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Would Energy Efficiency Improvements Increase If You Didn’t Have To Wait Years For Payoff?

To better insulate your house will cost a lot of money up front, which you’ll slowly make back in savings over the next bunch of winters. That’s not a great enticement. But what if it was all savings and no cost? That’s what Effortless Energy hopes to offer homeowners.

Would Energy Efficiency Improvements Increase If You Didn’t Have To Wait Years For Payoff?
Abstract via Shutterstock

It’s easy to make the case for energy efficiency: as we all know, it pays for itself. But someone has to pay. McKinsey estimates the U.S. economy could save $1.2 trillion by 2020 by investing in efficiency. But, to achieve that, you need an upfront $520 billion.

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As such, you can see why more people don’t invest in home energy improvements, despite the benefits. To extract savings, homeowners need to dip into their own pockets. Or they need to approach a bank, fill out endless paperwork, and show how savings will stack up (not an easy thing to do). And, they have all the risk. Someone may say loft insulation pays for itself–but it’s you who has to fork up the cash to find out.

Effortless Energy, a startup based in Chicago, is trying to change the way we finance efficiency. Instead of asking for upfront payments, it pays for your improvements, then sells the loan to investors. All you need to do is sign up for an energy audit, which estimates the cost of the work. Effortless arranges for contractors to come by. And then you get an additional fee on your bill. Crucially, the overall amount–the investment plus energy costs–will still be less than what you were paying previously.

Effortless says someone currently paying $200 in monthly energy costs could cut their bill in half, with about 80% of the savings going to investors and the company, and 20% going to the owner. That’s $20 a month for not doing very much.

“Nobody wants to make an investment that only starts producing returns in six years,” says co-founder Claire Tramm, who previously worked on efficiency issues at McKinsey. “Most people don’t make calculations in their head like businesses do, and it’s likely they value other uses for their funds before energy efficiency.”

Before generating greater energy efficiency, Tramm says we need to look at roadblocks that currently turn off investment. “You have to start with that last step that people get caught up on, because otherwise you haven’t changed the underlying value proposition.”

Effortless’s product is called a Home Energy Efficiency Services Agreement (HESA), and it’s similar to a solar lease, where someone else pays for the panels (initially). The model has been crucial for the solar sector, and Tramm says that HESAs could help vitalize the efficiency market, as well.

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Tramm, and her partner Matt Gee, are currently signing up customers in the Chicago area (they have about 40 so far), before they reach out further to investors, and expand to other states. They hope that more states will adopt “on bill repayment,” where homeowners repay improvement costs as a part of their bill. Currently, California and New York allow it, while Illinois, Texas, and North Carolina are considering it. In states that don’t allow it, Tramm and Gee hope to use different arrangements.

Though it’s early days, the founders believe they can pay investors between 7% to 8% on their money over a six year period. If so, that could do a lot to encourage more activity. Though Effortless doesn’t give homeowners the full dividend from home efficiency–you need to do it yourself to get that–it does ensure that work gets done. For several reasons–jobs, energy saving, the environment–that’s a good thing.

About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.

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