Long-Term Trend Up for Energy Efficiency

Mark Franzoso describes himself as being “pumped” when the Home Star, or “Cash for Caulkers,” bill was introduced in Congress last year. After all, the American Recovery and Reinvestment Act (ARRA) of February 2009 helped Franzoso Contracting, in Croton-on-Hudson, N.Y., sell more doors and windows than it had ever sold before.

Home Star, Franzoso figured, would be even better. Fast forward a year, and Home Star is gone, though not forgotten. Having passed by a House vote, the bill — touted as a jobs-creation measure — slowed, stalled, and died in the Senate.

WHERE IT GOES FROM HERE

Home Star may be dead, but that's not the end of home improvement companies' interest in weatherization. Far from abandoning the idea, an increasing number of companies, including Franzoso Contracting, are remaking themselves as “energy contractors.”

Franzoso, for instance, created a separate division within his company called Franzoso Energy Solutions, which offers air sealing and insulation to homeowners as part of a “home performance” package that begins with a home assessment by company employees, two of whom are certified by the Building Performance Institute (BPI).

It's not as if consumers are clamoring for the products and services that energy retrofit companies sell. How a house works remains a mystery to most people. “If you walked down the street and asked 100 people what ‘air sealing' is, you'd be lucky if one of them had any idea,” says Joe Talmon, president of Larmco Windows, a home improvement company in Columbus, Ohio. That said, Larmco now offers air sealing, insulation, radiant barrier, and energy assessments, also through s separate energy division.

Home improvement companies have gravitated toward energy retrofits for several reasons. Companies are looking for products and services they can use to extend the sale, generate additional revenue, and grow their average job cost. They count on the idea that consumers demand for a more energy-efficient house will grow as, inevitably, the cost of heating and cooling that house escalates. But although the need exists, the awareness largely doesn't. Still, there's a competitive advantage. Those companies already in the energy retrofit market tend to be single-product players — selling insulation or HVAC systems — and installing a single product isn't efficient when the whole house is tested as a system. “That's where the insulation companies fall down,” says Terry Ferrero, president and CEO of Pro Materials Direct, in Atlanta. “Most of them don't do air sealing.”

Ferrero, a manufacturer and distributor, entered the energy retrofit field as a supplier and subcontractor a few years ago. Since then he has built a network of 61 home improvement companies offering retrofits.

His own company does much of the installation. The timing is excellent: According to the most recent survey by the U.S. Energy Information Administration, conducted in 2009 and released in March this year, 58% of U.S. homes have energy-efficient double- or triple-pane windows, compared with 36% in the agency's 1993 survey. Companies that sell replacement windows need additional products or services to extend the product sale.

Many are also savvy marketing companies, able to reach out and identify prospects, make the appointment, and sell. “What those guys do is get people to move forward on projects,” Ferrero says. Homeowners may not be clamoring for energy retrofits, but they do need them and some will buy if the marketing and selling component is in place. Ferrero says that home improvement companies are uniquely positioned to create or “make” a market where only a limited market now exists.

HOW IT WORKS

If you're thinking about energy retrofits, here are a few things to consider.

Will you need personnel on staff who are certified by BPI or the Residential Energy Services Network (RESNET)?

What products or services will position you as an energy company? There are core products and services, and then there is the expanding array of ancillary products.

Let's start with the certification issue. Many home improvement companies entering the energy retrofit business have not found it necessary to get their employees BPI or RESNET certified. That's because the company doesn't offer a full-on energy audit — i.e., an audit with test-in/test-out procedures conducted by a technician or an employee who is trained and certified by one of those organizations. Instead — like AAPCO, a home improvement company in Richmond, Va., with its own energy retrofit division, called eShield of Virginia — they assess or analyze the house based on a checklist of places or ways that energy could be leaving it. EShield of Virginia — projected to do $4 million in sales this year — sent its personnel to a baseline college course on home energy.

Getting BPI or RESNET certification for your company or for someone who works for it can help in two ways. First, it lends credibility to your effort. Second, you may need it to qualify for certain incentives offered at the state or local level. Such incentives definitely get consumers to act, says Larry Lassiter, president and CEO of WellHome, the retail home performance division of manufacturer MASCO.

“The tax credit [from ARRA] clearly made a difference,” Lassiter says. “[Homeowners] spent more when they knew they'd get more money back.” Another consideration is finding existing incentives for your homeowner. Most, Lassiter says, now come from state and local utility programs. WellHome makes a point of knowing where the rebates and credits are and of steering homeowners to them. When Bob Connolly reinvented his company Con-Lyn Home Improvement, in Avon, Pa., as a solar installer, he added extra admin staff who, among other things, take care of the paperwork for rebates and incentives that can reduce the cost of a solar installation by 50% or more. (See “Reach for the Sun,” page 38.) Most homeowners would have no idea where to look.

