An Opportunity to Make Home Retrofits More Affordable
State energy offices can stack Inflation Reduction Act incentives to maximize home energy upgrades and savings.
The Inflation Reduction Act — the largest US investment in the clean energy economy in history — is designed to get money directly to American households that need home energy upgrades. There are numerous grants, financing, and direct incentive funds that will help families make their homes more energy-efficient, affordable, and healthy. And thanks to months of hard work by federal agencies to stand up a new incentive program framework, the time has arrived for state energy offices to take the baton and enact transformational change. But we’re just at the starting line.
These next steps are critical to ensure households and contractors can easily access and navigate the billions of dollars available for home upgrades. Intentional program design that provides households access to incentives for every part of a whole-home retrofit will be fundamental to success. Whole-home retrofits include health and safety repairs, energy efficiency upgrades, all-electric appliances, and renewable energy installations like rooftop solar. To ensure households are leveraging every dollar available to reduce upfront and total costs, states must design their programs to be easy for residents to stack incentives.
The latest guidance on stacking federal incentives
Stacking incentives means cashing in on multiple incentives for one home upgrade to minimize upfront costs. For example, a household could potentially stack the energy efficient home improvement tax credit, home efficiency and appliance rebate, and a utility rebate to minimize the cost of a new air source heat pump.
Since the passage of the IRA, the federal government has consistently published guidance informing the country how various incentives stack. In most situations, incentives can be combined for upgrades within the same home; however, the federal government has outlined various restrictions. The chart below links to some of the latest stacking guidance for major federal programs.
The complicated reality of stacking incentives
State energy offices will be the lynchpin to effective incentive deployment because they are the primary recipients of a key IRA funding source: $8.8 billion in national efficiency and electric appliance rebates. With thoughtful implementation and intentional collaboration, State energy offices, in collaboration with other program administrators, can ensure incentives across that state stack easily to facilitate incentive uptake.
Given the existing guidance, states can start to picture how to stack incentives in their state. Below is a step-by-step example for a middle-income household stacking federal incentives for a solar PV system and cold climate air source heat pump.
In addition to the federal incentives, households may be eligible for utility or state incentives that could further reduce the cost of these upgrades. Navigating numerous applications, program requirements, and contractor lists is highly complicated and ultimately means people may pay more for home upgrades if they can’t successfully navigate the system. As states implement the funding from the IRA, they should be aware of the following barriers and consider solutions to addressing them:
- Lack of Stacking Guidance: There is little public guidance for residents or contractors to understand how and in what order incentives stack. States should develop guidance where lacking, remove any statutory barriers, and educate residents and contractors. For example, California’s Switch Is On webpage provides public information for contractors and residents on incentive stacking. The City of Denver's Combining Rebates webpage is also dedicated to helping residents understand how to stack incentives.
- Inconsistent Requirements: Program requirements, such as appliance performance standards, qualified contractors, and income eligibility, all generally vary depending on the program, making it difficult for households to stack incentives. States should collaborate with other program administrators, like utilities or weatherization departments, to standardize eligibility across programs.
- Too Many Applications: For a whole-home retrofit, households may need to apply to over a dozen programs. This is confusing, complicated, and, in practice, impractical. Where possible, states should remove friction by combining applications. This way, residents can access multiple incentives through one process. For example, Colorado's Peak webpage allows residents to fill in one application and access energy, transit, food, and healthcare programs. Philadelphia's Built to Last program provides a local-level example of programs consolidating funds for home upgrade incentives.
States can fill the gaps to fund whole-home retrofits
In addition to addressing stacking barriers, states can also fill the funding gaps in the home upgrades that the IRA doesn’t completely cover with existing and flexible funding sources. Key measures that additional funding can support alongside the IRA are:
- Health and Safety Repairs: Services include toxic chemical removal, roof repair, wiring repair, indoor ventilation improvements, etc. Typically, however, health and safety programs don’t successfully interact with energy retrofit programs to deliver whole-home retrofits. Generally, only low-income residents who enroll in efficiency and weatherization programs, like the Weatherization Assistance Program, can access health and safety repairs alongside other energy upgrades, and even those programs do not guarantee funding.
- Cold Climate Heat Pumps: With federal incentives, air source heat pumps can have lower upfront costs than a furnace. For households that require cold climate technology, additional incentives will be beneficial to drive the upfront cost even lower and be more competitive with fossil fuel alternatives. Since heat pumps serve as both heating and cooling, they are generally more affordable than a furnace and A/C installation.
- Electrical Upgrades: Federal tax credits and rebates provide some financial support to upgrade household electrical systems; however, these incentives are often too little to significantly help residents with their upgrade bills. There are few state- and utility-level incentives for electrical upgrades.
States should consider paying for these incentives with funds such as the Climate Pollution Reduction Grant, Greenhouse Gas Reduction Fund, Revolving Loan Fund, and utility incentives. These gaps can also drive priorities for future state budget and climate legislation.
The Inflation Reduction Act is a key opportunity to reevaluate how residents access incentives. With proactive effort, states can design incentive programs that deliver whole-home retrofits to those most in need. Efforts to ease incentive stacking will make a system that works for both contractors and households. For a deeper dive on stacking incentives, see RMI’s national stacking report here.