The Impact of (and Problems with) Incentives and Loans

by Suzanne Shelton, The Shelton Group

Excerpted from Shelton Group’s tenth annual Energy Pulse study fielded nationally in August 2014. The sample base of 2,000 Americans is stratified to mirror the U.S. population and has a margin of error of +/– 2%. Excerpted from Shelton Group’s tenth annual Energy Pulse study fielded nationally in August 2014. The sample base of 2,000 Americans is stratified to mirror the U.S. population and has a margin of error of +/– 2%.

Ask Americans why they don’t do more to make their homes energy efficient, and every year the answer is “It’s too expensive.” Yet we know that most utilities in the United States offer rebates to directly address this barrier. The Edison Electric Institute reports that electric utilities spent $5.9 billion in customer-funded energy efficiency programs in 2012, 82% of which was poured into rebates for energy-efficient product/equipment purchases, and 18% was for demand response incentives for programs like direct load control or price response. Utilities spent $7 billion on such programs in 2013.1

The Shelton Group’s most recent Energy Pulse study examined Americans’ attitudes and behaviors related to energy and the environment. The results demonstrate that 64% of Americans now think it is important that their electric or natural gas utility offer incentive programs, up from 50% in 2011. However, the results show that consumers may not be aware of, choose to participate in, or see the value of existing rebate programs.

Overall, only 31% of respondents who indicated that they had made an energy-efficient home improvement/purchase said they received a rebate or financial incentive. The survey also found that fewer than 44% of respondents had checked for available rebates or incentives before making their decision. Of those, only 59% received a rebate. Only 8% of those who hadn’t checked said they received a rebate.

Furthermore, fewer than one-quarter of respondents said that the availability of rebates and/or incentives did or would have a great impact on their home improvement purchase decisions—comparable with last year’s Utility Pulse results. Even more troubling, the percentage saying these incentives would have no impact, or had no impact, increased significantly, from 18% to 26%. This fact seems to indicate a problem with current incentives. Even when made aware of their availability, many people aren’t impressed. It seems that the available incentives are either not structured properly and/or they’re not perceived as significant enough to be worth the trouble.

The most successful incentives were utility rebates, followed closely by federal tax incentives and rebates. Twenty-six percent of respondents said they received a store rebate or discount. Low- or zero-interest financing was the least commonly used.

Another sign that rebates are not making the right impression is that no significant difference in average electric utility satisfaction scores were found between those who participated in utility rebates/incentives and those who did not. Average satisfaction for those who have taken advantage of a utility incentive is 3.5, compared with 3.6 for those who have not.

Why Customers Do Not Participate in Incentive Programs
The survey asked participants to tell us why they think “people” don’t take advantage of available incentives. This year we saw an increase in the number of respondents saying that “people don’t know” about the rebates, up six percentage points since 2013. Another 40% said rebates were not being used because “You have to pay for the improvement out of pocket before you get reimbursed with a rebate.”

Several new items were added to the list of possible reasons why people do not take advantage of utility-offered rebates. One new reason made it into the top tier of responses: 29% said the rebates weren’t large enough to be worth the trouble.

Other new reasons that fell into the second tier of responses include “Rebates are usually only available for the most expensive models” (25%); “People often rely upon contractors to do the work, and they don’t mention the incentives” (22%); and “The models that qualify for rebates are often not carried by retailers or contractors” (13%).

Despite the insistence of respondents that incentive awareness is a problem, when given a list of possible programs, only 29% did not know whether their utility offered any of them. Yet fewer respondents were aware of various programs this year than in last year’s Utility Pulse study. What they were most sure about was that their utility was “providing information on products and habits to improve my home’s efficiency and/or reduce my energy bill” (41%). Far fewer (20%) said they knew that their utility offered rebates, incentives, or loans for energy efficiency purchases.

These responses highlight three primary problem areas that utility energy efficiency programs need to address.

