At the ACI Regional Conference this week in Sacramento, there was a session on “pay-for-performance” and some discussion about it in the halls and trade show floor. This has the potential to focus programs more on real savings, and perhaps less on mechanisms that don’t work well in the market. It could raise the value of efficiency and unlock access to secondary markets with resources that dwarf current efficiency program spending. I think it’s a potentially exciting new direction taking root in California and being explored in New York. I’m certain we’ll take the discussion more deeply into elements of this over the next year.
But I’d like to focus on some of the contractor comments I overhead. Many seem worried that the incentives won’t be as generous (I’d argue “ridiculously generous”) as current rebates in the Energy Upgrade program, and it will hurt their businesses.
I suggest their fears and focus are misplaced. One can do the math. The current incentive levels cannot be sustained. They’re too rich to scale, and we need scale. For those whose businesses are built on the need for $3,000 or $6,500 or $12,000 incentives to sell projects to homeowners, trouble is ahead in any event.
Other contractors think pay-for-performance approaches will save their businesses. I suggest their fears and focus are misplaced, too.
There is no doubt that incentives help juice the market. But those who will thrive are those who figure out how to build value for customers. Unless energy costs skyrocket, his value will be most frequently outside of the energy/efficiency realm. Comfort. Health. Safety. Fixing home durability issues. These are the benefits that most people will continue to pay for. Contractors who learn how to market and sell from this perspective will continue to have a huge leg up.
Contractors who know how to plan, track, and improve labor productivity, manage inventory and material costs, deliver outstanding customer service, and all the other elements of a successful business, will do well.
Those contractors who can’t run their businesses well, won’t do well. And they won’t fix a lot of homes (unless they have big trust funds to draw down on).
So bring on pay-for-performance. I’m a big fan of smart policy and well-executed programs.
Regardless, contractors, if you want to do well with this, you’ll have to figure out how to make your business work. You can’t rely on programs to do it for you.