For decades, energy efficiency incentive programs have helped reduce utility bills, cut waste, and clean up the environment. States and utilities spend about $9 billion annually on these programs, but only 0.5% to 3% of US households take advantage of them. Why? The programs are overly complex. Consumers face confusing options, perplexing eligibility requirements, and lengthy applications, while contractors struggle with inconsistent rules, burdensome paperwork, and slow rebate processing.

Some program requirements are necessary to meet specific goals and protect consumers, but excessive complexity often deters participation — especially for low-to-moderate income (LMI) households. These families, who are most in need of energy efficiency improvements, are only one-third as likely to receive incentives as their moderate-income counterparts.

We can do better. We envision streamlined energy efficiency programs that:

• are easy to understand and apply for
• provide up-front discounts that can be stacked with other incentives
• ensure access to qualified contractors ready to deliver services.

This report presents best practices for program administrators, utility regulators, policymakers, and advocates to make energy efficiency programs more simple, market-friendly, durable, and equitable. These recommendations primarily focus on driving heat pump adoption for heating and hot water, as electrification of these appliances plays an increasingly large role in cutting energy waste, reducing pollution, and meeting state and local climate targets. We gathered insights nationally from program administrators, contractors, manufacturers, and RMI program design experts.

Each best practice includes an indicator on whether it can be scaled up in the short term by a program administrator, often without regulatory or legislative action, or whether medium- or long-term engagement is required along with potential regulatory action. Additionally, we estimate the relative impact of each best practice for a typical program.

Exhibit 1

Exhibit 2

The following best practices are organized by their desired outcome: making programs simpler, making programs work better for the market they serve, making programs durable, and making programs equitable. Often, the best practices drive progress toward more than one of these outcomes. Not all incentive programs should be designed the same — programs must also be tailored to meet the unique needs of their regions.

The best incentive programs are easily accessible for both customers and contractors. A customer should be able to quickly understand incentive offerings and their eligibility and contractors should not face extensive administrative burden to participate.

Keep incentive structures simple

Incentives are often designed with multiple priorities in mind, including quality, comfort, and longevity in a heat pump installation. Complex incentive structures often result, leading to confusion around the amount of money a project is eligible for and complications with applications and reporting. Incentive structures should be simplified so that they are easy to understand.

Program administrators must decide what incentive requirements to place on the size, efficiency, and specific climate-related considerations of equipment; simplicity should be an objective for each. Regarding size requirements, heat pumps should be large enough to meet heating and cooling needs but not oversized. Two structures are preferrable to prioritize these size requirements while maintaining simplicity:

• Incentives based on $/unit are easier for customers to understand relative to incentives expressed in $/BTUh, and they don’t encourage oversizing for space heating equipment. This structure is preferable for downstream programs that require customers to interact with incentives directly.
• Incentives based on $/BTUh better align with the exact heating and cooling needs a heat pump is designed for but may confuse customers who aren’t familiar with HVAC sizing and can lead to oversized units in order to get a bigger incentive.
  • Adding an incentive cap can lessen the risk of oversizing, and requiring a verified Manual J and Manual S calculation can ensure systems are properly sized.[1]

Exhibit 3

Program administrators should also consider the efficiency of equipment and the heating and cooling climate of their market when creating incentive structures. These topics are discussed further in the Make Programs Work for the Market section.

Align equipment performance specifications

Equipment performance specifications can vary greatly between states and often vary within states. Inconsistent specifications lead to confusion and inefficiency for manufacturers, distributors, and contractors. Programs should aim to make equipment specifications consistent within their state and region. Particularly for midstream programs, consistent regional equipment specifications provide a clear market signal to distributors on what equipment should be made available to contractors and customers.

