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Review 189-1

Market Transformation A Guide for Program Developers

June 1999

ENERGY CENTEROF WISCONSIN

595 Science Drive Madison, WI 53711-1076

Phone: (608) 238-4601 Fax: (608) 238-8733 Email: [email protected]

WWW.ECW.ORG

Copyright © 1999 Energy Center of Wisconsin All rights reserved

This report was prepared as an account of work sponsored by the Energy Center of Wisconsin (ECW). Neither ECW, participants in ECW, the organization(s) listed herein, nor any person on behalf of any of the organizations mentioned herein:

(a) makes any warranty, expressed or implied, with respect to the use of any information, apparatus, method, or process disclosed in this report or that such use may not infringe privately owned rights; or

(b) assumes any liability with respect to the use of, or damages resulting from the use of, any information, apparatus, method, or process disclosed in this report.

Project Managers

John Peloza Energy Center of Wisconsin

Dan York Energy Center of Wisconsin

Research & Report Preparation

Bentham Paulos Research Analyst Energy Center of Wisconsin (pages 1-18)

John Peloza Project Manager Energy Center of Wisconsin (pages 19-44)

Acknowledgments

Financial support for this project was provided by a grant from the US Department of Energy (grant # DE-FG45-97R530361).

Contents Introduction ...................................................................................................................................................................1

Creating Market Transformation Programs...................................................................................................................5

1. Establish an Organization ...................................................................................................................................5 2. Establish Funding ...............................................................................................................................................6 3. Form Collaboratives ...........................................................................................................................................7 4. Define Roles of Participants ...............................................................................................................................8 5. Define Markets ...................................................................................................................................................8 6. Develop Programs ..............................................................................................................................................9 7. Characterize Specific Markets and Measure Baselines ....................................................................................11 8. Define Objectives .............................................................................................................................................12 9. Design Strategies and Actions ..........................................................................................................................13 10. Implement Program Measures ..........................................................................................................................13 11. Evaluate Results................................................................................................................................................14 12. Develop transition strategy ...............................................................................................................................16

Market Transformation Efforts—Case Studies ...........................................................................................................19

Wisconsin Furnaces .................................................................................................................................................20 Compressed Air Challenge ......................................................................................................................................23 Clothes Washers ......................................................................................................................................................25 Energy Star ..............................................................................................................................................................28 Motor Challenge ......................................................................................................................................................30 Insulation .................................................................................................................................................................33 Super-Efficient Refrigerators for Apartments..........................................................................................................35 Discussion................................................................................................................................................................37

Summary.............................................................................................................................................................37 Applicable Markets.............................................................................................................................................39 Geographic Scope...............................................................................................................................................40 Initiating Organization........................................................................................................................................40 Target Populations ..............................................................................................................................................41 Participant Motivation ........................................................................................................................................41 Level of Success .................................................................................................................................................42 Sustainability ......................................................................................................................................................42 Market Impacts ...................................................................................................................................................43 Market Transformation in the Midwest ..............................................................................................................43

References ...................................................................................................................................................................45

Further Reading .......................................................................................................................................................47

Tables and Figures Table 1 Differences in market transformation and DSM programs.........................................................................4 Table 2 Energy efficiency collaboratives................................................................................................................5 Table 3 Research and development collaboratives .................................................................................................6 Table 4 Northwest Energy Efficiency Alliance members.......................................................................................7 Table 5 List of potential market effects ................................................................................................................12 Table 6 Market transformation measures..............................................................................................................13 Table 7 Furnace rebates ........................................................................................................................................21 Table 8 Summary of case studies..........................................................................................................................38 Figure 1 A basic market structure ............................................................................................................................9 Figure 2 Sample screening tool ..............................................................................................................................10 Figure 3 High-efficiency furnace market share ......................................................................................................22 Figure 4 Changes in market share for high-efficiency motors ...............................................................................32

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Introduction

What is Market Transformation?

Market transformation has rapidly become the objective of many privately and publicly supported energy efficiency programs in the United States. Market transformation has evolved from a long history of public intervention in energy markets to promote energy conservation and efficiency as a way to reduce negative social and environmental effects and to improve our economy (Kunkle and Lutzenhiser, 1998). The overall goal of market transformation is to increase the share of energy-efficient products and services within targeted markets. Market transformation programs seek to achieve this through fundamental, enduring changes in the targeted markets.

Market transformation as a guiding principle for intervention in markets to achieve social objectives fits well with the current trend in energy markets toward deregulation and restructuring. Increased competition in traditionally regulated energy markets is the objective of efforts underway and already taken in states across the US. However, the roots of market transformation lie within the regulated energy industries.

Market transformation has evolved from the utility demand-side management (DSM) programs of the past decade. The goals of most DSM programs have been relatively narrow: to reduce energy and power demand to avoid investments in new power plants or transmission and distribution systems. DSM was used within the context of integrated resource planning to yield the lowest system cost by avoiding more costly construction and operation of supply-side power plants. DSM was considered a resource comparable and substitutable for supply-side resources. DSM typically has been implemented by individual utilities for their own customers, as ordered by utility commissions. Utilities recover the cost of the programs in their rates, so all utility customers share the costs.

Integrated resource planning and demand-side management have suffered a rapid demise in the wake of the movement to restructure and deregulate energy markets (Narum and York, 1996). DSM had evolved to be more market-based, as utilities reduced program costs and shifted much of the remaining costs to the direct beneficiaries of DSM programs (Energy Center of Wisconsin, 1997a). DSM had already been changing, but the onset of competition in regulated energy markets spelled the death knell for IRP and DSM as they had come to be practiced.

As DSM evolved, energy efficiency advocates realized that their efforts could have much greater impact if they went beyond the service territories of single utilities to encompass regional and national markets. While not originally termed market transformation, there were several initiatives that took this approach, including manu-factured homes in the Pacific Northwest (Baylon, Davis, and Hewes, 1998) and the Power Smart Program, which originated in British Columbia before being adopted elsewhere (Nelson, Tiedemann, and Henriques, 1998). These and other state, regional, national, and even international collaborations, with multiple parties contributing funds and expertise, have tried to change building practices, introduce new products, and change market shares. By collaborations and partnerships, groups have attempted to create the leverage to make larger changes in the markets for target technologies. Examples include super-efficient refrigerators, horizontal axis clothes washers, and energy-efficient motors.

A Working Definition of Market Transformation

There is no single, widely accepted definition of market transformation. Below are definitions that have been developed by some leading advocates, researchers, and practitioners of market transformation.

M a r k e t T r a n s f o r m a t i o n G u i d e

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“Transforming a market means changing the types of products or services that are offered in the market, the basis on which purchase and behavioral decisions are made, the type or number of actors in a market, or in some other way altering this set of interactions in a self-sustaining way. … Any program that has a lasting effect on the structure or operation of a market could be called a market transformation program.” (Synergic Resources Corporation, 1996)

“Market transformation means a reduction in market barriers due to a market intervention, as evidenced by a set of market effects, that lasts after the intervention has been withdrawn, reduced or changed.” (Eto, Prahl, and Schlegel, 1996)

“Market transformation means reducing market barriers to the adoption of cost-effective energy efficiency products and services in a sustained manner. If the most important and relevant market barriers have been addressed to the point where efficient good and services are normal practice in appropriate applications, and these changes are sustained over time, then a market has been transformed.” (Nadel and Latham, 1998)

“Market transformation is a process whereby energy-efficiency innovations are introduced into the marketplace and over time penetrate a large portion of the eligible market…. Market transformation involves ongoing and lasting change, such that the market does not regress to lower levels of efficiency at some later time.” (Geller and Nadel, 1994)

“While no single definition exists, market transformation generally refers to the process by which collective action, policies and programs effect a positive, lasting change in the market for energy-efficient technologies and services, such that these technologies and services are produced, recommended, and purchased in increasing quantity.” (Suozzo and Nadel, 1996)

Keating et al. (1998) reviewed and analyzed alternative definitions of market transformation. While some view market transformation as a broad policy goal, Keating et al. define market transformation as a strategic approach to intervening in the market. They suggest the following operational definition of market transformation:

“An initiative can be recognized as more or less likely to be a strategy-level MT [market transformation] program to the extent that it focuses on energy efficiency, involves a logical strategy for working in the market, including available market leverage, so that it produces potentially lasting effects.”

Common elements of the above definitions include:

• Targeted, strategic market intervention • Development, introduction, and increased availability of energy-efficient products and services • Fundamental changes in consumer behavior (increased consideration of energy-efficiency as a purchase

criterion) • Increased market share of energy-efficient products and services • Reduction of market barriers • Regional or national scope for the targeted market • Lasting impact

These characteristics provide a working definition of market transformation for program design, implementation, and evaluation. Rather than attempt to develop yet another statement to define market transformation, we choose to define it according to these common characteristics. Participants in a recent Energy Center of Wisconsin workshop on market transformation in the Midwest offered additional characteristics:

• Creation and existence of a permanent “infrastructure” for energy efficiency products and services • Dynamic, flexible intervention that responds to changing market conditions

I n t r o d u c t i o n

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• Targets products and services that are likely to appeal to consumers based not only on cost-effective, energy-efficient features, but also other nonenergy features

How is it different than past DSM? How is it the same?

In many ways market transformation is not a radical departure from previous DSM programs—it is an evolution. Like biological evolution, there is a great deal of overlap and continuity, with multiple levels existing simultane-ously. The evolution of energy efficiency programs can be understood as three related evolutionary stages, each slightly more evolved than the last.

The first DSM programs were efforts by individual utilities to promote a specific product or action, with a direct goal of saving energy. A common example is a rebate program for compact fluorescent light bulbs (CFLs). Programs were (and often still are) funded by all customers from the standard rate for electricity, and often cost the beneficiary of the program little or nothing.

The second type of program uses more market-based approaches as a way to maximize DSM dollars and share the cost of the program with the beneficiaries. Market-based DSM programs include utility financing for home improvements, advertising, and providing consulting services. Instead of giving away CFLs, for instance, some utilities have bought them in bulk and passed the savings along to their customers. (Energy Center of Wisconsin, 1997a)

Market transformation has evolved from these. It applies market-based programs but can go beyond the individual utility. Regional and national collaboratives have been formed to make massive group purchases and to provide advertising across multiple utility markets. Yet market transformation programs can also use rebates and “traditional” measures to promote changes in a market. Although the goals of market transformation may be different than traditional DSM programs, the tools used to change markets are similar.

