Yesterday, I checked in on my assumptions for 2015. Today, I’m offering up my outlook for 2016 in the residential energy-efficiency and renewable-energy world (steering clear of presidential primary predictions!).
The first part is simple. I’m doubling down on the same predictions for 2015. Even those I didn’t get quite right! But with some twists. And I’ll add a few new ones to the list.
1. Savvy HVAC Contractors Will Continue to Expand into Home Performance (and vice-versa)
This just makes too much sense. And as more HVAC company find success, the story will spread.
2. But as more programs, with high admin costs and without the results to justify the costs, retreat from traditional whole-house approaches, only contractors who can actually run a sustainable—profitable—business will thrive.
This one should be obvious. Unfortunately it isn’t. Too many contractors think this depends only on energy-efficiency and program or tax incentives. Yes, those things are good. But no more important than marketing, sales, efficient operations, and accounting. A business grossing $1M per year, with the owner drawing a $100,000 salary as compensation for running the business with no additional profits, does not mean the business is making a 10% net profit. In fact, if it would cost $120,000 to hire someone to do the job, plus another $30,000 for a part-time assistant, that company is actually losing $50,000 (-5%) a year!
Knowing that is an important first step. Knowing how to run the business so you can make money to keep the business alive is the next. This can be profitable! But not automatically.
I expect a further shake-out, with more home performance companies closing up shop, regardless of whether the trends below turn out to be real or my imagination.
3. Contractor “Success Groups” Start Catalyzing…Success
While many profitable HVAC companies have known for decades the value of working with a small group of similar, and non-competing, companies to share secrets and accelerate learning on how to best operate a contracting business, we haven’t seen such groups in the home performance arena. Until now. I know of a couple groups forming (because I’m helping them organize!), and it looks promising.
I’m expecting groups like Efficiency First to begin more actively help form these groups. (And if they don’t, contractors, demand it, or go find someone who can help you find other contractors to team with.)
4. Home Improvement Services will be “Uberized”
This hardly counts as a prediction since it’s happening already in some market! Amazon, Google, and others are stepping into the home improvement world, and they are not doing it to protect your margins. I expect this to expand a lot in 2016. If you want to buy yourself a job, the world may not change much. If you want to grow a successful company, though, things may get harder, not easier.
In other words, if you want to thrive, it’s going to be even more important to pay attention to the business, not just the blower door. And you’re better off learning how to surf today than waiting until the tidal wave is bearing down on you. (See #2, above!)
5. Energy Prices, Up and Down.
That’s still going to continue—and if you’re relying on energy cost savings to drive your business, you’re in for a bumpy ride.
It’s not just oil prices, though. Bloomberg Business has a good summary of the energy supply picture for 2016 in this short video. One of the keys–the electric vehicle and how it penetrates the market. I predict that even with low oil price, EV use will grow.
6. Solar PV Continues to Grow.
Yes, Congress passed the ITC. But even if they hadn’t, it wouldn’t have been the end of solar. Costs continue to come down. The economics continue to work.
And not even ham-fisted, anti-solar policies in Nevada will kill solar. That’s good, because I think it foreshadows solar policies to come. Net-metering has helped launch the solar industry, but as renewables have become cost-competitive, the need for the subsidies diminishes. At the same time, the grid issues of moving more renewables around is very real and growing.
There will be evolving ways to address this, but in the midst of it, solar, including roof-top solar, will continue to grow.
7. And storage will, too.
We will see storage, especially combined with solar, making its way into more homes. Residential applications are just a tiny segment of storage. The biggest activity is at the grid level, or at the commercial level to address time-of-use or peak demand issues. But there will be increasing demand on the residential side, and some intersections with not just solar and efficiency, but also with transportation.
Storage will be part of the solutions for the duck curve issue, as we integrate renewable generation with legacy generation over the course of the day.
BTW, batteries dominate the storage conversation right now and will, but I expect a renewed interest in thermal storage options in 2016, too. We’ll make hot water or ice (or cold liquid) during times when generation is cheap and plentiful, and use that stored capacity during peak demand times. Tesla gets a lot of deserved attention with the Powerwall, but Ice Energy’s Ice Bear is already on the streets in commercial applications–and I expect we’ll see good residential solutions coming down the pike.
8. EV market penetration will increase, even with low oil (and gas) prices.
As mentioned above, I don’t think electric vehicles are going away–just the opposite. Their presence will be somewhere near the intersection of renewables, behind-the-meter-storage, peak demand and the “duck curve” issues, all overlaid with efficiency. Yes, home energy-efficiency is connected to the BMW i3.
9. Speaking of storage, maybe we’re already seeing hints that there is something to this intersection between efficiency and renewables and passive survivability and resilience.