• Programs should align equipment specifications to requirements for federal rebates and/or tax credits.
  • IRA appliance rebates require ENERGY STAR certification. The enhanced federal tax credit for home efficiency (25C) requires the highest tier established by the Consortium for Energy Efficiency (CEE) (not including the CEE Advanced Tier) for air-source heat pumps (ASHPs) and ENERGY STAR for heat pump water heaters.
  • Starting in 2025, the requirements for CEE and ENERGY STAR are aligned for centrally packaged heat pump systems for space heating. Programs may simplify equipment performance specifications by requiring CEE or ENERGY STAR certified equipment.
  • Public utility commissions and state energy offices can help by facilitating collaboration across programs and agencies within states.
• In regions where cold-climate heat pumps should be encouraged, ENERGY STAR’s cold climate designation and NEEP’s cold-climate heat pump product list are appropriate references. The Air Conditioning, Heating, and Refrigeration Institute’s Directory of Certified Product Performance is a helpful resource for filtering heat pump products and their eligibility for CEE, ENERGY STAR, and federal tax credit eligibility.
• Programs should aim to align specifications with other states in their climate region.
  • States that have a single standard for eligible equipment statewide (as should be encouraged) include Maine, Massachusetts, and New York; however, each of these states uses different criteria.
  • Programs can align across states with intentional administrator collaboration when designing equipment performance specifications.

Simplify income eligibility verification

Programs often have multiple layers of eligibility, including customer eligibility (based on location), income eligibility (for income-based incentives), and project eligibility (based on equipment, sizing, building type, or other requirements). Lengthy eligibility verification processes and other reporting requirements add time and costs that disincentivize contractors and customers from participating in programs. The most successful programs are ones that are nearly “invisible” to a consumer and do not interfere with the sales and business relationship between the participant and contractor. The requirements and process to determine eligibility should be kept as simple as possible, be flexible and accessible, and minimize the role for contractors to verify customer eligibility.

Program administrators and states should aim to streamline requirements across multiple programs and devise multiple means for automatic verification. For example, automatic verification could include customer self-verification or technology that utilizes geo-locating, or cross-coordinating with similar federal programs like the Weatherization Assistance Program. For incentives based on income eligibility, customers should be able to qualify based on a variety of sources of eligibility (e.g., proof of income, participation in other services, location-based eligibility). For example, the American Council for an Energy Efficient Economy (ACEEE) suggests utilities should allow people enrolled in federal programs, such as the Supplemental Nutrition Assistance Program (SNAP), to automatically enroll in their energy efficiency programs. Geographic eligibility can help ensure low-income communities are able to enroll seamlessly. Engaging with community members and organizations can help to develop a process that best reduces accessibility barriers.

Offer universal applications and develop comprehensive program offerings

When households can cash in on multiple incentives for one retrofit project (i.e., “stacking”), they will pay less for home upgrades. However, first households need efficient and easy access to incentive programs to maximize uptake. There are significant barriers to supporting incentive stacking for retrofits. Understanding and accessing incentives is complex and often requires multiple applications with varying requirements, which can discourage consumer and contractor participation. Additionally, there are gaps in existing incentives that leave residents, and particularly underserved LMI residents, without enough financial support to retrofit their homes. Programs must ensure residents have both the knowledge and technical assistance needed to navigate the various incentives and requirements easily.

There are many levers for programs to support stacking and comprehensive program offerings. Consolidating consumer resources and technical support (see below) on available incentives can provide:

• critical education on available incentives and how they stack,
• clarity on equipment performance specifications and what standard will allow a project to be eligible for all relevant incentives,
• information on other funding sources customers might be eligible for.

Consolidating basic customer and project data into one universal application will also reduce the need for customers to submit extra paperwork to maximize their incentives for a given upgrade. Lastly, for customers accessing multiple programs, income and eligibility verification should only be required once.

Technical support should include, but not limited to:

• Education on what household upgrades they may need
• Education on the economic and health impacts of home upgrade measures
• Support identifying eligible funds
• Help with filing applications
• Support identifying trusted contractors
• Consolidating applications where possible

More details can be found at RMI’s Incentive Stacking Resources for Clean Buildings Hub. Specific recommendations here are largely drawn from RMI’s Gaps and Barriers to Stacking Federal, State, and Local Incentives report.

