Why residential energy techs don’t get adopted

In the cleantech market there are a lot of very smart, worthy ideas for energy techs aimed at residential applications:  energy efficiency plays, distributed generation and backup power plays, etc.

It’s important to remember that there are two very different markets for these kinds of applications—new homes and retrofits.  In sales to new homes, the key target customer is the builder.  Installation issues are relatively lessened, costs are more easily bundled into the overall house value, and it’s a single corporate sale rather than multiple individual homeowner sales.  Nevertheless, the retrofit market is significantly larger and in many cases critical to the upside revenue potential for any new technology, product or service.  So the retrofit market is the key.

Unfortunately, in the retrofit market there are serious obstacles standing in the way of widespread adoption of even winning residential energy technologies.

This fall, our family decided to switch our New England home from oil heat to natural gas heat.  A low-tech decision.  In this region (as well as many others), the cost of natural gas is currently less than half that of heating oil (on a $ per mmBtu basis, wholesale).  And besides the economics, it also brought some benefits in terms of better heating and ability to use gas-fired appliances, etc.

Someone tell Bob Catell (CEO of KeySpan Energy, our natural gas provider) to give me a call.  Because just like my similar experience installing new insulation, the implementation of this change was far from easy.  And that’s hurting his business.

First of all, the information for us to make an informed decision about our various choices wasn’t there for us.  We had some non-specific information self-searched from the internet, and a KeySpan-sponsored contractor who spun us with best-case economic scenarios, hadn’t even heard of most of the newer innovations I asked him about, but assured us that “My guys are professionals.  They’re not kids.  They’re men.”  Alrighty then.  And other potential contractors weren’t helpful either.  A chimney sweep helpfully informed us that the switch from oil to natural gas would require installing a new stainless steel chimney liner for the low price of a few thousand dollars, or suffer dire consequences.  And then the KeySpan guy told us that the chimney sweep was blatantly lying, and we had to (hopefully) confirm it with other information after much additional web searching.  Basically, homeowners don’t have impartial, accurate, specifically useful information to turn to.

Secondly, the economics were challenging.  Even with some discounts from KeySpan (which also greatly limited our equipment choices), and the much lower fuel costs going forward, it was still several thousand dollars by the time all was said and done (even without a new stainless steel chimney liner) and that makes the payback period about 4 to 6 years or so.  All up front cash, too.  There may be financing options we could have used, but they weren’t presented to us by the service providers.

Thirdly, the cast of characters involved was quite long.  KeySpan had to come hook up our house with gas.  A contractor sold us on the job.  He brought in a subcontractor (“Digger”, a great guy) who actually did the installation of the new equipment and removed the old boiler.  KeySpan had to then come back and hook up the pipe to the boiler.  An inspector then came by and growled at Digger for a while.  And then someone else had to come back and remove the oil tank.  With so many players involved, planning suffered, and different perspectives meant re-directs midstream.  Without ever talking to him directly, we were informed that the inspector said that we’re going to have to get the chimney sweep to come clean out the boiler’s flue, sign a piece of paper certifying that it’s clean, fax that to the general contractor, have them cross out any disclaimers and take on liabilities that the sweep isn’t willing to take on, and then get that back to the inspector.  Yeesh.

Finally, it was a royal pain during implementation.  The research on the front end (including competitive pricing) took too much effort.  Digger was here for three days, requiring one of us to be at home during the process.  The whole chimney sweep issue has been frustrating to say the least.  And now our home stinks of heating oil, as a result of the tank removal process.

All of these problems can be pretty easily fixed.  Massachusetts should be providing better incentives for this kind of retrofit—it just makes economic sense for the state.  KeySpan should be making it a lot less painful with better project management and by mandating better and more consistent processes (and really, this is a critical top-line business issue for them, they need to cannibalize the oil heat market as a first priority for growth, so it’s pretty amazing it’s managed this way).  And some entrepreneur should be making the information and competitive pricing readily available for us to do this with a one-stop-shop approach—and perhaps taking on even more of this challenges.

But the challenges remain un-fixed.  I find it hard to recommend this decision to my neighbors.  And this was an example with a very well-understood technology choice with relatively well-understood economics (albeit challenging).  Imagine taking on a new technology as part of this kind of process?  Without any incentives in place?  Without even the limited information we had available?

You start to understand why energy and water techs aimed at residential applications, even those with a really compelling story to tell, face huge challenges in market adoption.  And thus why it’s a challenging market for venture investors to get into.  The opportunity is worth investigating, but the challenges must be acknowledged, and addressed.

[2/13/08 update:  Wanted to make sure and include an update on the flue liner question…  After the KeySpan guy said that the chimney sweep was lying, but the sweep insisted he wasn’t, we spoke with a house inspector and got his take—that indeed you do need a new liner if you’re installing a high-efficiency gas-fired heater and pumping the flue gas out your old heating oil exhaust flue, because it does create acidity issues that will degrade the old liner.  He said that if your new furnace is 85% or more efficient, it could be an issue.  “Fortunately” it turns out that the “high-efficiency” furnace we got through KeySpan’s rebate program is actually only 80% efficient.  So we’re supposedly safe.  We will continue to monitor it, however.  Also useful to note is that the inspector explained that we would be just fine with an aluminum liner, not a stainless steel or even a new clay liner, and that therefore it should only be “a few hundred bucks” and not the couple of thousand the sweep had told us.  ...In all, just more fodder for the argument I made in this column at the time.  rd]