Market transformation programs themselves have also evolved. The first regional collaboratives focused on single issues, such as improving the efficiency of manufactured homes in a region. The parties involved were drawn from a number of government offices, utilities, manufacturers, nonprofit groups and universities. As these programs grew, a more permanent infrastructure was set up to deliver the programs. The Northwest Energy Efficiency Alliance and the Northeast Energy Efficiency Partnerships were formed to coordinate energy efficiency programs on a regional level, with multiple partners and stakeholders.

Market transformation differs from DSM in a number of fundamental ways. A key challenge stems from the differences in objectives of traditional DSM programs versus market transformation programs. The objectives of market transformation programs are not likely to be expressed in physical terms—kW or kWh savings—as were traditional DSM programs. Instead, the objectives focus on changing markets and ultimately individual behavior within these markets.

Differences in spatial and temporal dimensions are other key differences between DSM and MT programs. Time horizons for MT programs will be much longer and relevant populations of customers may be much broader geographically. DSM programs generally targeted a single utility service territory, while market transformation targets regional and national markets. Market transformation can have a longer time frame than traditional DSM. Although equipment upgrades (a typical focus of DSM) can reach specific annual or seasonal goals, moving a market—developing a new product, bringing it to market, and promoting it to achieve a significant market share—takes many years. After that, monitoring and evaluation of the market may need to be an ongoing effort, in part to ensure that the changes endure.


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Evaluating the results of market transformation programs is difficult. Complex market structures necessitate diffuse program delivery mechanisms for broad target populations—this makes it difficult to isolate program effects from other effects. Baselines, performance measures, principal delivery mechanisms, and target populations for market transformation programs differ significantly from DSM programs. Consequently, causal relationships and impact attribution will be difficult to establish for many market transformation programs. With traditional DSM, the number of appliances in a market could be measured, the energy savings of better models could be measured, and total energy savings could be estimated based on the number of rebates given. To measure the transformation of a market can require measuring the market more comprehensively. Table 1 summarizes these differences between DSM and MT programs.

Table 1: Differences in market transformation and DSM programs

Program Element DSM Programs Market Transformation Programs

Objective Energy (kWh) and demand (kW) savings Broad market and social change

Spatial dimension Single utility service territory Regional (one or more states), national and even international markets

Temporal dimension Discrete period—typically 1-3 years (often tied to rate cases)

Indeterminate—generally long-term change is objective: long-term intervention needed?

Baselines Utility and end-use energy consumption Varies—behavioral (attitudes and behavior), economic (sales of energy-efficient goods) or physical (end-use energy consumption)

Performance measures Energy and demand savings; program participation

Varies according to appropriate baseline—changes in markets, behavior, energy-use

Principal program delivery mechanisms

Financial incentives and direct relationships between program providers and participants

Multiple market-based mechanisms—more diffuse relationships

Target population Individual customers Possibly all market participants: individual customers, manufacturers, retailers, energy service providers, trades, etc.

Causal relationships and impact attribution

Relatively clear—direct outcome of delivery mechanisms

Likely unclear due to expanded spatial and temporal dimensions, multiple delivery mechanisms, and expanded target populations

Market structure Single provider of services Multiple providers of services

Market transformation programs tend to be less focused on technologies than DSM programs and more focused on human behavior in the marketplace. Because humans have created many of the market imperfections that act as barriers, simply introducing a better product is not always enough to transform a market. Removing barriers can involve changing the ground rules of a market. As a result, transforming markets is more difficult to plan and is less predictable in outcome.

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Creating Market Transformation Programs Implementing a market transformation program is a multistep process, potentially involving many parties. This section describes a possible plan of action for setting up a program, from the foundation of the organization, to program design and implementation, to evaluation and beyond. This model attempts to emulate market trans-formation collaboratives that have already been formed, such as in the Northeast and Northwest and at the national level.

Though the steps are presented in sequential order, there can be a feedback process, where the research and understanding gained from later parts of the process provide guidance for the earlier planning and design stages. Moreover, the structure of the market transformation organization may be fluid, changing in response to changes in the process.

1. Establish an Organization

A single organization should oversee the funding and direction of a market transformation collaborative. To date, most if not all market transformation collaboratives have been run by nonprofit or government organizations. They tend to be guided by a board consisting of major stakeholders. Committees are formed to oversee specific tasks, with specific expertise among the committee members. Program managers and staff manage the day-to-day operations.

An organization can be newly formed to manage the collaborative or could be an existing group taking on new duties. A few such energy efficiency and research & development collaboratives are listed in Tables 2 and 3.

Table 2: Energy efficiency collaboratives

Approximate annual budget ($)

Major projects Major partners

Northwest Energy Efficiency Alliance

22,000,000 Washwise (clothes washers), Lightwise (CFLs), motors, irrigation, refrigerated

warehouses

Every utility in NW, governors’ office staff, non-governmental organizations (NGOs), industry

Northeast Energy Efficiency Partnerships

754,000 Lighting, HVAC, building codes, motors

Utilities in 7 states, regulators, state and federal govt. staff, trade

allies, NGOs

Consortium for Energy Efficiency

800,000 Super Efficient Refrigerator Program (golden carrot),

More than 30 electric and gas utilities across the US, public

interest groups, state R&D organizations, state energy

offices, US EPA, and US DOE

California Board for Energy Efficiency

270,000,000 (for all EE work in

state)

Clothes washers, movable classroom trailers, ducts, refrigerator recycling,

market research

Most utilities, state govt.


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Table 3: Research and development collaboratives

Northeast Energy Efficiency Partnerships, Inc., is a nonprofit regional collaborative that coordinates a seven-state energy efficiency program. It is guided by a board of directors and has a staff of 8.5. Funding in 1997 came from EPA ($339,000), DOE ($61,000), and regional utilities ($239,000). NEEP maintains an office in Boston, but program managers are spread throughout the region.

NEEP forms working groups to deal with specific tasks. Seven energy efficiency initiatives were identified for the first year, covering lighting and HVAC systems, building energy codes, motors, and clothes washers. NEEP also works with other collaboratives to coordinate efforts, such as product requirements, training and certification efforts, the timing of promotions, market research, and program evaluation. It participates with national groups like the Consortium for Energy Efficiency and EPA’s ENERGY STAR® program.

The Northwest Energy Efficiency Alliance has a staff of 14 and a three-year budget of $65 million, provided half by public utilities through the Bonneville Power Authority and half by the six major investor-owned utilities in the region. The 18-member board consists of representatives from BPA and public utilities, investor owned utilities, government, and public interest groups. Four board members are appointed by the governors of Idaho, Montana, Washington, and Oregon.

The Electric Power Research Institute, the Iowa Energy Center, and the Energy Center of Wisconsin are not technically market transformation collaboratives. More accurately they are collaborative energy efficiency research, development, and demonstration institutions. As such, they have a narrower scope and generally do not directly implement energy efficiency programs. These and other similar groups are members of the Association of State Energy Research and Technology Transfer Institutions (ASERTTI).

2. Establish Funding

Regional market transformation programs are typically funded through the same mechanisms that fund utility DSM programs; that is, by ratepayers through participating utilities. Additional funding sources can include federal and state government grants and loans, cost-sharing by businesses, foundation grants, and program income. Nonmonetary support is also an option, such as in-kind contributions.

In states that have implemented utility restructuring laws or regulations, a popular approach to support energy efficiency and other “public benefits” has been a fee charged on each unit of electricity sold, variously called a system benefits charge, a transmission access charge, or a wires charge. The money goes into a public benefits fund to be used for energy efficiency, low-income assistance, and renewable energy research programs. A similar

Approximate annual budget ($)

Major projects Major partners

Electric Power Research Institute

500,000,000 Customer systems, environment, generation, nuclear power, delivery,

strategic R&D

700 members, mostly utilities and research institutions

Energy Center of Wisconsin

4,500,000 Compressed air, motors, education, daylighting

Utilities, public interest groups, university, state government

Iowa Energy Center 2,800,000 Biomass, energy audits, agriculture, motors

Utilities, university, state government, public sector

C r e a t i n g M T P r o g r a m s

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approach is included in a number of federal bills and in President Clinton’s utility restructuring proposal. (Cowart, 1997)

Budgets for existing collaboratives depend on their size and scope, ranging up to $22 million per year for a four-state program in the Northwest. California’s $270 million budget is intended to cover all energy efficiency efforts in the state. Direct administrative costs to support the collaborative itself tend to be a small part of the total program expense.

3. Form Collaboratives

A defining feature of a market transformation program is that it covers a broader geographical range than traditional utility DSM programs. Because markets are often larger than a single utility’s service territory, it is necessary for multiple groups to band together to cover the market.

The groups most likely to participate in a regional collaborative include utilities, government agencies, businesses, manufacturers, public interest groups, and universities. Partners in the Northeast Energy Efficiency Partnership collaborative include 25 utilities in seven states, state energy office and building commission staff, environmental and consumer groups, trade allies (like energy service companies), federal agencies, and national organizations. Table 4 lists Northwest Energy Efficiency Alliance members.

Table 4: Northwest Energy Efficiency Alliance members

Bonneville Power Authority Eugene Water & Electric Board Flathead Electric Cooperative Idaho Power Idaho Public Utilities Commission Kootenai Electric Cooperative Montana Power Montana Public Service Commission Northwest Energy Coalition Northwest Energy Efficiency Council Northwest Power Planning Council Oregon Office of Energy Oregon Public Utility Commission PacifiCorp Portland General Electric Puget Sound Energy Seattle City Light Tacoma City Light Washington Department of Community, Trade and Economic Development Washington Utilities and Transportation Commission Washington Water Power

The viable size of the region covered by the collaborative may be defined in a number of different ways. The size and operation of markets, the regional utility network, geographical and commercial boundaries, and historical alliances can all play a part.


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Not all programs will be of interest to all participants, such as efforts to promote energy efficiency in specific industries. One approach to this problem is to have core members and menu, or ad hoc, members. Core members would provide base funding for all operations and have representation on the board. Ad hoc members would be involved only for specific projects, sharing in the funding and the results for those projects. The Northeast Energy Efficiency Partnerships operates this way.

Another option is that the collaborative could work on issues of common interest only, leaving members free to pursue specific topics on their own or with other collaboratives.

4. Define Roles of Participants

Some observers of market transformation programs have divided collaborative participants into two groups: implementers and others. Implementers are those participants who will be delivering energy efficiency services, including utilities, manufacturers, distributors, retailers, and trade allies. Other participants, such as government, nonprofit groups, researchers, and consultants will contribute their expertise in the planning and evaluation stages.