Incentive programs should be tailored to the local market for heating and cooling equipment. Contractors need to be motivated to invest time and resources in installing heat pumps, and the incentives and how they are delivered must be more attractive than the business-as-usual approach. Particularly in areas with a relatively novel heat pump market, customers must be confident in the quality of installation and the available financing offerings.

Provide up-front or direct discounts with prompt payments to contractors/distributors

Research has shown that customers are more likely to take advantage of a program if it offers an instant discount, which requires contractors and distributors to foot the bill while they await midstream incentive payments. Most small contractors pay for these products at the counter and rely on prompt reimbursement to balance their budgets as they often do not have the capacity for large accounts receivable. Programs should consider offering midstream incentives that are passed along to customers as an up-front discount to capture greater customer participation.

Programs should prioritize the following to facilitate successful up-front discount programs:

• Contractors should be reimbursed for the discounts promptly — ideally no more than two weeks following project completion. Prompt payments also help contractors grow their business and increase their confidence in the program.
• Program administrators should coordinate outreach to supply chain partners to enroll them in the program.

Provide mid-project or milestone rebate payments

For larger customers and more sophisticated heating applications, up-front rebates may not be feasible nor practical. In these cases, programs should still strive to process and deliver incentive payments promptly, provide certainty on timing of incentive payments to building owners, and consider incremental payments for milestones completed during the life of the project.

To encourage prompt processing times, regulators can establish targets and metrics to track and encourage prompt rebate processing times. Program implementors should consider milestone payments based on baseline savings assumptions, paid out in phased increments as a percentage of the overall incentive.

For measured programs commonly known as pay-for-performance (P4P), incentives are provided after a minimum monitoring period of 9–12 months. These programs can offer greater energy savings over the life of the measure and will likely become an important program type in the future of demand response and virtual power plants.

Improve and expand financing options to support decarbonization

Incentive levels alone are not always high enough to close the cost gap between fossil fuel equipment and efficient electric equipment. Incentives are also often subject to budget availability and are vulnerable to shifting priorities. Financing is a powerful tool to overcome that barrier, but existing financing programs are often too complex and not designed to work for unplanned HVAC and water heater replacements, which make up the vast majority of equipment purchases. In addition, many programs continue to provide financing for fossil fuel measures, failing to adequately encourage heat pump installations. Program administrators can address these challenges by assessing the status of financing offerings in their state and evaluating the options for both reforming it to better support decarbonization and expanding it to reach more customers.

Financing offerings should feature five key elements:

• No up-front costs and competitive terms
• Simple application process with same-day approval
• Encouraging decarbonization-aligned upgrades over fossil fuel
• Offered by the contractor
• Transparency and strong consumer protections

For more detail, see RMI’s report Making Decarbonization Financing Work for Homeowners and Contractors.

Establish heat pump incentive priorities based on climate and region

Heat pump installations will not scale if the technical requirements specific to a given region or climate that lead to a comfortable and healthy home are not met. Heat pump incentive programs should be carefully tailored to the climate needs of the region. Successful heat pump installations for space heating require meeting the heating, cooling, and comfort needs of different geographies, and program administrators should consider these needs when determining what equipment to incentivize. Below are some general sizing best practices by climate. For a more comprehensive understanding, we suggest leveraging CEE’s ASHP Sizing Considerations for Heating and Cooling resource.

