The Energy of Real Estate

Though generating energy from renewable sources receives a great deal of attention from news media and policymakers, reforming energy consumption is the quickest and simplest way to reduce the environmental, social, health, and national security impacts of dirty fuels.  Consumer behavior drives energy use, and contemplating how we actually consume energy is just as important as figuring out the best way to generate energy.  A critical consumer area—one that has been in the news quite a bit during the economic downturn—that drives energy use is residential real estate.

According to the federal government’s Energy Information Agency, residences consume nearly one-fourth of the nation’s energy and nearly all of this energy is generated from coal or natural gas.  Lately, more and more programs have sought to reduce the energy impact of residences by retrofitting them to use less energy, generate their own on-site, and to make energy efficient houses more attractive to potential buyers.

The federal government’s Weatherization Assistance Program (WAP) has existed since the 1970s, but, prior to 2009, had never received an annual allocation of over $245 million.  The American Recovery and Reinvestment Act (ARRA), however, allocated $5 billion for WAP, and President Obama has set a goal of weatherizing 1 million homes a year.  WAP works by allocating money through states to local non-profit organizations that identify low-income people with high energy costs, perform energy audits to determine cost-effective energy retrofit measures, and engage qualified contractors to perform weatherizations.  States initially struggled to spend the huge influx of WAP money, but the DOE now claims that they are on pace to spend all stimulus WAP funds by the March 2012 deadline.

Utility companies also provide funding to help Americans retrofit their homes.  Through programs like “system-benefit charges” and “on-bill finance” utilities pay the high up-front costs of retrofitting homes and then apply a charge to the homeowner’s utility bill to pay back the costs over time.  Other financing programs like PACE also help the consumer defer up-front costs, but those have come under attack from financial regulators who are skittish about allowing expensive improvements to homes during a financial crisis.

For homeowners generating electricity on-site, mostly through solar panels or a small wind generation facility, some states are now requiring that utilities buy-back energy produced but not used, and sometimes even at a premium.  While many utilities will pay a lower “avoided rate” for consumer-generated excess energy, some states have mandated “net metering.” Net metering requires utilities to purchase electricity at the same cost it charges for that electricity.  States can also act through utility rate setting to require utilities to purchase consumer-generated electricity at even higher rates to encourage on-site generation.

And though retrofitting homes provides great benefits to homeowners in the form of lower utility bills or excess cash from selling generated electricity, another way to encourage energy efficiency on a broader scale is to introduce the importance of energy efficiency into the real estate market.  Like granite countertops or soaking tubs, homeowners will be led to retrofit their homes if doing so will increase their equity and make their homes more attractive to potential buyers.

To accomplish this, the Department of Energy has endeavored to create a “National Energy Rating Program for Homes.”  When published, this rating system will use defined metrics to present clear and translatable information to present to potential homebuyers.  This rating system will allow homebuyers to compare the potential energy costs of homes and factor that cost into their decision to purchase.  While a better rating likely will not convince a family that has its heart set on a certain property, a better rating might be a deciding factor between largely similar homes.

Slowly but surely, American homes are becoming more energy efficient.  Reducing the consumption of energy in homes will permit utilities to produce less electricity, burn smaller amounts of dirty fuels, and focus energies on cleaner generation.  Through programs like WAP, utility-based financing, and energy buy-backs, consumers can ease their conscience and their wallet at the same time by reducing their energy costs.  Through the DOE’s National Energy Rating Program, energy efficiency can enter the homebuyers’ lexicon.  And as consumers start to see the difference efficiency makes, hopefully designs for energy efficiency will attract as many news stories as renewable energy generation.

-Steve Glatter, Notes Editor

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