More specific roles will vary according to the task at hand. A program to promote energy efficient windows in new houses, for example, could involve multiple players in different roles:

• Design consultants can work with manufacturers to develop new products. • Utilities can work with distributors, retailers, and builders to promote the windows in specific markets, supply

rebates, and share advertising costs. • State government can develop residential building codes to encourage the windows, hold workshops for

builders, or offer tax incentives. • Public interest groups can promote the windows to the public through presentations, low-income housing

rehabilitation, or “seals of approval.” • The staff of the agency can plan and coordinate the program and study its effects on window sales and energy

savings.

Using a collaborative pools the resources and expertise of each member. Programs should be set up to take advantage of those skills and let each group do what it does best.

5. Define Markets

Before the agency gets to the point of choosing and implementing energy efficiency projects, it should have a thorough understanding of the markets in its region. This step is to establish a comprehensive baseline in order to understand the world in which the collaborative will operate. Although agency partners may each have a feeling for what is important, and each will represent their own group’s interests, formal studies of regional markets of interest are likely necessary.

Existing market research studies can be used in many cases. Formal regional studies are available from the federal government, such as from the Federal Reserve. Regional energy data is available from the Department of Energy. They can be used to identify the largest markets and recent trends. This may seem like reinventing the wheel, but individual utility DSM programs may have never looked at the needs of an entire region.


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These studies alone are not likely to identify the potential for market transformation programs, and in turn, the resulting energy impacts. It may be necessary to conduct specific market research or other market analyses. In Wisconsin, as part of the state-wide utility DSM planning process, a study of the technical potential for a host of energy efficiency measures was performed, and a database composed. The Wisconsin Demand-side Options Database is a catalog of specific energy-saving measures. The database has been applied to specific industries to give an idea of the energy savings possible. (Energy Center of Wisconsin, 1995) For example, the database catalogs HVAC systems in hospitals, and the potential savings from upgrading those HVAC systems to a more efficient level.

A general model of market structure is shown in Figure 1. Products move from manufacturers to customers through a distribution and retail chain. Government and public interest groups may intervene at any part of the chain in a variety of ways, including establishing standards, making endorsements, and filing law suits. Intermediaries, such as lenders, agents, and designers, may get involved between the retailer and the customer.

Figure 1: A basic market structure (Eto, Prahl, and Schlegel, 1996)

Manufacturers Distributors Retailers Customers

Intermediaries

Government and Public Interest Groups

Some markets may not quite fit this model, such as homes and commercial buildings. But it provides a reasonable framework for thinking about most markets, identifying players and seeing opportunities for action.

An important feature of this figure is that it has a box around it—the market is clearly delineated from other markets. A market transformation effort should focus on a clearly defined market to concentrate its efforts. On the other hand, overlap with other related markets can provide an opportunity for “spillover” effects. An appliance dealer, for instance, may participate in a market transformation program for washing machines; he may wish to apply the same marketing approach to sales of refrigerators and dishwashers.

6. Develop Programs

Once participants have been selected, their roles defined, and markets identified, the group can begin to develop programs. The programs should reflect the concerns of the participants as well as the needs of the region.

The easiest way to get started is to participate in programs already underway by other groups, especially national agencies and organizations like the US Department of Energy and the Consortium for Energy Efficiency. These programs are designed to be nationally-applicable, and should be easily adapted to specific regions. Some examples include the ENERGY STAR programs, which initially have focused on lights and office equipment, but are


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expanding to other products—even building ratings. The goals and strategies are already defined in these programs; moreover, the national groups may be able to offer implementation support.

Another good opportunity for leverage in energy efficiency markets is to coordinate agency programs with other market dynamics. For example, fire safety is an important concern with halogen torchère lamps. Promoting compact fluorescent torchères can be a way to reduce fire risks while increasing energy efficiency. The greater “weight” of fire safety concerns could provide a powerful vehicle for transforming the torchère market.

National programs and other market influences can offer a good starting point and an ongoing way to leverage the organization’s resources, but the group may want to come up with other programs specific to their constituency and region. There is typically no shortage of potential areas to work on; more likely the problem will be to sift through the ideas to identify those that hold the best prospects. Proposals could be accepted from members and from outside the collaborative, on a regular basis. The organization may wish to set topics for proposals, to focus on the markets they defined earlier.

A screening method can be used to judge the likelihood of success, the potential for energy savings, the cost of energy savings, and other factors for each proposal. This process can be based on both quantitative data (like market share) and the expert opinions of collaborative members. Figure 2 shows a simple screening tool used to evaluate proposals. Each project is given a numerical rating (1 to 5) for each criterion. An average score can be generated from each rater for each proposal, and all ratings summed into a total score. If desired, some criteria could be weighted more heavily than others.

Figure 2: Sample screening tool (Nadel and Suozzo, 1998)

It is also possible to use actual data rather than a score, such as an estimated cost of energy saved. This approach can be difficult, and take significantly more analysis. However, with large multimillion dollar proposals, a fair amount of preliminary research may be worth the effort. The Consortium for Energy Efficiency, for example, estimates electricity and natural gas savings for each proposal, and ranks them according the cost of energy saved, the total energy savings potential, and the likelihood of success.

Low rating High rating

Meets goals of organization

Innovation

Societal benefit

Relevance to organization or region

Energy saving potential

Cost of saved energy

Likelihood of success

Implementation cost

Ability to measure effects

Fair distribution of savings

Exit strategy available


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Another analytic approach is for staff or consultants to conduct scoping studies to identify promising projects. The studies can estimate energy saving potential and costs, but can go more in-depth, to explore new technologies, define market trends, and lay out options for future action. Scoping studies can serve as a way to educate collaborative members and to keep abreast with new developments. Because much of the screening process is subjective, collaborative members need to be especially well informed about energy savings opportunities. Eventually scoping studies may lead to proposals and programs.

Of course a regional program will also keep an eye on other regional, national, and state groups, and could share research with them. Regional differences will tend to limit some energy saving ideas. A midwestern collaborative, for example, may want to focus on promoting ground-source heat pumps in rural areas, passive solar heating in buildings, and agricultural energy use, among others. A southwestern collaborative may have different priorities.

7. Characterize Specific Markets and Measure Baselines

A thorough study of a specific market should be performed before any activity is underway. Mast et al (1998) has defined three things that can be achieved by a strong preliminary study:

• It provides key information for prioritizing market barriers to be targeted. • It provides the comprehensive understanding of market dynamics needed to design effective program

interventions. • It establishes baseline market conditions against which progress toward the program’s objectives can be

realistically measured.

The baseline should provide a clear indication of market conditions before the intervention begins. Data collected to define the baseline can include:

• market share • stocking practices • number and income of firms offering a good or service • installation and construction practices • prices • awareness among customers, retailers, purchasing agents, trade allies, etc. • customer/purchaser satisfaction • attitudes toward energy efficient products and services • energy use and performance of existing goods and equipment

After the program is underway, similar data will be collected and analyzed to mark the progress of the work. Data for the baseline must be selected that can be collected accurately down the line, or on a periodic basis. The data should pertain to the specific barriers that have been targeted and should provide direct evidence of changes to those barriers as a result of the program.

8. Define Objectives

Meeting the goal of market transformation consists of meeting a number of lesser objectives, such as changing behavior or product offerings. Objectives can be defined as changes in market conditions, relative to the baseline.


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Objectives will vary based on the market, the maturity of the energy efficiency measure or products, and the feasibility of the task. A comprehensive list of potential objectives or market effects (Table-5) has been developed by researchers with the Lawrence Berkeley Lab.

Table 5: List of potential market effects (Eto, Prahl, and Schlegel, 1996)

Customers—change in energy-efficiency purchasing behavior due to change in: awareness attitudes knowledge decision-making processes

Other Businesses—includes retail providers (such as equipment vendors, material suppliers, and builders/contractors), wholesale distributors, non-financial intermediaries (such as design professionals and auditors), and financial intermediaries (such as banks and other lending institutions)

Changes in promotional practices (all) Changes in business strategies (all) Changes in prices offered to customers (all) Creation of new players (all) Changes in stocking and distribution practices (retail providers and wholesale distributors) Changes in design practices (design professionals) Changes in service offerings (all) Changes in the nature and type of employee compensation (all) Changes in contract provisions (all) Development of new skills (all) Changes in underwriting practices (financial intermediaries) Development of new financial instruments (financial intermediaries) Development of secondary financial markets for energy efficiency (financial intermediaries)

Manufacturers Changes in product quality Changes in product attributes Development of new products Changes in promotion Changes in business strategies Changes in prices offered to retailers Changes in shipping and distribution practices Changes in retooling rates Changes in bundling of features Changes in production schedule and quantity (amounts produced) Changes in warranties Building of new plant Acceleration of response to oncoming standards

Government Changes in codes, standards, or regulations Changes in enforcement of codes, standards, and regulations

Objectives can be found all along the distribution chain, from product design all the way to consumption and disposal. Not every objective can be met, so not all should be pursued. Ranking them according to importance can be a key step in formulating a strategy and focusing a program on end results.


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9. Design Strategies and Actions

Strategies should be designed to meet the specific objectives of the energy efficiency program, as defined in the previous step. A sound strategy must involve a clear understanding of the dynamics of the market:, why it is the way it is, what factors are driving the market, recent and future trends, and how buyers and sellers make decisions. Moreover, implementation strategies should take into account how the measures will be evaluated. If the success of an action can’t be measured, it may be difficult to justify intervention.

For instance, staff researchers may find that electrical codes constitute an important barrier limiting the market for residential photovoltaic systems. A strategy to overcome that barrier would be to work with code writers to write rules that are less restrictive. Product manufacturers and installers could meet with state electric code officials to discuss safety issues. Collaborative staff could facilitate the meetings and suggest revisions to the rules. Staff may want to prepare a brochure explaining safety issues that could be given to electricians.

Other barriers and goals within a market would lead to other strategies. Strategies would be prioritized to reflect the priority of each objective.

10. Implement Program Measures The measures taken to bring about changes in a market are many of the same as those used in “traditional” DSM programs. A partial list of actions is included in Table 6. Because market transformation programs are broader in scope, a wider variety of approaches is used. Market transformation actions can include everything from working with manufacturers to design new products all the way to offering rebates or coupons to buyers.