I expected we’d see more movement toward efficiency and renewables being part of making homes more resilient in cases of disaster last year. It didn’t happen in a big way, but some crystals are starting to form. For example, in my home state of Vermont, Green Mountain Power has begun selling batteries to its residential customers. Yes, this is in part as a demand response experiment from a very forward thinking utility. But it is also being touted for back-up power in times when the grid goes down. Bam! A foray into resilience not be a wild-eyed survivalist, but by an investor-owned utility!
10. PACE Booms in CA
It took a few years for residential PACE loans to cross the $1 Billion mark in total loan volume a couple months ago. I think they’ll do more than $2 Billion in 2016. This gets even more likely if bona fide residential PACE programs launch in at least a few more states in 2016. This is a huge boon to the industry, and can be a bigger driver than utility programs. This is definitely something you want to pay attention to (and maybe advocate for—not just so I can claim I was right in my prediction this time next year).
11. But PACE will also create some bumps at the time of sale.
As the loan volume and the total number of homes with PACE liens on them increase, we’re going to see an impact on real estate transactions. The industry doesn’t fully understand PACE loans, and it’s certain that consumer and real estate professionals haven’t fully grasped the implications. What this means is homebuyers are going to start seeing the assessments—the payments—when they’re looking at homes and not quite know what to make of it unless than an increased monthly payment. This will create some fear and uncertainty, and we’ll hear some stories about PACE loans slowing down sales, increasing the time a home is on the market. We saw similar issues with rooftop solar in the early days, and we can expect this, and if we’re smart, prepare communication and mitigation strategies around it.
12. Pay for Performance
In California, PG&E is set to launch “pay for performance” which could move us away from expensive, ineffective and silly program-dictated modeling which doesn’t often predict savings well, and which historically has given energy savings estimates much higher than actual realized savings. In this model, aggregators would receive incentive based on the metered (and adjusted) savings on a portfolio of homes. (And possible the biggest potential aggregators? Those PACE providers–see above!)
In principle, this is a very exciting approach. But the details matter. And just as with other home improvement programs, I expect we’ll see a variety of requirements that get layered on, both out of the gates and then increasingly over time. And those aggregators? They’re not doing this for free, drawing down on some big endowment. They’ll want a (big) slice of the pie. Admin costs, M&V costs, and middle-man profits will create an equation that no one fully understands yet. Indeed, one of the premises is that the market will figure this out. And I’m sure it will.
I predict, though, this won’t be a panacea for the small home performance contractor who hasn’t figured out how to run his business profitably. The overhead and communication hurdles will be just as high, and the trust levels potentially lower, than under traditional utility programs. Instead, however, the smart contractor who understands her business will find ways to leverage this. See #2 above.
13. Passive House completions will double.
We can certainly argue about whether the Passive House standard is the best starting part or whether different design approaches can make trade-offs to achieve similar goals. Perhaps designs optimized for net-zero energy use, or net energy producing homes, or some other consideration might make more sense from time to time. But certainly there is good thinking, good design, and good detailing happening in the Passive House world. PH is also capturing some imagination and redefining expectations. And I’m looking for PH completions to double in 2016.
14. Connected thermostats will change the conversation.
As mentioned yesterday, growth in the smart thermostat arena has been huge, led by Nest and Ecobee, and it’s only going to get bigger, faster. This will allow additional sensors and connections that will allow better pictures into people’s homes. Some will be for the homeowners’ benefit. And that data? Count on Google figuring out how to use the data to get advertising in front of you.
And count on more utilities recognizing that a smart thermostat program that costs a few hundred dollars per home and yields more than 10% space-conditioning savings per home is a lot easier and cost-effective than some of the Home Performance programs which cost several thousand dollars per home for similar level results.
15. What about the CPP?
I do expect policy level wrangling about the Clean Power Plan in 2016. The bulk of the action is going to be at the state level. And you’d be wise to find a seat at the table (through a trade association like Efficiency First). I don’t expect this to begin impacting contracting businesses in 2016 in a big way, but what happens in 2016 will start charting the course for outyears.
16. And COP21?
As for the climate agreement? Ditto. It’s going to take time for the high-level agreements to turn into street level policies. And little of substance will happen during the 2016 election year.
On a positive note, 2016 will be the year we turn the corner and leave the climate change deniers behind.
Bonus Prediction. I will have a conversation with Bruce Manclark that will help me look at the industry from a new perspective.
That’s an easy one, because it happens all the time.
You can have conversations like that, too, especially if you hit the National ACI Home Performance Conference in Austin in April. That conference is a great way to learn more about any of the above, and a lot that I haven’t covered. See you there?
What did I miss? What do you see as important looming changes, trends, and even more of the same old same old in 2016?