Wanted: Smart Grid Policies for 14 Million Homes

Published: Mon 28 Apr 2014
A blog entry by Christine Hertzog

Contributed by:

Christine Hertzog
Managing Director
Smart Grid Library

Christine Hertzog's Blog

The multifamily home market is not the only segment that is missing out on Smart Grid benefits. There’s another market segment that is also woefully absent from participation in Smart Grid-enabled programs and solutions. And just like the multifamily challenge, it is mostly caused by the absence of federal, state, and local policies. There are an estimated 14 million single family homes out of a total pool of about 130 million homes that are renter-occupied, not owner-occupied. These numbers are growing. That means in the future, more households are less likely to participate in demand response programs, energy efficiency programs, or distributed energy resource (DER) programs. Let’s look at the trends and then at the long term issues.

There are several factors cited for this growing shift to rentals from ownership of single family homes. First, for many Americans, the Great Recession turned the American Dream into an American Nightmare. They may have experienced or witnessed the struggles to pay mortgages during periods of unemployment or underemployment. The ability to move to where the jobs are without the dependency on selling a home first has significant appeal in turbulent employment periods. Second, Fannie Mae research notes that younger Americans are more likely to rent. The 35 and under crowd puts a greater emphasis on mobility over potential lockdown to one address. And here’s a fact that should give everyone food for thought - younger Americans have far more student debt than the college graduates of previous decades that often makes them ineligible to qualify for mortgages as first time home buyers, keeping them in rental situations for extended timeframes. Finally, the greatest majority of single family homes have owner-occupants that are over the age of 65. As the Baby Boom generation downsizes and/or transitions to senior-focused communities, their old owner-occupied homes may convert to rentals too.

The rental market is fragmented when you examine who is buying single family homes for conversion into rental housing. The vast majority of the housing units are owned by individual investors, along with a handful of large real estate investment trusts (REITs). These investors may not live in the communities where they have rental property, and their names may never appear on those properties’ utility bills.

Where do most utilities and vendors in the B2C energy efficiency space focus their efforts? Where do DER vendors like rooftop solar PV companies focus their marketing dollars? Where will residential energy storage vendors target their sales promotions? The answer is on owner-occupied properties, or on the names associated with utility bills. 130 million single family homes may seem like a limitless pool of prospects, but the trends point to a decrease in the numbers of owner-occupied units. These trends point to benefit gaps similar to the situation described for multifamily housing.

Renters do not own their properties, so while they would benefit from reduced electric, gas, and even water bills, they cannot participate through the usual energy efficiency actions to upgrade windows, water heaters, large appliances or HVAC units. These are not mobile assets like energy efficient light bulbs that can move with them from address to address. Without the opportunity to invest in basic remote controllable thermostat technologies, they may not participate in demand response programs. Landlords have no incentives to take these actions to increase the energy efficiency of these properties if they are not responsible for the utility bills. They would merely reduce their income while paying off these investments.

There is a great multitude of underserved ratepayers, taxpayers, and voters out there. This is a serious benefits gap with multiple downsides that should concern policy-makers as well as electric utilities. Real estate is always local, and so are grid conditions. Utilities will need to encourage greater numbers of their customers to participate in programs that range from generation of negawatts to generation of kilowatts. The right number of targeted rooftops with solar PV plus the right number of DR participants could offset the need for a significant upgrade along a specific circuit.

Municipal leaders will want their most vulnerable constituents, whether vulnerability is defined by economic perspectives (such as people and businesses located along an unreliable electric circuit) or social justice perspectives (such as a collection of low-income senior housing units) to have the same opportunities to participate in safe, clean, low-cost, revenue-generating, and reliable electricity services. They could help achieve that goal by standardizing and normalizing the crazy quilt patchwork of permitting processes and fees across communities in each utility territory.

Resolution is possible with a systems engineering approach. Policy makers and utilities should collaboratively consider how to enable programs that promote renter and landlord participation to further jurisdictional and utility goals for renewable energy and carbon emission reductions. These programs should offer financial incentives to property owners even when they do not occupy those properties that are highly desirable targets for demand response or energy efficiency programs. These programs have to consider and create the value that property locations hold for utilities in terms of potential distributed generation of kilowatts and negawatts. These are not easy challenges to overcome, but they must be addressed to realize the complete benefits of the Smart Grid.