The operative concept behind the recently released Recovery Through Retrofit Report, which GBA discussed briefly last week, is that stimulus-funded energy efficiency initiatives focused on home weatherization should become self-sustaining.

The report, which the White House released on October 19, identifies three barriers to the formation of a national retrofit market and three strategies for overcoming those barriers. The document does not, however, advocate spending more money than the approximately $80 billion that has already been approved for energy efficiency and environmental-improvement programs through the American Recovery and Reinvestment Act. Rather, it identifies ways that existing programs might be improved and augmented to perpetuate the retrofit market.

For the most part, the Retrofit Report draws on ideas that are already being successfully implemented in various parts of the country – ideas that are viewed by the White House Council on Environmental Quality (CEQ), which led the way in writing the report, as prime candidates for standardization and nationwide deployment.

The three barriers:

1. Poor consumer access to straightforward and reliable information on home energy retrofits;

2. Inadequate access to retrofit financing; and

3. Too few skilled workers and green entrepreneurs to expand weatherization and efficiency retrofit programs on a national scale.

Energy Star’s expanded role

The Retrofit Report response to the first problem is to develop a national energy efficiency performance standard for existing homes akin to the Environmental Protection Agency’s Energy Star program, which rates new homes and appliances. (The Energy Star system for new homes has been criticized as insufficiently stringent by contemporary standards, and the Environmental Protection Agency is in fact developing new guidelines, collectively known as the 2011 Specification, that are designed to take a more assertive approach to new-home performance.)

The Retrofit Report team, led by Vice President Joe Biden’s Middle Class Task Force and the CEQ, proposes developing this new Energy Star program “in partnership with industry leaders, realtors, and efficiency advocates to promote widespread adoption,” and then marketing the program widely. The EPA, the Department of Energy, the Department of Housing and Urban Development, and other agencies already are developing prospective performance measures and measurement tools.

Taming financing problems

That leads us to the report’s solution to barrier number 2: make it easier for homeowners to identify and access financing tools for energy efficiency retrofits. Currently, there are a variety of financing options out there, but the programs vary from state to state, with some better publicized than others. The DOE Energy Efficiency & Renewable Energy agency’s State Energy Program, through its stimulus-fund grant process, encourages states to develop financing systems, including revolving loan funds, that homeowners can use to make energy efficiency upgrades.

And a number of municipalities have introduced financing packages for energy retrofits that allow homeowners to add the amortized cost of the project to their property tax bill, which guarantees that the loan payments stay with the house rather than with the homeowner should the house be sold. The money for these loans often is raised through Property Assessed Clean Energy (PACE) bond issues. Homeowners tend to favor PACE-funded loans not only because they reduce worry about the prospect of recovering a retrofit investment upon sale of the house, but also because loan transaction costs tend to be lower and the application process simpler.

Many PACE-funded loans, however, have been given “super-priority lien” status, meaning they take priority over whatever private financing a homeowner may have, including a conventional mortgage. The Retrofit Report says that federal agencies will address issues of risk and other concerns with PACE programs with a new set of principals – developed in concert with state and local governments – that will standardize “underwriting criteria and safeguards to protect consumers and minimize financial risks to homeowners and mortgage lenders.” So far under the State Energy Program, the DOE has received approximately $80 million of applications for PACE-type programs, out of about $3.1 billion in available funding, the report says.

Giving EEMs more juice

Once energy performance standards for retrofits are in place, the report says, the Federal Housing Administration will link them to its redesigned Energy Efficient Mortgage products, which offer prospective homeowners who are applying for an FHA loan an additional $4,000 (or 5% of the loan amount, up to $8,000) for energy efficiency upgrades.

The Energy Efficient Mortgage program, meanwhile, also is getting a makeover designed to “expand and increase the effectiveness” of its mortgages. Four improvements are in the offing: development of the aforementioned home energy performance standard; a streamlined home energy audit and rating process; development of Energy Efficient Mortgage products that can be offered by Fannie Mae and Freddie Mac; and development, in collaboration with the home appraisal industry, of an appraisal process that will accurately reflect improvements in energy efficiency attained through a retrofit.

Expanding revolving loan funds

Revolving loan funds created from stimulus funds are now offered in 16 states. The Retrofit Report says the government will encourage their development in the remaining 34 states, and, to make the loans less expensive (the loans are paid off through energy savings attained through retrofits), the loans will come with a few conforming requirements: loan length (up to 15 years); use of Energy Star-approved products; installations completed according to common procedures; and standardized procedures for measuring both the performance of the loans and the energy performance of the retrofitted homes.

Expanding and enhancing the retrofit workforce

In response to the third barrier identified in the report – training and mobilizing more workers for energy retrofit jobs – the CEQ team says the government is once again aiming for consistency, but also for improved training of both workers and retrofit-business managers.

The priorities in this area: advance a nationally recognized worker certification standard; promote a nationally recognized accreditation standard for trainers; develop model training programs that can be replicated widely and that provide aspiring workers a clear path to advancement and job opportunities; and provide business development support and management training to boost the success rate among retrofit firms.

One more challenge: maintaining momentum

The government’s experience with the stimulus-funded expansion of the Weatherization Assistance Program may foreshadow, in a general way, what is in store for the implementation of the retrofit initiatives. Bureaucratic complexities and concerns about preventing fraud meant the expanded WAP would roll out more slowly than people had hoped. But it is finally underway. Making home energy retrofits a long-lasting, stable, national industry – well, it could take a while, especially given the challenges inherent in establishing standards for training, finance, and home retrofit performance.

But we have to start somewhere.