you don’t do those things, you’re certainly not going to improve your rating, but you have your baseline.

“Contractors who offer this can drive business to their companies,” Taylor continued. “It certainly drove work for us, because HERS raters have the ability to go in and evaluate a home, give the customer a scorecard, and suggest how to improve the structure. About 50 percent of our installation-replacement-type business was strictly home improvement-type stuff, not equipment replacement. We got the reputation in town for being the fix-it guys, which I always liked, and that really cut out the competition. We’d go out on a job site, and we were the only ones talking about this ‘home audit,’ if you will. This was stuff you could do over a period of time. It didn’t all have to be done at once. You put together a plan for improving the home’s health.

“We also found, at some point, when the equipment did need to be replaced, they didn’t trust anyone else to come in and replace it. So, we got rid of a lot of our competition that were all based on low price and box changeouts. We also found that our equipment sales improved as we focused on improving the home. It’s a very good model.”

Steve Saunders, CEO of Tempo Air in Irving, Texas, said his company also offers HERS scores, but more of them are in new construction than in existing homes.

“We’ve been doing it since 2003 and, thus far, we’ve certified about 150 million square feet of new construction with a HERS score, which is a lot,” he said. “We have 65 people who do nothing but energy-efficiency scoring. It’s interesting because that’s a business that crosses over between construction and service. It’s a big enough business actually that it’s a unit of its own for us. Like a lot of businesses, it’s a real specialty if you want to do it well.”

Saunders also noted that one of the reasons the company got involved with HERS was to be able to talk energy performance in existing homes.

“We had a very sophisticated HERS energy evaluation process where we did a full energy audit with a lot of confirmation and a lot of recommendations. We found that was a great way to develop business. But a lot of it was related to the high utility bills that people had and the expectation they were going to continue to spin out of control based on utility rates.

“And then what happened to us and many others was the revolution in natural gas drilling, or fracking, which essentially collapsed natural gas pricing,” he continued. “In Texas, electricity utility rates are based on the price of natural gas. From 2004-2008, the price of gas was rising, and the price of electricity was going up 10 percent a year. We were headed toward Hawaii rates with what seemed like no end in sight. All of a sudden, the magic of fracking came, the price of gas collapsed, and the price of electricity was cut in half. And it had a lot of market effects. In our case, a very extensive HERS effort was not as valuable to the client. But all the HERS skills of understanding the home as a system, and how it impacted the home’s comfort, efficiency, and IAQ, were sort of the golden triad of things of value. We were able to find a new methodology of going forward to communicate value to consumers.

“So, really, we went from primarily talking about efficiency, where people would also get comfort and IAQ, to primarily talking about comfort, where people would also get IAQ and energy efficiency as a byproduct,” Saunders continued. “The skills and the knowledge that come from understanding the elements that are derived through the HERS industry that really create the foundation of the building performance industry are absolutely essential to delivering value to consumers today.”

Saunders also referred to the HERS score as an mpg rating on a home, though he admitted, it doesn’t have the same marketing panache because not everyone in the industry does it, so it doesn’t have the same recognition.

“HERS awareness is growing, and it will continue to grow over the next decade and the one after that,” he said. “Eventually, everyone will know about it. It also makes sense to include a HERS score into how you transact real estate properties. But I think we’re still probably 10-15 years away from that. The Trump administration does not have any interest in efficiency simply because the people who push efficiency are tied to words that the Trump administration doesn’t want to hear. So, I don’t anticipate while the current administration is in control that we’ll make much headway in including efficiency in real estate transactions. That doesn’t mean that we won’t make any progress or build a momentum.”

Andy Wildenberg, owner, e3 Power, Denver, also offers HERS scores at his company, albeit not many.

“I wouldn’t say it’s a major part of my business,” he explained. “HERS scores are usually for new homes, and the vast majority of which are completed by large production builders by far, and in Colorado, those builders are locked up by a couple of pretty big companies.”

Wildenberg said he completes between five to 10 HERS ratings a year.

“I offer them because that’s part of being an energy auditing business,” he said. “It’s hard to give up a section of business just because you don’t do it. So, I don’t make a lot of money on it, but I don’t lose money on it either. And it’s just a necessary cost of doing business in the energy auditing field.”

