Energy Efficiency for Middle Income Households

Community and Economic Development – Blog by UNC School of Government

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Energy Efficiency for Middle Income Households

By Glenn Barnes

Published March 27, 2012

Glenn Barnes is a Senior Project Director with the Environmental Finance Center based at the UNC School of Government.

 A year ago, this blog post highlighted the work done by the Lawrence Berkeley National Lab to drive demand for home energy improvements.

The Berkeley Lab staff have now come out with a comprehensive report on delivering energy efficiency to middle income single family households.

Middle-income households–those making about $32,500 to $72,500 per year–account for one-third of total U.S. residential energy use.  The Lab found that middle income households traditionally have relied more on home equity loans and other types of home-secured debt to finance home improvements than either lower income or upper income households.  However, due to the housing downturn, more than 22 percent of households nationally have negative equity in their homes.  

Across the country, funded largely by ARRA grants, energy efficiency programs have moved from simple rebates on light bulbs and white goods to efficiency upgrades of entire homes with energy savings of 15-20 percent or more, such as the DOE’s Better Buildings Neighborhood Program.  These broad retrofits include lighting upgrades, wall and attic insulation, HVAC repair and replacement, and other costly improvements.

Higher income households can generally afford these improvements even though most rebates cover only a small portion of the total cost of the work.  But middle income households have not been able to afford these upgrades as easily.

The Berkeley National Lab offers some strategies to increase the participation of middle income households in these comprehensive energy efficiency programs.  First, middle income households may be motivated to participate in energy efficiency programs for different reasons, including comfort of the home, health and safety, and replacing old equipment to maintain or increase the value of homes.

Energy Efficiency programs may also consider offering the choice of doing improvements that have a smaller percentage of energy savings or that focus on measures with short pay-back periods to lower costs and lower risk for middle income homeowners.

And middle income households should have increased access to loan options.  To combat the problem of loan affordability, energy efficiency programs can reduce the interest rate to borrowers by providing a credit enhancement for private loans such as a loan loss reserve or interest rate buy-down.  To combat the problem of not qualifying for loans, energy efficiency programs may consider alternative underwriting criteria such as strong utility bill and mortgage repayment history.

The authors of the report have already given several webcasts on their findings which are archived on the project website, and there is another webcast coming up on April 3 on public policies to drive greater energy efficiency market penetration in middle income households.