Table 6: Market transformation measures

Although some would not include financial incentives such as rebates in a “market based” program, rebates are standard practice for many marketers. Cars, computers, and many other products are sold with rebates or coupons. What may be different is that in “normal” markets, the manufacturer, distributor, or marketer is financing the rebate or coupon, while in DSM programs the incentives are often funded by ratepayers via their utilities. A collaborative may be able to facilitate an incentive program where the costs are shared between manufacturers and utilities.

Efforts to transform markets will not always affect energy use directly. The conditions of a market may call for infrastructure development, or “market preparation.” For example, if competitive energy service companies (ESCOs) are blocked from a market due to anticompetitive practices on the part of native utilities, the appropriate

Education and outreach Product testing Rebates, coupons and discounts Demonstration projects Group purchases Codes and standards Energy audits Financing Consulting services Shared savings plans Equipment leasing Performance contracting Certification, labeling and endorsements Government procurement rules Advertising Antitrust regulation Lab and field research Taxes, tax deductions and tax credits Product design assistance Product bans


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market transformation effort would be to remove barriers to competition. This could require regulatory or legislative action by a utility commission, an attorney general’s office, or a state legislature.

This example also shows that market transformation is in no way a laissez-faire approach to energy efficiency. On the contrary, it is an active intervention in markets. In fact, it can be a much more aggressive intervention than traditional single-utility programs.

As mentioned before, implementers are the members of the collaborative who will implement the actions defined and planned by the group. Manufacturers, distributors, retailers, and trade allies are most closely in touch with the day-to-day functioning of the market, and may be best able to perform these actions. For market transformation efforts that require government responsibilities, state governments are likely to be in the best position within a regional collaborative. States typically have the expertise and legal authority to regulate energy markets, if necessary.

With any implementation activity, a collaborative will require close coordination of activities. Timing will be important to many plans.

11. Evaluate Results

Evaluation is a critical component of a market transformation program. Program activities must be evaluated periodically to see if they are having the desired effect. If the activities are successful, ongoing evaluation will determine when or whether the activities can be changed or ended. If they are not successful, midcourse corrections can be made.

An evaluation plan should be an intrinsic part of the initial program design, and should thus be tightly linked to the original baseline measurement. If the baseline is defined in terms of market share, for example, the evaluation should focus on gathering market share data. The sources of data will be the same as those used to characterize the market and measure the baselines, as discussed above.

The fundamental goal of the evaluation is to understand not just what happened but why it happened. It should provide a feedback loop to guide future efforts. Program evaluation and market research are not distinct activities. They are both market research at different points in the product cycle. Both should contribute to better program design. This is even more true as competition comes to the utility world.

To understand why a market changes can require both quantitative and qualitative information. Qualitative information can sometimes explain things that can’t be measured with numbers, like customer attitudes and motivations. One common approach is to ask customers to rank their reasons for a specific purchase, unaided, to see how important energy use is and how it compares with other factors. Another technique is to do uniform interviews with distributors.

Different programs and activities focus on different points in the product chain, so evaluations should reflect that. Information about furnace sales, for example, can be best collected from contractors and distributors, not from end users or manufacturers.

Data collected for a program evaluation can be sensitive, and many marketers will be leery to give it out. Data confidentiality must be respected, along with the people who provide it. To encourage participation, an evaluator can offer some data back to the companies that provided it as an added benefit of participating. The data analysis that is performed in the evaluation can be highly valuable market intelligence, covering market share details,


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industry trends and local conditions that are not covered by larger market research sources. Moreover, market research can be very expensive. Participation in a program evaluation can help a business become more competitive at a relatively lower cost.

The process of tracking sales can also create an opportunity to improve participation in the program. Data collection can require the participation of many of the key market actors, like product distributors and retailers. Getting their participation for data collection can create an inroad to the very community that the program is designed to change. This can be an educational opportunity.

It is important that evaluation research be “robust”—that is, it should be able to transcend changes in program designs and technology without becoming obsolete. Tracking systems can be expensive and hard to establish. The things that are measured should be core issues, independent of the type of program. Tracking systems should be able to track changes in markets over a long time and provide relevant information.

“The focus of market transformation programs is on markets, not isolated groups of customers. To be successful, the program design, implementation and evaluation must all be firmly rooted in a detailed understanding of market dynamics.” (Mast et al, 1998)

Another approach to gathering data is to use “proximate indicators” of market change, such as number of training sessions held and the number of manufacturers participating in the program. This information can give a good idea of the final acquisition decision or resulting energy saved, while being simpler to collect and track (Albert, 1998). It can be difficult to pick a good proxy.

In Massachusetts, utilities and regulators have grappled with the problem of measuring the performance of market transformation programs, as a way to allow recovery of costs by utilities (Gordon, et al., 1998). Although “market effects” or “ultimate outcomes” were the desired measurement, there were practical difficulties in using them. Positive market effects of a program can include:

• greater availability of energy efficient products, and less availability of inefficient products • higher market share, with or without purchase incentives • a decreasing price differential between more and less efficient products • a causal link between the program and the outcome

These outcomes were not considered practical because the effects may not be known for years after the program starts, delaying recovery of program costs. Predicting outcomes can also be difficult, because they may be non-linear, growing exponentially if successful. Utilities may work best with a progressive “ladder” of rewards and incentives to sustain their efforts. The lack of baseline market data was a problem, delaying the beginning of energy efficiency efforts until after a market was suitably researched.

In the end, the parties in Massachusetts agreed on single-year measurements, with a mix of “good faith imple-mentation” and “near-term outcomes” such as participation rates. Although their theories “have not yet been tested in use, [they] have survived the test of the political process.”

12. Develop transition strategy

Whether and how a market transformation effort can end is a controversial issue. Because the fundamental goal of market transformation is to remove market barriers to energy efficiency, some say, once an effort is successful and the barrier is removed, the effort can end. This philosophy has led to the development of “exit strategies.”


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Critics say this oversimplifies the way markets perform. Markets are dynamic. Other market factors will continue to function, and may erode gains made by the market intervention. For instance, new entrants to the market may not practice business in a way that maintains the same efficiency levels that more established business do. If businesses who took part in a transformation program now have products with higher up-front costs, such as high-efficiency furnaces, that may attract new entrants to provide low-end inefficient products, returning the market to the prior state. Consequently, some type of on-going involvement may be necessary to assure that the desired market transformation outcomes are maintained, just as private firms maintain active promotional campaigns even if they have achieved a large market share. For example, Coca Cola and Microsoft are private firms that have achieved high market shares, yet maintain aggressive advertising campaigns to maintain or further increase their market position.

It may be difficult to tell when a market barrier has been removed, or whether effects are permanent or temporary. But with sufficient monitoring of progress, it should at least be possible to tell when a specific energy efficiency effort is producing diminishing returns. If the market for high-efficiency furnaces is reaching an expected saturation point or the rate of growth is leveling off, then the effort has been successful. At that point, money and effort may be better spent on windows or water heaters.

Energy efficiency is but one attribute of appliances, equipment, services, lighting and buildings, and other products and services. In each of these, energy efficiency is often a small factor in the many variables that can affect a purchase decision. All of the other factors will continue to influence those markets in ways that may be beneficial or detrimental to energy efficiency. “Exiting” a market—and thereby withdrawing efforts to increase awareness of energy efficiency as one market attribute—may result in a return to market conditions that existed before the market transformation efforts.

A transition strategy must include a way to make permanent the gains that were achieved by the program. The experience of the Northwest Manufactured Housing Acquisition Project (MAP) is a good example of how not to enact an exit strategy. (Baylon, Davis, and Hughes, 1998)

The MAP program encouraged manufactured home builders in Washington, Oregon and Idaho to build electrically-heated houses well beyond minimum HUD energy standards. The program evolved from a retail rebate for purchasers to a “wholesale” subsidy to manufacturers, if every electrically-heated home they built met the higher standard.

The program was very successful, achieving over 90 percent penetration, and saving 30 MW average capacity at a cost of less than 3¢ per kWh. But due to the impending pressures of competition, Portland General Electric and PacifiCorp, two major utility partners, withdrew from the program in 1995, and the program collapsed.

Continuing support for the efficiency improvements varied in the three states. The Oregon housing energy code adopted the MAP standards, and the legislature encouraged manufactured housing that met the code. In Washington, the few home builders there concentrated on high-end manufactured homes that were competitive with site-built homes; some of these builders saw the continued value of high-efficiency homes. In Idaho, there were no similar supports. Market penetration fell in Oregon from 98 to 53 percent in three years, in Washington from 98 to 78 percent, and in Idaho from 94 to 48 percent. Overall, the three states saw the market share of efficient homes cut in half.

A common metaphor for energy efficiency gains is that we are pursuing the “low hanging fruit”—that we are making the easiest gains first. Some pursue the metaphor to imply that once all of the low hanging fruit have been picked, energy efficiency programs make less economic sense and should be ended. But the “tree” is a living thing, and is always growing. Our abilities are growing too—to find and make improvements, new developments in technology, new needs and crises. Our ability to reach the fruit is constantly improving, and may improve forever, for all we know.


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The conclusion of one analysis of MAP: “Without a standard in place to support the market transformation, or sufficient time to remove the capacity to manufacture the less efficient product, market forces will tend to support a ‘race to the bottom’ for a large part of the market.” (Baylon, Davis, and Hughes, 1998) Although the $130 million spent on MAP did save energy cost effectively, it did not transform the market for manufactured housing. With a more aggressive and coordinated transition strategy, some of the gains made by MAP could have been permanent.

If manufacturers have switched over to more efficient appliances or practices, it may be a good time to implement a code or standard to reinforce the move. The real function of a standard is to ensure a minimum level of efficiency, thereby excluding less-efficient products from a market. There may be widespread support for such a standard at that time because it offers a way for manufacturers who have invested in improved products a chance to “protect their rear” by preventing other firms from entering the low-end market they just vacated.

“Even if customers are willing to invest in energy efficiency now, they need regular reminders to continue to do so in the future (as one interviewee noted: ‘much like going to the dentist, which we all know is a good thing to do, but many of us may let slip without regular reminders’).” (Eto, Prahl, and Schlegel, 1996)

Other approaches are also possible. Low-level programs, such as advertising and education, can at least keep the issues in the public eye, and promote awareness and continued emphasis on energy efficiency as an important attribute for consumer purchase decisions.

Even if a standard is in place, there still may be a justification to continue monitoring the market, if the market offers continued promise for improvement. A standard demarcates a minimum level of performance; innovation will continue to expand the maximum levels of performance. A standard can serve as a clear baseline, against which ongoing market changes can be measured. Setting baselines and tracking changes are about more than just numbers—they are about understanding and developing alliances for further progress.