HOME ENERGY SCORE

Unlike the HERS Index Score, the Home Energy Score, which was developed by the DOE and its national laboratories, estimates an existing home’s energy use, associated costs, and provides energy solutions to improve the home’s efficiency. The Home Energy Score report is shown on a simple one-to-10 scale, where 10 represents the most efficient homes.

“We really see the value of the Home Energy Score as providing — frankly a lot of programs call themselves this — a miles per gallon rating for homes,” said Madeline Salzman, residential energy fellow, Oak Ridge Associated Universities (ORAU), supporting the DOE’s program. “We see this really helping homeowners, home buyers, and renters navigating through the process of understanding how much energy a home can be expected to use based on the way it’s built and how much that energy use is likely to cost them throughout the year. We really see this as something that’s missing overall in the marketplace.

“It was really important for us to develop a tool that was easy for non-energy folks to understand, such as homeowners, home buyers, appraisers, or mortgage lenders,” she continued. “We also wanted to be very consistent across the board. It’s not something that ranges from city to city or state to state, but it really provides that consistent benchmark across the country.”

According to Salzman, the Home Energy Score adds a different value completely to the marketplace.

“My general understanding of the HERS Index Score produces a rating that compares that to a home built to more recent codes and standards,” she said. “And that’s really appropriate and great for the new homes market. In fact, HERS, unlike the Home Energy Score, can be used for code compliance. That said, most consumers want to know how much their energy bills are likely to be and how their home compares to their neighbors’ — that is all homes, not just ones recently built. We wanted something that would compare homes to each other in terms of average energy use across the housing stock. This way, you can compare the energy use of a home built in 1958 to a home built in 1972 in this apples-to-apples format rather than comparing them to a home built to a standard that didn’t exist when they were built. It’s just a fundamentally different way of how we’re addressing similar issues.”

Salzman said contractors offering the Home Energy Score helps establish credibility and trustworthiness among prospective clients.

“I’m always making mpg comparisons because it’s the easiest metric for people to understand,” she said. “If every automobile company was producing its own mpg rating for their cars, it would be much harder to trust that rating. The DOE serves as a neutral source. The Score also lists recommendations with a payback of 10 years or less and lets homeowners know roughly how much they can expect to save based on implementing those recommendations. Also, it allows contractors to override those recommendations, something we find particularly important in regions with local rebates.”

Will Doyle, owner, Allied Energy Efficiency Experts, Cherry Hill, New Jersey, started offering the Home Energy Score because he saw it as an interesting opportunity to add something to the industry.

“I also saw the score has a very good real estate benefit to it,” he said. “I thought it was a valuable tool, because a lot of people you meet, especially in this day and age after the recession, say they’re going to move soon. If they’re moving soon, they need to see a value that’s added to their home when they do an energy-efficiency upgrade. It’s very difficult for them to see the value in an energy-efficiency upgrade when granite countertops and crown molding is very visible. The things that are visible are usually the things homeowners are looking to upgrade to make their homes more sellable. So, the Home Energy Score makes a certification visible in giving the home a score, so that when they go to sell their homes, it’s one more visible thing that puts them a little bit ahead of their next-door neighbors on the market. That’s what got me interested.”

Since Allied Energy Efficiency Experts began offering the Home Energy Score in August 2016, the company has completed several hundred assessments, Doyle noted. Additionally, the company plans to start including the score on all home-performance assessments.

“This is something homeowners want, but there needs to be more education on it,” Doyle said. “When I sit down and talk to homeowners for a few minutes about the importance of the Home Energy Score and how it makes a difference, their initial gut reaction is that if they have a low score, it makes their home worth less, but what we’ve discovered is having a score at all is more beneficial to their home and actually makes it worth more because the unknown factor is now removed from the equation.

“Also, it brings in a considerable client base that we had not been able to reach before,” he continued. “A lot of our projects are financed over a number of years. Most homeowners believe if they’re going to move before those years are up, that it’s not a worthwhile program for them. So it’s improved our client base because we’re able to reach that market of people looking to sell their homes, and they have a better shot selling to those homeowners because they’re not as worried about their homes not rising in value after they spend the money.”   

Publication date: 10/16/2017