  1. Low awareness of the existence of the programs: Though an overarching campaign to raise awareness that rebates are available is good, utilities also need consistent retail advertising and direct marketing activity to drive participation in each program. In addition, information on websites is often buried and usually organized by program structure rather than consumer logic/user experience. And contractors, who often do the work and strongly influence equipment selection decisions, frequently do not know or do not tell homeowners about rebates.
  2. Structure: Most programs make consumers pay the full price of the product/improvement out of pocket, then make them wait for the rebate. This creates a financial barrier for those who cannot afford the higher up-front cost for the more-efficient unit.
  3. Perceived value: Rebates are not substantial enough to either make the cost affordable and/or seem worth the trouble.

Incentives with the Most Consumer Interest
What kind of incentives would help spark more action? When asked to rank in order the financial incentives that would encourage energy efficiency product purchases or home improvements, instant rebates continue to be preferred. However, this preference fell 10 percentage points since last year’s Utility Pulse study.

In addition, we found that consumers prefer other types of rebates or financial incentives to taking out a loan. A new rent-to-own option also tested well: “A program that allows you to rent a new energy-efficient unit, with payments going toward purchasing the unit” was chosen by 17% as the best incentive. Yet, when asked directly if a low-interest loan would make them more likely to make energy-efficient home improvements, almost half say it would.

Where Consumers Get Their Information
We saw an increase in the number of people who said they would get information about the availability of incentives from home improvement stores such as Lowe’s or Home Depot, while fewer people said they would get information from their utility’s website. However, the majority (55%) indicated they rely on their utility for rebate or incentive information.

We added five new sources of information to this year’s list. Almost a quarter of respondents (24%) said they would do an online search through Google, Yahoo, or other popular site. Another 18% would turn to the product manufacturer. Less than 10% would seek out information from a home inspector (9%) or blogs/social media (8%). State energy efficiency utilities were popular in states that offered them. Over one-third (34%) of Vermont residents said they would seek information from a state energy efficiency utility, as did 15% of California residents.

Other Barriers to Incentive Uptake
In addition to better communication about incentives, we need to revamp them. Poor uptake even among customers aware of incentives brings us to the conclusion that most energy efficiency programs today are poorly structured, are insufficiently advertised or supported, and have low perceived value.

In our opinion, common program evaluation standards and practices can hinder opportunities to effect real change. At times, controls put in place to prevent free-ridership make it more difficult for customers to use the incentive. If more incentives were designed as instant rebates, we believe purchases of the more efficient units would significantly increase.

Other options for improving customer awareness of and access to incentives could include:

  • Placing an instant rebate sticker on more expensive LED lightbulbs
  • Offering instant rebates for the most efficient Energy Star appliances, instead of cumbersome mail-in rebate forms
  • Allowing DIY improvements to qualify for incentives, such as offering instant rebates on caulk, weather-stripping, or insulation,
  • Running rebate pop-up ads alongside the Angie’s List or Craigslist search window for contractors
  • Having contractors automatically give rebates to customers and setting up a straightforward system for utilities to reimburse contractors

If these improvements were implemented, many more people would likely participate in incentive programs and improve the energy efficiency of their homes.

New loan and residential ESCO models and new “rent to own” options are needed so that savings-strapped, credit-challenged Americans have better access to energy-efficient products. Outreach must be ongoing to keep people who have undertaken one improvement on the path to their second, third, and fourth.

It is also time to incorporate time-of-use billing as a way of doing business, not as a choice. Consumers will not engage until they see the immediate financial impact of their actions more directly.
Finally, we need to make energy efficiency mandatory and incorporate more “sticks.”

We need upgraded building and remodeling codes for new construction, and mandatory compliance with higher standards triggered by renovation permits.

1 Cooper, A., & Wood, L. (2014, March). Summary of electric utility customer-funded energy/efficiency savings expenditures and budgets. Edison Institute for Electric Innovation.

Shelton Group is the nation’s leading marketing communications firm entirely focused in the energy and environment space. We poll Americans on a regular basis to better understand attitudes and behaviors related to energy and the environment. The insights gained help some of America’s largest utilities, building products manufacturers, and consumer goods makers package and leverage their energy efficiency and environmental offerings to gain a market advantage. For the free executive summary of the Energy Pulse report, visit