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Market Transformation Efforts—Case Studies In the previous section we discuss the definition and concept of market transformation, then describe the steps typically taken in market transformation initiatives and activities. Market transformation, however, is a complex undertaking that doesn’t necessarily follow a specific formula or recipe. In this section we present brief case studies of market transformation to illustrate similarities and differences of specific efforts. There is no universal, best way to achieve market transformation, just as in private business there is no single, best way to market products and services. Each market transformation initiative is likely to be unique, yet share objectives and approaches with initiatives in other markets.

We have selected the case studies to represent the broad spectrum of initiatives and activities that fall under the umbrella of market transformation. Market transformation activities must fit within the complex, dynamic set of relationships that comprise a given market. In each case study we examine key features of the market transformation effort, including:

• Markets

• Technology (product) or service

• Geographic scope

• Initiating organizations

• Target populations

• Goals

• Program measures

• Level of success

• Sustainability

• Market impacts

A fundamental tenet of market transformation is that it relies on market forces to implement change. Market forces, in turn, result from individuals and organizations seeking to achieve value and meet their needs as expressed through market transactions. Market transformation is a catalyst for change. The case studies identify the motivations for the participants in the given market transformation activity. Successful market transformation must understand customer and business motivations and catalyze change that builds on these fundamental market forces. The case studies are:

• Wisconsin residential furnaces

• Compressed Air Challenge program

• Residential clothes washers

• ENERGY STAR® program

• Motor Challenge program

• Residential insulation

• Refrigerators for apartments

We conclude this section with a discussion of the potential benefits of creating an organization in the Midwest to coordinate and facilitate regional market transformation.


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Wisconsin Furnaces

Forced-air furnaces represent the largest single residential natural gas end use in Wisconsin and in the Midwest. As such, they received a lot of attention from customers, the HVAC industry, and demand-side management program planners during the energy crisis in the 1970s. Yet the results of this attention vary dramatically by state in the Midwest. In Wisconsin, efforts to introduce conservation into the natural gas market by encouraging homeowners to purchase high efficiency furnaces appear to have had striking results.

Market Transformation Activities

The Wisconsin residential and small commercial furnace market is widely cited as an example of market trans-formation that worked, even though the term “market transformation” had not yet been well defined. Sales data collected by the Energy Center of Wisconsin show apparently lasting success in terms of market share of high-efficiency furnaces.

High-efficiency furnaces are those with annual fuel utilization efficiency (AFUE) ratings of 90 percent or greater. This means that 90 percent of the heat generated by the burning of natural gas is transferred by the heat exchangers in the furnace and is directed into a house’s living area. New standard-efficiency furnaces by comparison have AFUE ratings as low as 78 percent, as allowed by a 1992 federal law. A homeowner can save $50 to $150 per year depending on house size and climate by choosing a high-efficiency furnace of 90 percent or better AFUE rating (Prahl, 1994).

Purchase barriers for high-efficiency furnaces include price, supply, awareness, equipment reliability, and skilled contractors. Wisconsin addressed most of these barriers through a concerted effort by its utilities, the Public Service Commission of Wisconsin (PSCW), and the HVAC industry.

Conservation efforts in Wisconsin’s furnace market began in the 1970s, when energy prices were rising. Early policy by the PSCW sought to promote and educate customers on the benefits of energy efficiency as part of a furnace purchase (O. Bloch, Public Service Commission of Wisconsin, personal communication, April 1999). Residential Conservation Services audits were offered through utilities to alert homeowners to efficient options. Customers were also advised to get multiple contractor bids and were informed how payback from energy savings can recover the additional cost of the high-efficiency furnace.

The PSCW also believed that, as an equity issue, low-income residents were entitled to state-of-the-art efficiency improvements and thus required that utility weatherization programs use high-efficiency furnaces. This gave Wisconsin residents access and exposure to energy efficiency and provided the HVAC trades with valuable early experience with high-efficiency products.

Later, integrated resource plans required utilities to consider both supply-side and demand-side options in their construction plans. Although these plans were aimed at utility electric operations, the PSC also required conser-vation programs for gas operations. These early rules first required the utilities to expend certain amounts of money on high-efficiency furnaces rather than achieve specific savings goals.

In response to PSCW orders, some Wisconsin utilities offered low- or no-interest loans to customers starting in 1983 and began offering rebates in 1985 (see Table 7). No aggregate figures are available on the total amount of rebates given, but individual utilities gave rebates that ranged from $100 to $150 in 1985. These rebates were meant to reduce the higher first cost of high-efficiency furnaces. Starting around 1989 there was some consensus that the market had been “moved” sufficiently and rebate programs could be reduced. Rebates were reduced to the $50 to $100 range and continued to decrease until they were discontinued around 1994.

C a s e S t u d i e s

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Table 7: Furnace rebates

* New gas customers only

Sources: Middagh, M., Northern States Power Company-Wisconsin; Morrow, J., Wisconsin Gas Company ; Chase, R., Wisconsin Natural Gas; Hamilton, S., Minnegasco, personal communications, April 1999; and Bermman, 1987.

Some utility programs offered incentives to contractors, $10 to $25 dollars or points that could be applied to golfing or fishing trips for selling high-efficiency furnaces. There were also co-op advertising arrangements where the utilities would pay for a portion of advertising. The HVAC industry also helped these efforts by offering training to contractors and developing their own promotional programs, which were sometimes coordinated with the utilities.

Figure 3 depicts the relative market shares for high-efficiency furnaces in some Midwest states in 1990 (Curtes, 1996). More recent data for Wisconsin shows the market share holding at about 75 percent with the decline being confined to the southeast part of the state (Energy Center of Wisconsin, 1996a, 1997b). The reasons for this decline are discussed in Energy Center of Wisconsin (1997b). Wisconsin also boasts the greatest number of annual, high-efficiency furnace sales of all 50 states.

Wisconsin Gas Company

Northern States Power Company-

Wisconsin

Wisconsin Natural Gas

Madison Gas & Electric

Company

Wisconsin Public Service Corporation

Minnegasco Northern States Power Company-

Minnesota

1983 100

1984 100

1985 50 75 150

1986 50 75 150

1987 50 75 150 100

1988 50 75

1989 50 75

1990 100 50 50

1991 75 50 50

1992 50 50 200

1993 50 200

1994 50* 200 200

1995 50* 200 200

1996 50* 200 200

1997 200 200

1998 200 150

1999 200 150


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Figure 3: High-efficiency furnace market share (percent of annual sales that are high efficiency)

0

20

40

60

80

100

Wisconsin Illinois Minnesota Michigan Iowa USA

Source: GAMA & Carrier marketing statistics; 1990

There are other effects on the Wisconsin market and for the homeowners who purchase high-efficiency furnaces. The increases in market share and experience of buyers and sellers have helped to lower furnace costs. Competition and programs in Wisconsin have resulted in an average price premium—of high-efficiency units relative to standard efficiency—of only $464 in 1996 (Energy Center of Wisconsin, 1997c). A comparative study of Wisconsin and Michigan in 1995 showed that Michigan’s price premium was almost 30 percent higher (Winch and Van Lier, 1995).

About 60,000 furnaces are sold annually in Wisconsin. If Wisconsin purchased high-efficiency furnaces at the national rate (19 percent), only 11,400 high-efficiency units would be sold. In fact, 45,000 high-efficiency furnaces are sold annually in Wisconsin (Curtes, 1996).

Minnesota has about a 60 percent market share for high-efficiency furnaces. Minnesota initially used codes to require certain efficiencies in residential new construction and then added rebates ranging from $150 to $200 in 1992 that continue to this day. Utilities unsuccessfully submitted plans to offer contractor training for proper furnace sizing and ductwork sealing but Minnesota, unlike Wisconsin, typically has organizations other than utilities deliver efficiency programs.

Market Transformation Opportunities

How might a Midwest furnace market transformation be accomplished? Wisconsin’s economy and weather is similar to that in other Midwest states. But things have changed in the region since the 1970s.

Natural gas prices have steadily declined since 1982 (Wisconsin Energy Bureau, 1997), making furnace payback calculations less favorable. Milder winters and better constructed, insulated, and sealed houses have also reduced the household use of natural gas (Wisconsin Energy Bureau, 1997) which can lower the importance of energy in homeowners’ minds. The energy “crises” that drew attention and opened a door for energy efficiency has passed,


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making high-efficiency products less attractive. The barriers identified for Wisconsin also exist throughout the Midwest: awareness, price, availability, and HVAC industry cooperation.

Many consumers in Wisconsin already know, or are informed by their contractors (Energy Center of Wisconsin, 1996a), that they have a choice of furnace efficiencies. If other states’ consumers do not know this, their awareness should be raised, particularly when they are in the market for a furnace. Awareness-building activities should occur just prior to the heating season as most furnace replacements occur early in the heating season. Customers should also be apprised of the benefits of high-efficiency furnaces, such as how much they can save money and help the environment.

Price premiums for high-efficiency furnaces are difficult to address because utility rebates are not likely to be offered as they were in the past. Furnace manufacturers might be persuaded to participate in a market transformation effort if they were part of a collaborative organization comprised of consumer interest groups, utilities, energy research and development organizations, and other interested parties representing the large Midwest market in which they sell their premium, high-efficiency furnaces. Presented with a large enough opportunity, manufacturers might be induced to offer better prices, increased stock, contractor training, and promotional campaigns with the backing of a Midwest market transformation initiative.

Finally, there is a need for continuity and reinforcement of awareness, knowledge, and training to help maintain gains in stocking practices, favorable prices, and market share. Wisconsin demonstrates that significant changes can be made and that it takes a considerable length of time. Fifteen years passed before the market share for high efficiency furnaces reached its peak of about 85 percent in the late 1980s (Curtes, 1996); according to Energy Center of Wisconsin data the market share is now at 75 percent, but seems to be holding fairly firm. This 10-point drop is attributed to the discontinuation of rebates, reduced promotional efforts, and increased price competition (Energy Center of Wisconsin, 1997b). Program designers should carefully consider these effects and experiences.

Compressed Air Challenge

Compressed air systems are used in many industries for a variety of purposes. More than a million air compressors are sold each year, but the largest two percent of these compressors consume 88 percent of the energy in terms of horsepower. Air compressors are sold mainly through distributors, although some manufacturers sell directly to end users. It is a mature market with the emphasis in most sales being on the size and cost of the air compressor.

