IRA Efficiency Rebates will change how we value and reward energy savings Big rebates are coming your way, but they’re nothing like we’ve seen before

The Inflation Reduction Act (IRA) Home Energy Rebates are, as we at Sealed have said over and over, a big deal. More than $8 billion will be deployed to help Americans make their homes more energy-efficient. It’s a level of investment not seen before on the national scale.

And it’s not just the size of the rebates that are unique; how the rebates are calculated and deployed are also different from most existing rebate programs. These differences are exciting, but they can also cause confusion. Luckily, Sealed has crunched the numbers and can help you understand how much money may be coming your way!

Let’s start with the basics, which we’ve broken down below. There are two types of rebates.

To successfully navigate these new IRA Home Efficiency Rebates, there are three crucial things to bear in mind.

Rebates are personal: they’re focused on your specific house

Energy efficiency rebates typically follow the same playbook: You receive a specific rebate amount regardless of energy savings. So, if you install a heat pump that keeps your home warm in the winter, you’ll still receive the same rebate amount regardless of whether that heat pump saves 10% or more than 50% of your household energy. Here’s what that looks like:

But setting rebates without adjusting for energy savings in a given home is backwards. After all, an energy efficiency rebate ought to be incentivizing households to cut down on their energy usage, right? 

The IRA Home Efficiency Rebates rewrite this old playbook by instead basing rebates on energy savings in your particular home.

In this case, energy savings are calculated as the difference between your home’s historical energy usage and the energy you will use after making upgrades. The climate of your area, the size of your house, the type of heating fuel you use, your income level, and your past energy usage all become factors in determining the size of the rebate. And that rebate is based on whole-home energy savings rather than a specific appliance. 

And that means that depending on your particular home, the rebate you’ll get for, say, replacing a gas furnace with a heat pump HVAC system, will vary across and within states (because the energy savings will vary!). 

Most existing programs are either accessible or equitable. The IRA Home Efficiency Rebates are both.

Today, many rebate programs choose between being accessible OR equitable. “Market rate” programs, for example, are available to most, if not all, households. Yet they are underutilized by low- and moderate-income (LMI) households because the dollar amount of the rebates are insufficient to cover project costs necessary to be affordable (typically, affordable means covering 80%+ of costs).

Meanwhile, equitable rebate programs target low-income households with much higher rebates. But these programs are often an all-or-nothing approach. Consider the Weatherization Assistance Program (WAP) run out of the U.S. Department of Energy, one of the largest programs in the country focused on helping weatherize low-income homes. Make $1 over the income threshold, and you get nothing. 

Once again, the IRA Home Efficiency Rebates flip the script. The Home Efficiency Rebates Program is both accessible — rebates are available for households at all income levels — and equitable, as the highest rebates are given to households that need them the most.

The result is a more holistic approach to incentivizing efficiency both broadly and equitably. Those who make less than 80% of Area Median Income (AMI) qualify for rebates that are twice the size. And states are required to reserve 50% of funding for low- and moderate-income homes. 

The Home Efficiency Rebates also close what we call the “WAP gap.” Individual states define the eligibility cutoff for Weatherization Assistance Program (WAP) differently. That leaves an estimated eight million homes that are ineligible for WAP funding, but are eligible for higher rebates reserved for LMI households under the IRA Home Efficiency Rebates. That’s a good thing. 

Analysis conducted by comparing the number of homes eligible for WAP in each state (using state-specific requirements based on state median income, federal poverty line, and/or area median income) with the number of homes eligible for the low- and moderate-income threshold of IRA Home Efficiency Rebates (80% of area median income). Housing data from the U.S. Department of Energy LEAD tool.

Let’s take Sealed’s home state of New York as an example. A market-rate home could get a rebate of $5,500 for installing a heat-pump HVAC system through the Home Efficiency Rebates [1]. That same home, if the household makes less than 80% of AMI, could qualify for a rebate of $11,000 [2]. What’s more, low- and moderate-income households can also stack the IRA Electrification and Appliance Rebate on top of that for electrification measures like breaker box and wiring upgrades that are necessary for heat pumps but don’t directly save energy.

Note: project modeled for IRA Home Efficiency Rebate is a single family New York home that conducts HVAC electrification work (incl. furnace replacement with HVAC heat pump). The IRA Appliance and Electrification rebate amount represents the $6,500 that that households could receive for breaker box and wiring upgrades.

Measured outcomes are rewarded

But wait there’s more! Perhaps the most meaningful change in the IRA Home Efficiency Rebates is the ability for rebates to be based on actual energy savings. 

First, it’s important to understand that there’s two ways that states can distribute rebate money – the modeled pathway and the measured pathway. The modeled pathway is based on expected energy savings, while the measured pathway is based on actual energy savings. States can (and in our view, should!) enact both pathways. 

  • Under the modeled pathway, rebates are based on estimated energy savings. That is, energy modeling calculations help inform how much energy savings are expected. For households that cut their energy usage between 20% and 34%, rebates are valued at $2,000; households that cut usage by 35% or more can receive rebates of $4,000. Those amounts are doubled for LMI households. 
  • Under the measured pathway, rebates are based on measuring the actual energy savings: The more energy a household saves, the bigger the rebate. And amounts are still doubled for LMI households. Overall, it means higher rebates on average, especially for LMI households, and greater energy savings.

Both of these approaches are huge improvements over the common design of other rebate programs today by taking estimated and/or actual energy savings into account. And there are minimum energy-savings requirements in place for both pathways: at least 15% for the measured approach, and at least 20% for the modeled approach. This ensures all projects have a significant impact on energy (and carbon) reductions. 

Here’s what it looks like for market rate homes (remember, rebate sizes are doubled for LMI homes!): 

Source: Inflation Reduction Act Sec. 50121. Note, rebates are capped at 50% of project cost for market rate households and 80%-100% of project cost for low-income and moderate-income households, depending on state applications.

Rebates in the measured pathway are largely uncapped, which rewards deeper retrofits [3]. This is what is so exciting about the measured approach –  more energy savings realized lead to higher rebates! In fact, in most locations, for most households, a rebate using the measured pathway will be higher than a rebate using the modeled pathway. 

Here’s what measured and modeled rebates could look like for a few projects for a low- and moderate-income household in California: 

Note: project modeled for IRA Home Efficiency Rebates is a single family California homes that starts with natural gas heating before undergoing projects.

And when it comes to the measured approach, there are additional ways that states can choose to value energy savings based on time, location, and/or greenhouse gas emissions. The measured pathway can therefore be a down-payment on homes participating in Virtual Power Plants.

Taken together, it is clear that we are on the cusp of a truly exciting time. We expect states to begin rolling these rebate programs in 2024. And as they do, these rebates will bring energy-saving projects to more homes across America. This is nothing short of a revolution on how we value and reward energy savings to make homes comfortable and clean for the planet. 

[1] Rebate of $5,500 for a project pursuing the measured pathway of the Home Efficiency Rebates. The same project would only qualify for $4,000 in the modeled pathway of the Home Efficiency Rebates. 

[2] Rebate of $11,000 for a project pursuing the measured pathway of the Home Efficiency Rebates. The same project would only qualify for $8,000 in the modeled pathway of the Home Efficiency Rebates. 

[3] Rebates are only capped at 50% of total project cost for market rate households, and 80-100% of project costs for low- and moderate-income households, depending on state applications. 

December 20, 2023