Michiganders will soon be able to get federal funding to cover much or all of the cost of electric stoves hot water heaters, dryers, rooftop solar or heat pumps, which could replace furnaces and function as air conditioners.
The money to pay for such upgrades is part of the Inflation Reduction Act signed into law in August . It aims to create jobs while electrifying the nation’s housing stock, much like the transportation industry is transitioning to electric vehicles.
The programs are especially beneficial in Michigan for Yoopers who want to replace expensive and dirty propane heating systems or insulate themselves from Line 5 uncertainty. In southeast Michigan, the law could be a boon for low and moderate-income residents who haven’t been able to afford weatherization upgrades in an aging housing stock or want to protect themselves from DTE Energy’s high rates and poor service.
Low and moderate-income residents are often financially locked out of the home clean energy transition and the benefits that come with it, like lower energy bills and healthier homes. The IRA’s funding that gets these communities ahead of the curve is “absolutely huge,” said Mary Templeton, president of the Michigan Saves green bank.
“The ability to have low-income and disadvantaged communities participate in this move to eliminate or reduce carbon in homes completely – it would be very, very difficult to do without these incentives,” she said.
However, the programs may end up containing a fatal flaw – residents may have to pay for the projects upfront and be reimbursed by the state through “rebates” or tax credits.
In Detroit, the nation’s poorest big city, or in the rural Upper Peninsula, which also has a high poverty rate, most low and moderate-income residents do not have the cash to pay as much as $20,000 out-of-pocket for heat pumps or rooftop solar installations.
For IRA benefits to be truly accessible to low-income residents, experts say the government needs to offer up-front funding akin to grants.
“The federal government is trying to help those folks even more,” said Laura Sherman, president of the Michigan Energy Innovation Business Council. “But the details absolutely matter.”
The US Department of Energy will distribute the funding to state energy departments and environmental agencies. The Department of Environment, Great Lakes and Energy (EGLE) will receive the funds and run the programs in Michigan..
So far, there’s no indication the state will pay for projects up front, though EGLE officials told Planet Detroit that it’s still awaiting guidance from the DOE.
Rooftop solar, whole house weatherization
The IRA will provide $4.3 billion for states to implement programs tol provide rebates for whole-house energy savings retrofits as part of its “Home Energy Performance-Based, Whole House Rebates” program.
The program incentivizes more thorough projects by increasing the rebate size for higher energy reduction levels..
“This is an innovative thing – it’s looking at not just a rebate for a water heater or an individual item, but it’s looking at ‘How does your entire project reduce your energy use?’” Sherman said. “If your energy savings are going to be bigger, the scale of the rebate is bigger.”
For retrofit projects that cut energy usage by at least 35% in single-family homes occupied by low and moderate-income residents, the government will pay for the lesser of $8,000 or 80% of the project cost. That could include projects like rooftop solar – which ranges in cost from $15,342 to $20,758,in Michigan – or new windows, or the addition of insulation.
For retrofits that increase energy efficiency by at least 50% in single-family homes for non low- to moderate-income households, the government will pay for the lesser of $4,000 or 50% of the project cost.
Multifamily building owner retrofits with more than 35% energy savings will be eligible for $4,000 per dwelling, or up to $400,000 per building.
Furnace, air conditioner and appliance replacement
The High Efficiency Electric Home Rebate Program under the IRA provides $4.5 billion for states to develop a program that will pay for residents to replace their gas appliances with electric appliances. That means heat pumps to replace furnaces and air conditioners, stoves, dryers, and hot water tanks.
The program covers up to 100% of the cost for low-income residents and up to 50% of the cost for moderate income, though there are some caps on how much can be spent on an individual appliance. For example, heat pumps rebates are capped at $8,000, and systems roughly cost about $1,000 to install.
How the programs may work and potential pitfalls
Again, the details have yet to be hashed out, but experts say it would likely work like this: A resident would hire a state-approved company to do a whole house energy audit. The auditor would assess the home’s current condition, then develop a list of energy efficiency improvements, each of which would include an estimate of how much it would reduce the home’s energy usage.
The customer would choose which projects to pursue, then select state-approved contractors to complete the work. A similar approach may be used for appliance replacement.
It’s unclear how the rebates would work. If a heat pump costs $8,000 and a low-income homeowner is eligible for a full rebate, can that rebate be given upfront?
Or if a moderate-income resident is eligible for a $4,500 rebate, will they have to pay for, or finance, the full $8,000 before they get a rebate? If so, when will that rebate come? What if they don’t have good credit?
Many of the homes in metro Detroit are old and need new roofs or electrical upgrades to support electrification. What’s the plan to address those challenges?
EGLE spokesperson Hugh McDiarmid told Planet Detroit the agency isn’t yet sure how the programs will look and can’t discuss anything until the US DOE provides more direction.
“Outside of verbal conversations, we have no commitment from the feds on how much we’ll be receiving for this purpose or what guidelines and protocols … they’ll require for a bid process and/or allocation to grantees,” he said. “Until we have something in writing, we’re not in a position to discuss anything.”
In a response to a question from Planet Detroit that was asked on Twitter about whether EGLE would make grants available to low and moderate-income residents who can’t afford the upfront costs, EGLE director Liesl Clark did not suggest such an approach would be a priority. Instead, she pointed to programs that don’t provide upfront funding.
The Department of Energy did not respond to requests for comment.
Clark pointed to a loan program implemented by Michigan Saves, the state’s green bank, which provides loans at 7% interest in disadvantaged communities. It has rolled out a pilot program in Detroit that lends to those with poor credit but who have enough income to repay a loan. Templeton said the program has succeeded and will likely be scaled statewide.
The state has tackled similar stumbling blocks in the past. Residents need to have good roofs before being approved for weatherization projects. The Michigan State Housing Development Authority and the city of Detroit have programs in place that will pay for a new roof for low-income residents who are attempting to weatherize their homes, Templeton said. The state needs to “braid together” the programs in the IRA with those already in place, she added.
The state could also benefit from developing a registry that tracks which homes are electrification-ready, said Ben Dueweke, director of community development with Walker-Miller Energy Services, a Detroit firm that designs and implements energy efficiency programs for Michigan utilities. (Editor’s note: Dueweke is a Planet Detroit Advisory Board member.)
“The strategic alignment of programs is absolutely paramount,” he said.
If the IRA hits with its intended impact, the industry will need a lot of help to complete the work, which translates into new jobs.
The non-profit Advanced Energy Economy estimated creating 880,000 new job-years in Michigan. (The measure looks at job years instead of jobs because many positions will be temporary.)
“There’s kind of an unbelievable amount of money to be used for middle-income and low-income homes to start the transition … but I’m frankly a little concerned that the industry is not quite prepared to take on all this,” Dueweke said.
He pointed to heat pumps as an example – the industry may not have enough heat pumps or people who know how to install them to meet demand.
The legislation includes $200 million for job training, which will spur efforts already underway. Workforce development programs like the one he helps run at Walker-Miller are part of the solution, Dueweke said, and need to be developed now. The eight-week program gives people a basic knowledge of how clean energy systems work, hands-on training, and an entry point into the industry. From there, Dueweke said, graduates can go in any number of directions in the industry.
Beyond just installation, the funding could create demand for ancillary jobs like electricians, who will be needed to upgrade homes.
The state should develop an analysis of what that demand might look like and what kind of workforce is needed to meet the demand, Dueweke said. That, coupled with a registry of homes, are essential to electrifying the nation’s housing stock efficiently, he said.
“These things need to be sequenced in a way that’s strategic, and a lot of thought needs to go into that up front,” he said.