Industries use compressed air to operate pneumatic cylinders, air tools, packaging machines, and other air-powered equipment. Air tools can be used in wet or dirty environments where it is not appropriate for electric tools. Air tools are also less expensive than electric tools and offer more power in a smaller, lighter package. But air tools can also use 10 times as much energy to operate than comparable electric tools.


The Compressed Air Challenge™ was created to increase the energy efficiency of compressed air systems, looking at how equipment is being used and controlled and how manufacturing lines are designed. CAC documents compressed air system efficiency improvements of 20 to 50 percent (Compressed Air Challenge, 1998b).

Maintenance of compressed air systems is vital to performance and efficiency yet many companies only do minimal routine or ad hoc maintenance. Many businesses have poor control over their compressed air systems due to the controls themselves or a poorly designed system. Leaks in a system that have a cross section area of 1/16” can cost a business $523 per year at $0.05 per kWh even with an efficient compressor (Compressed Air Challenge, 1998a). A


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typical plant that has not been well maintained can waste 20 percent of compressor output due to leaks, which can lead to pressure drops. Pressure drops are sometimes “fixed” by increasing overall pressure or even installing additional compressors. The solution to this problem is simply to establish a maintenance and leak detection program. The Compressed Air Challenge provides easy-to-use tools for estimating leakage, its cost, and devising solutions.

Many companies do not know how much their compressed air costs—sometimes compressed air is accounted for as overhead, or worse, not accounted for at all. A 100-horsepower compressor will cost from $30,000 to $50,000 depending on the type and make. The annual electricity costs can reach $50,000 and maintenance costs add another $5000 or more per year. Wasting 20 percent of electricity costs adds up to $10,000 to annual operating costs. The Compressed Air Challenge informs participants of these costs and how to manage them effectively.

Compressed air systems are often poorly designed or assembled in a piecemeal fashion. Problems that arise due to no design or poor design such as insufficient pressure and inadequate reliability are addressed by adding more compressor capacity. When these problems are addressed properly some of these additional compressor investments can be avoided entirely.

The Compressed Air Challenge addresses these and other problems and opportunities by offering comprehensive training, promotion, and potentially certification geared towards the compressed air industry and its customers. CAC is a public/private joint venture sponsored by the compressed air industry, the U.S. Department of Energy, utilities, and members of the Association of State Energy Research and Technology Transfer Institutions. Structurally and functionally, CAC has formed groups covering promotion, training, technology, and certification. CAC draws from many professions including engineers, designers, manufacturers, policy makers, researchers, consultants, and government—a diverse group of organizations and people. The Energy Center of Wisconsin provides administrative support to the CAC.

Structurally CAC has an advisory board comprised of project sponsors and a project advisory committee that provides program strategy and direction to the working groups. The initial life of CAC is two years at which time the advisory board may decide to discontinue or extend the project.

Barriers to Market Transformation

A number of factors have prevented the large-scale adoption of energy-efficient practices. Awareness of the potential savings is not widespread or understated and even when those in a position to act become aware, the savings are viewed as too small or too low a priority. Company employees may also lack the expertise to convince management that improvements are worthwhile.

A stubborn problem is the relative costs of compressed air to total production costs and thus the relative potential savings in improvements to the compressed air systems. Cost is frequently such a small percentage of total cost that it does not meet arbitrary thresholds for cost management efforts. Diagnoses of problems are sometimes difficult due to the complexity of the system or due to the fact that the system was installed over time without a coordinated design. Too many times pressure drops or inadequate volume is attributed to the need for more compressors, where in fact the problem might be in piping, controls, or excessive leakage.


Any area with a sizable industrial sector is a good area for the activities offered by CAC both in terms of savings and in the ability for CAC to reach a large audience at a reasonable price. The Midwest is such an area.


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The Midwest has a large user base of compressed air as well as a large equipment supplier base. Many industrial conventions and other functions are held in the Midwest where audiences could be easily assembled. Suppliers might welcome chances to visit with their customers to offer new services, with CAC facilitating these interactions.

Clothes Washers

The clothes washer market holds perhaps one of the largest resource savings opportunities for the residential market, a market sector where conservation opportunities are notoriously difficult to capture. High-efficiency clothes washers save water, electricity, gas, and detergent. These washers also offer obvious performance improvements such as cleaner clothes, which helping to make the connection for consumers among energy efficiency, resource savings, and better performance. This can provide word-of-mouth publicity for energy and resource efficiency.


High-efficiency, front-loading clothes washers dominate markets outside the United States. The US market is dominated by top-loading clothes washers that use much more water, electricity, gas for heating water, and detergent, and also do a poorer job of cleaning clothes. High-efficiency front-loading washers are widely used outside the US because they are familiar, cost less to operate, use less space, and have superior performance.

The primary difference between front-load and top-load washers is that the washer tub spins on a vertical rather than horizontal axis. Instead of using an agitator to move clothes, front-loaders tumble clothes through a much smaller amount of water. These machines use 30 to 48 percent less water and 58 to 70 percent less energy for washing and drying (Edwards and Lithgow, 1991) and are shown in tests and consumer reports that they do a better job of cleaning. The total energy savings arise from less use in washing and, due to high spin speeds that remove water from clothes, less drying energy is required.

Even with these savings and superior performance, front-load washers only account for five to six percent of washing machine purchases nationwide, according to manufacturers. This is due to purchase barriers such as price, availability, familiarity, and consumer preference.

Price is the most often cited barrier. Front-loaders cost from $700 to $1200 compared to $300 to $600 for conventional top-loading machines. These higher prices reflect that these are newly introduced products and sales are not yet at a level that will drive the price down dramatically. In the United Kingdom, where front-loaders are widely used, prices range from the equivalent of $400 to $800 (Bagwell, 1998 and Comet, 1999).

There have been some price reductions since these machines were introduced. Frigidaire’s Gallery front-load washing machine was priced at about $1200 three years ago in the Midwest but it now sells for about $700. Maytag’s Neptune machine was introduced at $1200 and has been priced as low as $850, but strong demand has driven the price back to the $1000 to $1100 range.

Availability was also a problem. When front loaders were first marketed in the Midwest in 1996 only one or two brands were offered and sometimes they were not stocked and had to be special ordered. Now it is not unusual to for larger appliance dealers to offer three or more brands in the showroom of both foreign and domestic man-ufacture. Display models and sufficient stocking make a significant difference when a consumer is shopping for an unfamiliar product.


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Familiarity with this newly introduced product also presents a barrier. People need to be made aware that, for example, even though front-loaders are smaller overall, they have the same washing capacity as the larger top-loaders.

There have been two market transformation efforts in the clothes washer market: Washwise, addressing price and familiarity barriers, and the Maytag Neptune, developed to meet future energy standards.

The Washwise program (now the ENERGY STAR® Resource Efficient Clothes Washers program) is funded by the Northwest Energy Efficiency Alliance. Washwise used rebates from gas, electric, and water utilities to lower the purchase price of efficient machines by as much as $300. It also offered sales training, promotional assistance, and point-of-purchase displays to prepare the market for introducing efficiency concepts.

The Washwise program has discontinued the rebates and instead adopted the ENERGY STAR program labeling approach. The new program provides dealer spiffs, promotional materials, and sales training leaving in the hands of the local dealers and utilities the decision to include rebates and at what level. A publication and website lists participating washing machine dealers, introduces new machines, and provides related information.

Washwise has helped sell 56,000 resource-efficient clothes washers in the Northwest (Northwest Energy Efficiency Alliance, 1999). Current estimates of market share for these units is 10 to 12 percent, twice that of the national average. Each load of laundry with an resource-efficient clothes washer saves up to 30 gallons of water, so that every load done by this growing fleet saves almost 1.7 million gallons of water. The machines also save about 1.2 kWh per load, for a total of 67,200 kWh per load for the fleet. The average household does about one load per day.

Maytag got involved in energy-efficient clothes washers under different circumstances. In response to upcoming DOE efficiency standards (Thomlinson and Rizy, 1998), Maytag worked with the Electric Power Research Institute to develop a machine that would comply with these more stringent standards. However, Maytag differed from other appliance manufacturers in that they did not take a European design to the US market. They instead developed a completely new machine using extensive technical, market, and consumer research. This research resulted in the Neptune, a front-loading washer in a standard size cabinet, and a large opening to a tub tilted upwards for ergonomic reasons.

After the Neptune was developed and ready to go to market the enactment of the new standards was delayed due to resistance from some manufacturers. This left Maytag with a highly efficient machine without the standards to motivate sales. As a result, Maytag marketed the Neptune as they would for any other new premium product. The strategy was successful, leading to solid sales motivated by design and performance.

In a test market in Bern, Kansas, a community facing severe water supply problems participated in a test of the Neptune clothes washer to measure water savings, energy savings, and cleaning performance (Thomlinson and Rizy, 1998). In this test 103 households participated in a two-month trial where their energy and water consumption for washing clothes was measured using their existing top-load washing machines and their new Neptunes.

The water savings were 37.8 percent and their energy savings were 57.6 percent. The water supply rebounded such that the water agency was able to lower water rates. Residents also reported that their clothes were cleaner and softer.

Sales of the Neptune have surpassed expectations resulting in increases in production and price. The Neptune is selling well both with and without rebates. Those Maytag dealers selling the Neptune without rebates do so based on value to the customer in terms of superior cleaning, Maytag reliability, and resource savings. Future expansion of the Neptune line include stacked models and machines with fewer features to allow more attractive pricing.


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The benefits of resource-efficient clothes washers are not just at the household level. Municipalities can benefit from reduced water and sewerage pumping energy costs; reduced water and sewerage treatment costs; and possible deferrals of capital investments in water and wastewater treatment capacity. Thus, building the market for resource efficient clothes washers can help communities better manage their growth.

If the market for resource-efficient washers is already developing on its own, why should further market trans-formation resources be directed at the clothes washer market? Market transformation is about teaching and informing people about energy efficiency as well as the energy savings. Market transformation needs solid publicity based on the experience of typical homeowners. The front-loading washing machine may provide that sort of publicity. It can help make the connections among superior performance, water savings, reduced emissions, and other benefits of energy efficiency.

Current estimates of market share for these machines is about five to six percent of total sales, and manufacturers estimate that the market share will approach 10 percent in five years (M. Gardner, Northwest Energy Efficiency Alliance, personal communication, April 1999). Continuing market transformation efforts can help accelerate the increase in market share and its positive benefits.