• Encourage (but do not require) full-load applications that avoid locking in new fossil systems.
• Given the vast differences found in building envelopes, it is important not to mandate a one-size-fits-all approach such as requiring sizing to heating load for every home or building.
• Support whole home energy audits such as blower door tests and prioritize coupling weatherization measures with heat pump installations.
  • If the building’s envelope is poor and the building is considered “leaky,” programs should pair weatherization measures (in one program and application) with heat pumps. However, this shouldn’t be a requirement for customers to avoid slowing sales.
• Sizing should be determined by contractors and/or aggregators, and the program should consider providing multiple pathways for determining the appropriate size based on the building’s existing shell conditions and duct sizes, etc.
• Provide additional incentives that encourage systems that maximize moisture removal above load and leverage multiple condensers.
• Provide higher incentives for variable speed systems, which are better at regulating humidity.
• If offering incentives for partial-load applications, there should be a requirement for the system to be configured with a heat pump as the primary heat source.
• Incentives for full-load applications and cold climate heat pumps should be higher than partial-load to support conversion away from fossil fuel infrastructure. In some cases, utilities may benefit from fossil fuel backup heating that can be activated to reduce winter peak grid loads.
• Any tiers for incentives should be based on higher efficiency of the unit, not based on the size of the system (which can encourage over-sizing).
• For cold climates with dry summers, size the heat pump for the heating load, encourage full-load applications, and provide higher rebates for variable stage cold climate equipment.
• For cold climates with humid summers, size the heat pump between the heating and cooling load and consider higher incentives for variable speed heat pumps and/or a dedicated dehumidifier. Sizing heat pumps to heating or cooling with a single condenser may not provide sufficient dehumidification.
• For hot climates with dry summers, size the heat pump to the cooling load. Since the heating load is smaller than the cooling load, the heat pump will provide enough year-round comfort without any backup.
• For hot climates with humid summers, size the heat pump to the cooling load and assess the latent heat load and removal capability of the heat pump. Consider higher incentives for variable speed heat pumps and/or a dedicated dehumidifier. Since the heating load is smaller than the cooling load, the heat pump will provide enough year-round comfort without any backup.

Successful incentive programs have longevity. These programs build trust with market actors, allowing individual target customers the chance to learn about and participate in the program when the time is right. As a result, these programs increase total market adoption year over year. This requires careful planning in consultation with market participants and long-term funding. Durable programs can increase heat pump installations through reliable market support and by integrating climate goals into program frameworks. Marketing messages should also be durable, going beyond rebates and building awareness of the benefits and performance of heat pumps.

Incorporate input from market participants on draft program design

Programs are often designed in silos around a set of regulatory objectives that may ultimately be in tension with market realities and inhibit program success. Program administrators should engage market participants early and often to tailor program design to the markets they serve.

Engagement should, at a minimum, include sharing draft program design with manufacturers, contractors, property owners and developers, community groups, and advocates. Incorporating feedback will help avoid pitfalls and ensure that the program is practical and effective. This may seem obvious at first, but our research suggests when this does occur, it tends to be in a waterfall approach, which solicits feedback in silos and limits inclusion of participant perspectives.

Prioritize program stability and long-term funding

A contractor cannot properly invest in the people and training necessary to boost heat pump sales if there is uncertainty around incentive program funding. Short-term programs are less likely to capture customers and create effective heat pump markets. Programs should prioritize stability and long-term funding.

• Program administrators should avoid frequent or abrupt changes to the incentive structure, offering contractors enough time to adjust their business models, invest in marketing, and develop expertise.
• Funding levels should be established for at least three to five years. Long-term program and project pipeline funding is one of the most effective means of attracting and retaining the workforce and third-party financing/lending agencies critical to programs. State legislators can provide consistent funding streams for building electrification programs, particularly whole-building retrofits for underserved communities. The fixed budgets for IRA rebate programs create the risk of a surge and then collapse of incentives, especially in states without similar existing programs.
• Contractors should be able to easily enroll or re-enroll when existing programs transition to new funding cycles.

Provide market development support

The availability of incentives alone will not be enough to drive a full-scale transition to energy efficient heat pumps. Market participants across the supply chain may need support in reaching sectors and building segments that face substantial barriers, such as LMI and underserved communities. Program administrators and states can and should invest in market development initiatives in parallel with incentive programs to ensure that consumers, contractors, distributors, owners, etc. are fully aware of and poised to take advantage of the economic, comfort, health, and environmental benefits of heat pumps.

Support for contractors should be built directly into the programs. Contractors play a key role in programs — expanding the workforce and educating and motivating contractors to install and service heat pumps is a critical strategy for scaling up capacity for electrification in buildings. Successful programs have strong participating contractor networks and provide training and other resources to support installers.

