Incentives are invaluable in speeding up residential electrification. But if people can’t access them, what’s the point?
This week’s guest Kyle Brauer (utility policy wonk and Co-Founder CEO at Pencil Energy) helps us understand the most common barriers to accessing free money — and how we can make super-stacked savings a reality for more families.
If you’re an American household looking to save money on electrification, you’re probably familiar with the IRA tax credits and keeping an eye on your state’s IRA Home Energy Rebates application. If you live in New York, you may already be among the first in the country to take advantage of these funds disbursed by the Empower+ program!
But did you know that there’s a ton of existing state, local, utility-based and non-profit-sponsored incentives available to go electric across the country? In most cases, you can combine or “stack” these incentives on top of one another to save a whole lot of money on upgrades — if, that is, you can navigate the policy changes, paperwork queues, and sometimes convoluted program structures where the cash is concealed.
I spend all day thinking about the incentives available that will make the energy transition affordable. My company, Pencil Energy, is an early-stage startup building software that helps businesses navigate the incentives available to them and their end customers. We read, analyze, and structure data present in everything from program handbooks to terms and conditions documents so our customers don’t have to.
Incentives are a crucial lever in the policymaker’s toolbox to motivate behavior change at a large scale, but the programs to deploy that funding are often designed without the end customer(s) in mind. In my experience, this has led to the sprawling patchwork of confusing, cumbersome, and complex programs we are familiar with today.
I believe that most people don’t want to pay more to help the environment. We need to make the right choice the cheaper choice.
Let’s look at a few examples to see the most common barriers to accessing the loot — and how we can overcome them to make super-stacked savings a reality for more families.
Incentives are a crucial lever in the policymaker’s toolbox to motivate behavior change at a large scale, but the programs to deploy that funding are often designed without the end customer(s) in mind.
California incentives: super helpful, but hard as hell to stack
In certain Southern California locations, it is possible to combine the following incentive programs when purchasing a used battery electric vehicle. Let’s say we’re in Riverside County and the vehicle we want is less than $25,000, the maximum allowable cost of the IRA credit.
South Coast Air Quality Management District’s (SCQAMD) Replace Your Ride program offers a voucher for purchasing a clean vehicle. For this example, let’s assume the voucher is for $9,500 (details weren’t released at the time of writing).
The IRA’s $4,000 Used Clean Vehicle Credit clocks in at either $4,000 or 30% of purchase cost, whichever is lesser. Great!
Then we have Southern California Edison’s Pre-Owned Electric Vehicle Rebate Program offering either $1,000 or $4,000 for income-qualified applicants.
We’re swimming in moolah. Sounds great, right? Yes, if we can understand our eligibility and file our paperwork properly. Hopefully that’s not a hassle.
Let’s start by looking only at the income requirements… we make $75,000.
South Coast says our income must be below 300% federal poverty level. Assuming we’re a family of four, that would be a combined income below $93,600. There are 13 other criteria but let’s keep it moving…
IRA says our income needs to be under $150,000 if we filed jointly, $112,500 for heads of households, and $75,000 for other filers. We’re going to file jointly.
Among its 12 criteria, Edison says we can’t make more than $97,500. Cool.
So, assuming we met all of the criteria that is not listed above, it looks like our income doesn’t disqualify us!
Let’s move on to the vehicle.
South Coast says we must have a qualifying vehicle that is retired in order to qualify for the incentive. That vehicle must be model year 2010 or older, be operational, and must generally be in compliance with DMV. We had hoped to pass the car on to our eldest daughter who just got her license, but, OK. For the sake of the planet, we will happily retire our hooptie.
Here’s where the math stands.
$24,500 starting cost - $9,500 voucher from South Coast = $15,000
$15,000 - $4,000 rebate from Edison = $11,000
$11,000 - IRA credit ($11,000 * 0.3 = $3,300) = $7,700 cost after incentive.
To cash in, we’ll need to prove our income, complete two intensive applications across different portals and processes, and purchase that car from a dealership that qualifies under both IRA and South Coast. Whew.
Rebates in Palo Alto: Marathon changes and poor messaging
Complexity is one problem, but programs that change on a dime is another. In an extreme example, the City of Palo Alto’s heat pump water heater rebate program (choose your contractor pathway) has won the dubious honor of changing the most frequently of any program that Pencil Energy has kept track of. Since November 2023, the program has changed five times (nearly once per month!) and each change was significant for consumers. Program changes we tracked included the following:
In December, 2023, they added a requirement that projects may not be remodels that required a water heater replacement.
In April 2024, incentive amounts for gas replacements changed from 100% of cost up to $2,300 to $55% of cost up to $3,500. Awesome.
In May 2024, they started limiting the maximum stacking potential with TECH Clean California’s water heater rebate such that Palo Alto only paid out $1,500 for gas replacement projects that combined with TECH. This means that if you started planning a heat pump water heater replacement in March counting on money from TECH Clean and Palo Alto, and your contractor was ready in May, your project cost had increased by $800.
As far as we could tell, the only time that the city actually announced that changes were coming was in March 2024.
I get that things change: budgets go boom, new legislation arrives, public opinion shifts. All of those affect incentive programs and disturb disbursement as usual. But this much change in such a short period of time is a burden on residents and businesses that expect and most importantly need consistency to make informed decisions. In the best case the changes are caught before a project is initiated, but in the worst case a consumer or contractor is saddled with debt because the program changes or the money evaporates. Our monitoring suggests that Q4 is the most frequent time programs change materially, and they do so at a rate of 7 and 8 percent per month with that rate fluctuating throughout the year.
My call to action: simplify requirements, avoid risk
Incentives only mobilize change when they are used. We need simpler, more accessible, and more stable programs that consumers can access. The IRS tax credits are a good example of this as they last through 2032 and since inception have received minimal updates from the IRS after it finalized guidance.
In addition, it's not trivial for applicants to access funds for projects as each requirement that must be met or piece of documentation submitted may increase a drop-off in applications. This is especially risky for vulnerable, hard to reach, and disadvantaged populations that need these incentives the most. Most income bonuses already create a barrier from requiring income verification, posing a great risk of inequity in incentive distributions.
Simple, basic steps that program managers and designers could take include reducing the amount of prescriptive requirements for purchased equipment, simplifying application forms, and looking to other stackable programs for inspiration on how they can modify requirements to be in parallel.
If the policy goal of incentives really is to motivate pro-social and pro-environmental action, then let’s make it easier for people to make that action without getting played.
Kyle Brauer spent his early career at the State of California Auditor's Office. During his time working for the State, he completed projects with organizations across education and public utilities. Now, Kyle helps companies make efficiency and and electrification cheaper and easier.
Kyle is CEO and Co-Founder at Pencil Energy, an early-stage startup building software that helps businesses navigate the incentives available to them and their end customers. He is based in Los Angeles.