SINGLE SOURCE & CREDIBILITY

To position yourself as an energy retrofit company, the core products and services include air sealing, insulation, energy-efficient windows, and — since the roof can be the biggest culprit when it comes to energy exiting or entering the house — possibly a radiant barrier product that halts heat transfer between the attic and the roof. If you're in the roofing business, creating ventilation in a stale, sealed attic can reduce attic temperatures by 20 to 30 degrees Fahrenheit and cut the cost of running air conditioning. A padded vinyl siding product reduces heat and cooling loss. Reducing energy consumption is the marketing theme that marries all these together.

Many home improvement companies have already added insulation. But insulation's effectiveness is limited, the Department of Energy points out, if air is escaping through walls, floors, and the roof. This has motivated a number of home improvement companies, such as Franzoso Contracting and AAPCO, through its eShield of Virginia division, to offer air sealing.

EShield of Virginia recently upped the ante by offering an energy demand control box device that monitors home power use and automatically shuts off power-consuming appliances such as hot water heaters at non-peak times, saving homeowners what AAPCO/eShield CEO Jim Harless says is a documented average of 22% savings on power bills.

The important thing for dealers looking to enter the market is to position themselves as the single source for energy-retrofit needs. “We try to make sure that they're not just showing one product,” Ferrero says. “Show the consumer air sealing. Explain how to bring insulation up to code and why they probably need reflective barrier on the rafters. When you do that, consumers sense a true-value package.”

EXTEND THE SALE

The cost of an energy retrofit — a package of products and services — is typically anywhere from $6,000 to $10,000, depending on what's needed. WellHome's average ticket, for example, is $6,500. But another benefit of adding those products and services is that installing them can lead to sales of other, more profitable items. Companies that have added those products and services say that sales of an air sealing or insulation job aren't intended to take the place of, say, windows. “The real revenue is in the traditional products,” says Mark Sacherson, a salesperson at Franzoso Contracting who this spring got his BPI certification as a building analyst and building envelope specialist. “Air sealing and insulation are a great addition for an established company [because] they make you more credible all around.” It's the difference, he says, between selling windows and siding versus selling a complete assessment of the home along with whatever is needed to make it comfortable and efficient. “It separates the salespeople who are selling in a traditional way — buy four windows, get the fifth one free — versus going in and pointing out, in a purely practical sense, why this room is cold. Homeowners understand that there are other problems in the house besides the windows being bad.”

A&A Services, in Salem, Mass., has offered energy retrofits for years. Owner Chris Zorzy is BPI-certified, and the company provides a complete home energy audit, including a blower door test. Zorzy says that consumer awareness is high, but that it waxes and wanes depending on where fuel bills happen to be falling that year.

Homeowners, he says, may not even understand the term “weatherization,” but they understand that fuel costs will continue to go up. “We're not an insulation company offering home improvement,” Zorzy says. “We're a home improvement company offering weatherization. We're a one-stop operation for people who need these services. We think it's the future.”

REACH FOR THE SUN

Bob Connolly, co-owner of Con-Lyn Home Improvement, in Avondale, Pa., became interested in solar power—specifically roof-installed electrical systems—in 2007. After exploring options he and business partner Guy Jacquet signed on for training with Solar Energy International, a nonprofit headquartered in Carbondale, Colo. He wanted to be able to identify the customer and understand the installation process. In Pennsylvania, companies that install solar systems have to be accredited in order for homeowners to be eligible for incentives worth 20% to 25% of the cost of an installed system. Those incentives, combined with a federal tax credit for 30% of the cost of the installed product, can amount to as much as half the cost of a system, bringing the homeowner's out-of-pocket expense for a photovoltaic solar roof project into the $15,000 to $30,000 range. Today 70% of Con-Lyn revenue comes from solar installations through its solar division, called Solar Pro.

Taking on solar isn't like adding another energy-related product to your mix. The challenges are different. Here's what Connolly has learned:

Getting started involves making tough decisions. There's a wide range of product choices from a variety of companies. He and Jacquet went to trade shows to see first-hand what vendors had to offer. Connolly puts start-up costs in the $50,000 to $75,000 range in terms of the time, equipment, training, and marketing required.

The hardest part is getting the training and the certification necessary to do business in some states. Connolly says that he “didn't sell a thing” in the three months it took to get certified and registered with the state of Pennsylvania.

Leads come from trade shows, previous clients, and online lead-generation companies. Incentives help make systems affordable for consumers. Successful solar contractors find those incentives and work them into the cost. Con-Lyn Home Improvement's sales have tripled between 2007 and today. Of course, the big question for solar contractors is whether or not consumers will continue to be interested once federal tax credits disappear in 2016. Connolly believes they will because he anticipates that by 2017 solar systems will cost about half what they cost now.