Programs should take advantage of existing industry resources when possible. For instance, they can use training materials and facilities from local contractors, distributors, and manufacturers. This not only taps into valuable expertise but also strengthens ties with industry channels that will remain after the program ends. If local partners can’t provide resources, contractors should have access to essential tools, such as ACCA-approved heating and cooling load calculations, domestic hot water load sizing, and equipment selection for specific conditions (e.g., cold climate heat pumps).

Marketing campaigns and promotions should also focus on building long-term public trust and interest in heat pumps. Outreach and education that is limited to accessing rebate dollars miss an opportunity to educate building owners about why heat pumps are often better performing technology compared to other alternatives. Successful outreach and education also facilitate trust between customers and contractors that a heat pump will be installed effectively. Programs might include a requirement for contractors to demonstrate that they have been trained on the equipment that they are going to be installing.

Adopt a climate-forward efficiency framework

Most states have climate action plans and commitments, which heat pump installations can help meet. However, these state often do not appropriately frame their energy efficiency programs to meet these goals. States and utilities need to align their energy efficiency programs with decarbonization goals. This involves expanding the historic focus on energy savings to include greenhouse gas (GHG) reductions.

States integrating GHG abatement goals into energy efficiency programs often do so through legislation or state decarbonization plans, and state legislatures and utility regulators play a crucial role in facilitating this transition. This includes phasing out gas-fired appliance rebates, incorporating GHG reduction into utility goals, adopting fuel-neutral targets, implementing dual-utility long-term planning, and clarifying GHG considerations in utility regulation. GHG accounting in energy efficiency programs is still emerging, with notable emphasis on beneficial electrification and efficiency measures that provide long-term savings. States and utilities should track GHG reductions and determine an approach to value the avoided emissions in efficiency programs through targets, cost-effectiveness tests, or incentives.

Shifting to a climate-focused efficiency framework requires cross-sector collaboration, supportive policies, and expanding markets for high-efficiency electric technologies. Additionally, having accurate, accessible data is key to designing effective programs and targeting customers who stand to benefit most from decarbonization.

Only 13% of utility energy efficiency funds go to low-income households nationally, and studies suggest that low-income households are one-third as likely to receive incentives compared to moderate-income households. LMI households would greatly benefit from increased access to incentive programs, with the potential to lower monthly bills and improve health and safety.

The following best practices are not exhaustive of all considerations for LMI households. In fact, many of the previous best practices should be considered in the context of prioritizing service for LMI households. For instance, universal applications, simple income eligibility verification, and access to financing are critical for delivering more equitable outcomes of incentive programs.

Consider adding pricing transparency, fair price benchmarking, and pre-negotiated pricing agreements as preferences or requirements across LMI programs to maximize and align incentives.

Engage with community-based organizations

Programs can fail to reach equity goals when an understanding of local contexts is not met. Community-based organizations (CBOs) play a crucial role in the success of energy efficiency programs. Engaging and partnering with CBOs ensures that the programs are tailored to meet the specific needs of underserved communities, particularly LMI households.

CBOs are well-positioned to provide critical insight to program administrators as well as educate and disseminate information on programs as trusted messengers, contributing to successful program delivery. A meaningful engagement with CBOs should include relationship building and active listening, training and informational resources, equitable compensation, and insightful measurement and reporting.

Set LMI-specific budget targets

Programs can commit to serving LMI customers, but without a clear set of metrics to track, might fall short. Programs should track the percent of incentives that flow to LMI customers and disadvantaged communities (DACs), and even better, establish targets for what proportion of funding goes to LMI customers and/or DACs. Consider check in points during the program cycle to access progress toward any targets and adjust program activities and or funding levels accordingly to maximize impact.

One possible approach is to assess the percentage of the housing stock in a state that is occupied by LMI residents and set a corresponding funding target. The Department of Energy (DOE) has required allocations for LMI residents for the Home Energy Rebates program, which it considers to be a floor rather than a ceiling for state program reach. DOE recommends allocating additional funds, aligning with state priorities to drive uptake of heat pumps in households that otherwise would not have access to the technology.