Perhaps one of the most promising opportunities for a Midwest market transformation effort for the clothes washer market is the ENERGY STAR program. There are organizations with extensive experience across the nation that the Midwest can leverage to its advantage. There are also programs in the Midwest that provide direct Midwest experience such as Wisconsin utility programs to meet conservation goals. Another promising development is the signing on of Sears Roebuck & Company as an ENERGY STAR Partner. This is especially important in getting exposure for these machines in rural areas.

There are also large potential customer groups that would be an easy target for a Midwest market transformation effort including small businesses. Some of the obvious business types are hair salons and health clubs. Another segment is the multifamily market. These groups of consumers are easy to identify and share a common behavior; they do a lot of laundry and can benefit directly from the use of resource-efficient clothes washers.

The benefits could be extensive for the Midwest. Customers get cleaner clothes and save money on water, electricity, and gas. Utilities can manage capacity problems by encouraging their customers to purchase high-efficiency washing machines. Midwest appliance manufacturers such as Maytag, Frigidaire, Whirlpool, Amana, and Staber could expand their businesses.

ENERGY STAR

The ENERGY STAR® program is designed to help consumers to identify high-efficiency appliances and other products and services on the market. It does so through communications, training, loans, and labeling activities with manufacturers, distributors, dealers, contractors, and customers. The program offers information to consumers in the marketplace, through the mass media, and on the internet.


ENERGY STAR is cosponsored by the US Environmental Protection Agency and the US Department of Energy. The program covers commercial products, office equipment, building supplies, services, and home electronics.


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ENERGY STAR products and services include LED exit signs, office equipment, lighting fixtures, insulation, win-dows, doors, skylights, air conditioners, furnaces, refrigerators, clothes washers, dishwashers, home electronics (VCRs, TVs, etc.), duct sealing services, and homes. ENERGY STAR Homes and building programs cover both design and components to bring to the market more comfortable and energy efficient homes and work spaces.

The program has two major components: communications and labeling. The communications component can take many forms in content, media, and who fields the communications. The labeling component is mainly to identify products and services that are highly efficient and qualify under ENERGY STAR criteria. Manufacturer affix ENERGY STAR labels to qualifying products to clearly identify which appliances and other goods are high efficiency. This also helps to reduce consumer confusion, as ENERGY STAR helps overcome misperceptions that people have that the “yellow sticker” required by the Federal Trade Commission means high efficiency when in fact it is only a statement of how much energy a product uses.

Manufacturers, dealers, and retailers, and utilities can participate in the program by agreeing, through a Memo-randum of Understanding, to engage in various promotional activities using the ENERGY STAR logo. How they use the program is up to them as long as they do not violate the memorandum. This is meant to allow creativity and variation of program approaches so the program can be customized to local conditions. This also shifts the expense of the program to the users, fostering accountability and wise use of resources.

The program itself is a market transformation activity in that it tries to alert consumers to energy implications in purchase decisions. Consumers typically do not consider the energy efficiency of appliances when purchased either because they are not interested or they assume the products they buy are efficient.

There are a number of activities that are currently taking place or planned in the Midwest. The list below was provided by D & R International and is supplemented from various other sources. D & R International is the ENERGY STAR delivery contractor for DOE.

• Alliant Energy, an electric and gas utility operating in Wisconsin, Illinois, Iowa, and Minnesota, has contracted Wisconsin Energy Efficiency Corporation to administer an ENERGY STAR program for its Wisconsin service territory.

• Commonwealth Edison (ComEd), a subsidiary of Unicom, is starting to analyze energy efficiency marketing programs. ComEd published educational information regarding ENERGY STAR in their billing insert newsletter, “The Source.”

• The Energy Center of Wisconsin is conducting market research and evaluation activities on ENERGY STAR. It is also on the steering committee for a national ENERGY STAR evaluation project headed by the Consortium for Energy Efficiency.

• Madison Gas & Electric Company signed a memorandum of understanding with ENERGY STAR. MGE agrees to educate and train home buyers and sellers about ENERGY STAR appliances to improve their Home Performance Ratings.

• Mid-American Energy has signed a memorandum of understanding with ENERGY STAR. MAE uses the ENERGY STAR label as a criteria for a loan on windows.

• Northern States Power Company is an ENERGY STAR Homes Ally, and is exploring the development of an ENERGY STAR Retailer program similar to the Southern California Edison model.

• The Ohio Department of Development, Office of Energy Efficiency, has held meetings to discuss the possibility of an Ohio-based consumer education campaign involving ENERGY STAR.


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• Wisconsin Electric Power Company wrote an extension letter to continue their memorandum of understanding. Their program will be administered by the Wisconsin Energy Conservation Corporation, a nonprofit energy service company.

• Wisconsin Public Service Corporation signed a memorandum of understanding with ENERGY STAR in June 1997, and have developed their own energy efficiency campaign both in print and broadcast platforms. WPS contacted area stores for their recruiting efforts and has signed more than 20 stores to the ENERGY STAR program. WPS sends point-of-purchase and sales training materials to partnering retailers.

• The Wisconsin Department of Administration, Wisconsin Energy Bureau, through its Wisconsin Focus on Energy program, is asking Wisconsin window manufacturers to become ENERGY STAR partners.

• Sears Roebuck & Company recently became an ENERGY STAR Partner. Sears wide market presence will bring ENERGY STAR products to areas where large appliance dealers do not have stores.

ENERGY STAR is designed to overcome a variety of barriers to the purchase of high-efficiency products. These barriers include awareness, misperceptions, and sales staff. Many consumers believe energy efficiency is “built in” to most products. Consumers also believe they are purchasing high-efficiency products when in fact they are only purchasing standard-efficiency products. In an Energy Center of Wisconsin study (Energy Center of Wisconsin, 1998), people who said they purchased a high-efficiency refrigerator in fact purchased almost the same efficiency level as those who said that they did not notice a difference in efficiency. These same people also said that they know their refrigerator was high efficiency because of the “yellow sticker,” which gives electricity use estimates. Other studies show the effects of the yellow sticker to be mixed at best (Dupont, 1998).

Sales people appear to have a marked influence on the efficiency level of refrigerator purchases, but only if they discuss efficiency with their customers.(Energy Center of Wisconsin, 1998). One goal of ENERGY STAR is to train and encourage sales staff to point out the most efficient products and to convey how energy efficiency can benefit the consumer and the environment.

ENERGY STAR addresses all these barriers by providing promotional materials, training, and reinforcing messages. The promotional materials are meant to build awareness of what ENERGY STAR means: the highest efficiency appliances. In-store materials identify which appliances are ENERGY STAR compliant. Sales training teaches sales people how to sell ENERGY STAR products.

The results of ENERGY STAR are not clear yet. It sends a clear message to consumers on which products are the most efficient, and helps consumers make the connection between energy efficiency and the environment. ENERGY STAR offers a common voice to accomplish this. Evaluations are underway on the general awareness of ENERGY STAR and its effects on consumer choice. There are local, regional, and national evaluation efforts currently in the field or soon to be in the field that will help assess the effectiveness of ENERGY STAR.


Regional collaboration can help a program like ENERGY STAR, especially in the Midwest where a significant amount of interstate commerce takes place. Mass media advertisements on Chicago radio, for example, can influence daily commuters from Indiana and Milwaukee.

ENERGY STAR experience can be shared among some of the ENERGY STAR programs listed above and nation-wide. In many respects, ENERGY STAR is a promotional and marketing program. Many organizations interested in starting ENERGY STAR programs have little experience in developing, testing, producing, and fielding promotional and marketing programs. It would be to the advantage of a regional collaborative to identify those successful efforts, approach those involved, and learn from what they did. This would also help manage design, testing, and implementation costs.


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A final opportunity would be to bring other market transformation efforts and their products under the umbrella of ENERGY STAR in the Midwest. A collaboration of this magnitude could attract the attention and help to persuade manufacturers, distributors, and retailers to participate in ENERGY STAR to sell their most efficient products. A collaboration of this magnitude might also attract assistance from the federal government.

Motor Challenge

Motors are one of the largest electric end uses in the United States. They drive fans, pumps, compressors, and many other types of equipment in the industrial sector. In the residential sector they are used in appliances, HVAC, and many other applications. In the commercial sector they are mainly used in HVAC systems and refrigeration equipment. Motors account for more than 50 percent of the nation’s total electric consumption, of which 47 percent is in the industrial sector, 20 percent each in the residential and commercial sectors, and the balance used by miscellaneous applications associated with public authorities, railways, etc.(US Department of Energy, 1996).


In the 1980s there were numerous efforts in Wisconsin and other parts of the US to encourage the stocking and purchase of more efficient motors. In Wisconsin, utility programs used different approaches and have served to test these approaches for their effectiveness. Wisconsin utility programs began with rebates and then developed standard qualifying levels, offered training, and provided sales tools.

Nearly all the distributors in Wisconsin used utility rebates. Some said the rebates made the sale of high-efficiency motors an easy prospect. Rebates also affected the rewind market because it was viewed as a good business decision to buy a new energy-efficient motor rather than rewind an old motor. This possibly boosted efficiency gains more by getting older, less efficient motors out of the system.

These individual programs were then coordinated and simplified through the statewide Responsible Power Management (RPM) program, administered through the Energy Center of Wisconsin. It was meant to address certain barriers in the market; higher price, lack of awareness of efficiency options, and lack of sales tools for motor distributors.

RPM focused on motor distributors and on motors in the one to 200 horsepower range. The goals were to accelerate the adoption of motors that met 1997 proposed federal minimum efficiency standards; transform the market in Wisconsin so that an increasing number of users purchase these high-efficiency motors; and improve the cost effectiveness of available utility-sponsored programs by leveraging distributors’ efforts (Energy Center of Wisconsin, 1997d)

RPM and other programs were designed to capture savings that otherwise go unrealized. It is estimated that for every dollar spent on a motor, fifty-seven dollars is spent operating it over its useful life. High-efficiency motors are two to six percent more efficient than standard-efficiency motors and they cost 15 to 30 percent more (US Department of Energy, 1996). Many of these motors are a good investment in that the additional cost is recovered in a reasonable period of time, but prior to the introduction of these programs this message was not making it to the motor purchaser. For example, if you spend $1600 on a motor you will spend $92,000 in electricity to operate it. An additional $400 will get you a motor that will save three percent of these operating costs, or $2760 (US Department of Energy, 1996).

