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Program vs Market : Which Approach is Better for Small Business Energy Efficiency?

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To provide equal opportunity across all customer types and to improve customer satisfaction survey scores, many utilities have begun to focus on small businesses.  With millions of sites across the country, small businesses seem to be ideal candidates to increase participation in energy efficiency programs.  However, achieving energy efficiency adoption by this segment has always been a challenge.  While there are many benefits to energy efficiency adaptation for small business customers, like the opportunity to save money or building a reputation for being “green,” the obstacles (or perceived obstacles) to implementing energy efficiency may outweigh the value, which can result in lower participation. The barriers to small businesses adopting energy efficiency are numerous and include at a minimum:

  1. Small business customers are busy and wear “many hats,” so energy efficiency is low on their list of priorities
  2. Small business customers lack the knowledge about energy and the opportunities to reduce costs through energy efficiency
  3. Contractors are less likely to proactively sell to smaller businesses because they, too, do not see the value in selling to this sector

In an effort to increase participation in programs by small businesses, energy efficiency administrators have developed program offers to overcome these barriers, in addition to standard outreach and marketing.  Generally these programs fall into one of two categories: a program-driven model and a market-driven model.  Each approach has its advantages and disadvantages.  Depending on what an energy efficiency administrator wants to achieve—increasing participation in the short term or changing the way the market functions overall—either model could work, with the caveat that using them together could cause conflicts.

Program driven model: This approach uses a program implementation contractor to function as a “General Contractor” for all of the small business projects.  The implementation contractor works directly with one or more local installation contractors and may even procure materials for customer projects centrally.  The advantages of this approach are:

  1. Control of costs and timing of projects – When the program acts as the General Contractor, project delays and costs are directly under the control of the program.
  2. Control of customer experience / branding – As the General Contractor, the program has the opportunity to control all communication interfaces with customers.

The disadvantages of this approach are:

  1. Lack of customer choice – Since the program is the General Contractor, the only means to receive high incentives is through a single entity. This lack of flexibility not only applies to who is eligible to perform the work, but it can also restrict the scope of services eligible to be included in the project.  Specialized services such as asbestos removal, decorative fixtures, or additional wiring may not be able to be serviced through the program and would require another contractor.
  2. Limited involvement of local contractors – Programs that perform the role of a General Contractor are usually driven by similar motivating factors…Quantity and Price. In this environment, smaller, local contractors that may have long standing business within their local community often get squeezed out of the market.

Market driven model:  This approach uses a network of contractors to motivate small business customers to participate in energy efficiency.  The implementation contractor manages the contractor network, but may or may not contract directly with each participating contractor.

The advantages of this approach are:

  1. Customer choice of contractor – With a market driven model, customers are given a choice of contractors from a pre-approved list of contractors. Programs usually have policies to enroll qualified contractors that are not on the list.
  2. Market transformation opportunities – Unlike a program driven model, the contractor / trade ally is responsible for selling to small businesses. With a successful small business program in place, there is an opportunity to “leverage” a program sales team across many contractors.  These contractors not only learn the value of the program and energy efficiency, they become “ambassadors” of the program and can influence other customer segments such as residential and larger businesses.

The disadvantages of this approach are:

  1. Lack of control over timing of projects – Because the program relies on a network of contractors, who often move at their own pace, the timing of when projects complete can be difficult to control.
  2. Branding / customer experience may vary – With a network of contractors, there are going to be high quality contractors and some contractors that really shouldn’t be in business. A good program implementer manages the contractor network to ensure a high-quality customer experience from all the participating contractors.

Summary:   In the end the two different models are a tradeoff between being able to transform the contractor market to sell energy efficiency vs. having more control over the program process.  If the energy efficiency administrator is focused on short term, year-to-year goals, a program-driven model may be the best choice.  However, if the goal is to achieve long-term transformation of the market, a market-driven approach may a better option.

Steve Baab's picture

Thank Steve for the Post!

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Discussions

Matt Chester's picture
Matt Chester on Jun 27, 2019 11:22 am GMT

With millions of sites across the country, small businesses seem to be ideal candidates to increase participation in energy efficiency programs

They may be smaller fish, but they add up to be a huge force so the question you ask of how to best tackle them is spot on!

Danielle Amasia's picture
Danielle Amasia on Jul 2, 2019 1:06 pm GMT

Great article, Steve.  Thanks for the post.  Your points are all spot on, but in my opinion, the small contractor/trade ally method is really the only one that will scale to the millions of SMB customers that need to be reached.  And the control over the process issue can be mitigated if the utility invests in a retrofit platform like they do on the residential side to run all of the trade allies projects, approvals, incentives, etc.  

... and yes, shameless self promotion here, Hancock Software is one of those platforms.

Steve Baab's picture
Steve Baab on Jul 2, 2019 6:39 pm GMT

I know that program administrators can make either model work, but I personally favor approaches that work with existing market actors (Trade Allies) vs. replacing them.  I agree that platforms along with a solid TA management structure can mitigate the downsides of this approach.  Thanks for reading Kevin!

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