Include pre-electrification measures for LMI customers

Many low-income families live in homes with conditions that contribute to poor health, such as inadequate insulation and inefficient appliances, which expose residents to indoor air pollution, allergens, and mold. To address these issues, services like toxic chemical removal, roof and wiring repairs, and improved ventilation are essential. Additionally, many homes need electric panel upgrades before installing heat pumps. These improvements are crucial for decarbonizing low-income homes and should be included in utility energy efficiency plans. Ideally, funding for these measures should be accessible through universal applications and stacked incentives, as mentioned earlier. Any financing options included in incentive programs should also be made available for these measures.

Centralize all points of contact and merge consumer-facing programs

Stacking incentives helps LMI residents improve insulation, wiring, and appliances, but managing multiple programs can be confusing, time-consuming, and hindered by language barriers. If a state energy office has an LMI assistance program that overlaps with utility energy efficiency programs, they should collaborate to offer a unified program with a single application, one point of contact, and support from both state and utility funding. This approach creates a one-stop-shop for LMI residents, with comprehensive support for their needs. Either the state or utility can manage rebates, while the other assists with workforce development, training, marketing, outreach, and tracking. This integration boosts program awareness and participation.

Incentive programs have enormous potential to drive uptake of energy-efficient and high-performance technologies such as heat pumps. Red tape and overly complex programs threaten to limit potential energy cost savings, health, safety, and climate impacts. Reforming energy efficiency programs to increase heat pump adoption by incorporating best practices ensures higher participation, better outcomes for consumers and contractors, and alignment with decarbonization goals.

RMI would like to thank the following for their contributions to the development of these resources.

• Mark Kresowik, American Council for an Energy-Efficient Economy
• David Chisolm and Joshua Greene, A. O. Smith
• Matt Casale, Building Decarbonization Coalition
• James Momperousse, Carrier
• Matthew Baker and Jonathan Moscatello, Daikin Comfort Technologies
• Michael Stoddard, Efficiency Maine
• Ned Bent, Tomokaszu Hosoi, and Michael Psihoules, Fujitsu General United States
• Chris Bradt, Kevin DeMaster, and James Morgan, LG Electronics USA
• John Rhodes, Long Island Power Authority
• Eric Dubin and Dana Fischer, Mitsubishi
• David Lis and Maggie Molina, Northeast Energy Efficiency Partnership
• Alejandra Mejia Cunningham, National Resources Defense Council
• Shawn Enterline, Camille Kadoch, and Richard Sedano, Regulatory Assistance Project
• Kristin Eberhard and Zach Pierce, Rewiring America
• Scott DeAngelo and Andy Frank, Sealed
• Srinidhi Sampath Kumar, Sierra Club

ACEEE, On-Bill Energy Efficiency | ACEEE

ACEEE, ACEEE’s Leading With Equity Initiative: Key Findings and Next Steps | ACEEE

ACEEE, Toward More Equitable Energy Efficiency Programs for Underserved Households | ACEEE

ACEEE, Low-Income Energy Efficiency Programs | ACEEE

ACEEE, Leading with Equity: Recommendations for State Decision Makers, Utilities, and Regulators to Advance Energy Equity | ACEEE

ACEEE, The Need for Climate-Forward Efficiency: Early Experience and Principles for Evolution | ACEEE

Berkeley GoGreen Report, https://www.law.berkeley.edu/wp-content/uploads/2023/06/Future-of-CA-Consumer-Energy-Finance.pdf

Department of Energy, State and Local Energy Efficiency Action Network, https://www.energy.gov/sites/default/files/2021-07/making-it-count-final-v2.pdf

RMI, Incentive Stacking Resources for Clean Buildings – RMI

[1] A Manual J calculation helps calculate the home’s heating and cooling load. A Manual S calculation guides equipment selection based on those calculations.