RPM also brought more attention to the purchasers of smaller horsepower motors. Earlier utility programs effec-tively reached large customers and large motors; smaller customers and motors were not reached. This was because


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of the limited number of utility program personnel. RPM addressed this by using the distributor and dealer network by leveraging their broader interaction with smaller customers.

RPM provided tools to help motor distributors sell high-efficiency motors. These were:

• MotoRater—A circular slide rule that calculates the long-term energy savings of using high-efficiency motors

• Case Studies—Summaries and savings reports featuring Wisconsin businesses that purchase only high-efficiency motors

• MotorMaster—Computer software and databases of energy-efficient motors

• MotorFacts—A form for calculating a high-efficiency motor’s payback period

• Videos—Short video presentations illustrating the benefits of high-efficiency motors

• Newsletters—Publications with updating and promoting the RPM program

Only 25 percent of distributors reported using the tools (Energy Center of Wisconsin, 1997d). This suggests that rebates were a significant factor in driving the positive results of the RPM program. However, the market share for high-efficiency motors remained higher in 1996 than in 1994 following the discontinuation of the rebates, indicating the effects of the RPM program are lasting, although not maintained at peak levels.

Figure 4 suggests the effects of this program, based on a small sample of motor distributors. The most striking results are in the 100 to 200 horsepower range the results are striking. In the other horsepower ranges, the market share for high efficiency motors improved less markedly, but there was improvement in all horsepower ranges with the exception of the 7.5 to 25 horsepower range where one large distributor skewed the market share. Rebates in Wisconsin were all but dropped in 1996. The Energy Center of Wisconsin still offers MotorMaster training.

Beyond the improvements in market share, high-efficiency motors have also become more available. In the past, Wisconsin did not specify high-efficiency motors in state office buildings due to a lack of availability. But in 1999, the state was convinced by the Wisconsin Energy Bureau that availability was no longer a problem and now the state does specify premium-efficiency motors for all its new construction and remodeling projects (Consortium for Energy Efficiency, 1999).


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Figure 4: Changes in market share for high-efficiency motors

0

10

20

30

40

50

60

70

80

90

1 to 5 7.5 to 25 30-75 100-200 200+

Horsepower Size Range

PercentTotal Sales RevenueEfficient

1994 1995 1996

Weighted by Wisconsin New Motor Sales Volume Source: Energy Center of Wisconsin, 1997d

RPM is now part of the US Department of Energy’s Motor Challenge program, a nationally marketed program to provide training, tools, and materials to motor sellers and buyers. This presents a more united front to reduce market barriers. Another event that served to preserve gains in the market is the implementation of federal standards in 1997 for high-efficiency motors.


The Midwest’s large market for motors presents many opportunities for a market transformation collaborative. The size and many sectors allow targeted efforts for the greatest impacts. For instance, because the Midwest manufacturing sector uses large numbers of motors in its products, the opportunity for OEM high-efficiency motor sales is sizable.

Resources include the Motor Challenge, which continues to offer training, tools, promotional materials, and guidance for Partners. There are Partners in the Midwest including end users, manufacturers, distributors, dealers, and trade associations that could be brought together for mutual advantage and to present a united front.

Programs like the Motor Challenge also lead to natural progressions into more efficiency opportunities. Frequently, motors or even the equipment the motors drive are improperly sized or inadequately controlled. For example, oversized ventilation systems might provide adequate ventilation, but also put unnecessary loads on heating and cooling systems. In response to this, performance optimization programs assemble people, equipment, and knowledge into a high performance and energy savings. This is the approach used in the Compressed Air Challenge (see page 23) which addresses whole systems rather than just parts of a system.


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Insulation

The insulation market has traditionally been a commodity market with competitors using the same materials, mainly fiberglass batts, priced on a square-foot basis. There are developments in the insulation market on two fronts: new insulation types and better installation practices. The benefits of these improvements go beyond energy savings—there is a quality control improvement for builders that results in fewer callbacks and a valuable product differentiation to give them a competitive edge. Homeowners also get a more comfortable home that costs less to heat and cool.


Insulation gets little attention from prospective homeowners. It is one of those items that they assume the builder or building codes address adequately (Energy Center of Wisconsin, 1996b). But for insulation to perform properly it must be correctly installed. This is the basis for one of the first major improvements in home insulation since fiberglass insulation was introduced.

The primary barrier to improving the insulation market is awareness. Homeowners and builders rarely discuss insulation and builders award contracts to insulation installers on the basis of price. Insulation is the least expensive component per square foot of a house, so it receives little attention during a sale. Consumers are more likely to buy upgrades of lighting, plumbing fixtures, carpet, and cabinetry, yet insulation improvements can save the homeowner money and increase comfort.

Recognizing this issue, the North American Insulation Manufacturers Association (NAIMA), National Association of Home Builders Research Center, and CertainTeed joined in a research effort to improve residential energy efficiency, comfort, and quality control. The result of this research was the development and introduction of the Certified Performance Home program.

Certified Performance Home requires that insulation be installed according to a set protocol that covers both R-values and quality of installation. Wall cavity penetrations must be sealed, sill and top plates must be caulked, and other potential infiltration sources must be minimized. The heating and cooling systems must also be properly sized, room-by-room air supply requirements are to be met, and ductwork must comply with standards of the American Society of Heating, Refrigeration, and Air-conditioning Engineers.

The homes in this program are inspected for compliance and performance by E.I.C. Inc., an engineering and energy services company. Inspections include a blower door test, infrared scanning for gaps in insulation, ductwork leakage and flow testing, and a visual inspection to ensure prescriptive standards for insulation and HVAC equipment are met. Finally, E.I.C. Inc. guarantees comfort and energy use as well as problem resolution. Savings on utility bills over conventionally constructed houses are in the 10 to 30 percent range (F. Mayberry and D. Bell, E.I.C. Inc., personal communications, April 1999).

Certified Performance Home has been introduced in Pennsylvania, Wisconsin, Arizona, and Texas. Plans are in place to expand the program into the southeast US and the Midwest.

Another development in the home insulation market is spray-in foam insulation. It has many features that make it attractive from both an energy saving and a market transformation perspective. It has a higher R-value than conventional fiberglass insulation, although there are newer fiberglass products that offer comparable R-values per inch thickness. But R-value is a only a measure of thermal insulation; spray-in foam also provides air and moisture sealing qualities that effectively prevent drafts and moisture problems.


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Corbond Incorporated sells spray-in foam insulation. Their approach is to create a climate isolation system that gives the homeowner more control of their home environment by drastically reducing air infiltration. Corbond claims that it is not necessary to apply higher-than-code R-values to reach superior envelope performance.

Corbond reports that in attics, R-values of 38 (typical in the Midwest) are not necessary with the Corbond system. The argument is that energy efficiency is more sensitive to air and moisture infiltration than to R-values. Spray-in foams achieve very low levels of infiltration resulting in a very tight house. (F. Mayberry and D. Bell, E.I.C. Inc., personal communications, April 1999)

Corbond, like all spray-in foam insulation, is very early in its product life cycle and has a very small market share. They have a presence in the Midwest and expect to expand. Corbond sells through dealerships, usually insulation contractors that have been in the fiberglass insulation business. Using spray-in foam requires a capital investment for spraying equipment and training.

The primary barrier to new insulation products is higher cost. The Certified Performance Home program adds about $2000 to the price of a 2500-square-foot house—but with reductions in heating and cooling costs a homeowner in the Midwest would see a simple payback in about five to 10 years (D. Bell, E.I.C., Inc., personal communication, May 1999). Corbond is about twice as costly as fiberglass insulation, but insulation is also one of the least expensive components of a house. Another factor that can needlessly add to the cost of Corbond is the requirement for a moisture barrier. Corbond is a moisture barrier itself, and the company has had some success in getting states to change codes requiring separate moisture barriers with all insulation, regardless of type.

Certified Performance Home and Corbond also address the awareness barrier, by making energy efficiency an important part of a home purchase. Otherwise, builders rarely offer options for more energy-efficient products and customers rarely ask for them.

Another barrier might be code requirements. Most homes are insulated “to code” Consumers appear to be satisfied with this even if they consider insulation important. For many consumers, “to code” means energy efficient—although this is usually true, there is still much room for improvement.

Codes can also lock the industry market into orthodox approaches that hinder new developments. Codes tend to focus primarily on R-value, even though air and moisture infiltration may have more influence on efficiency and comfort. Some estimate that up to 40 percent of heating and cooling costs are attributable to excessive air infiltration—issues that products like CertainTeed and Corbond address.

Some banks and appraisers are beginning to recognize the added value of efficient insulation. In Boseman, Montana where Corbond is headquartered, homes insulated with Corbond are being appraised higher for mortgage purposes than other homes. Bankers there understand that these homes cost significantly less to operate, reducing risk on their mortgages.


Increasing consumer awareness and thus interest in insulation is the challenge for bringing new products into the market. When people become aware of the benefits that a new product or approach offers, consumer demand can surge. But how do we raise awareness? The ENERGY STAR program may be an appropriate tool, because it can help consumers distinguish insulation products that bear the logo and are thus more efficient than others.

Advanced insulation practices can also be bundled to support other heating and cooling efficiency options as part of a more comprehensive approach to home efficiency. Although heat pumps, solar heating, and high-efficiency furnaces are reliable, using them along with good insulation can make them seem less risky to consumers.


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Super-Efficient Refrigerators for Apartments

Refrigerators sized for apartments (12 to 15 cubic feet) are niche products that have traditionally not drawn attention from manufacturers or buyers in terms of energy efficiency. Buyers opt to purchase very basic refrigerators at the lowest cost and sellers understandably do not produce or sell high-efficiency refrigerators in this low-profit sector.


When public housing authorities buy refrigerators they usually buy direct from the manufacturer or from local appliance dealers depending on the size of the order and whether the manufacturer has a government sales representative. The refrigerator specifications and desired ancillary services (delivery and hauling away the old appliance) are presented to the seller and the purchase is made based on the lowest price quoted or bid. Energy efficiency usually does not enter the transaction.

The New York City Housing Authority (NYCHA) considered energy efficiency when they were replacing old refrigerators. They found that no high-efficiency models met their size requirements. The Super-Efficient Apartment-Sized Refrigerator program sought to change that.

The Super-Efficient Apartment-Sized Refrigerator is one of the clearest cases of market transformation. It was designed to meet the needs of NYCHA, which needed units to fit the same space as their old refrigerators. Their old refrigerators were consuming excessive amounts of electricity and maintenance costs were rising. The electric utility serving them, New York Power Authority (NYPA) sought to persuade a manufacturer to make a refrigerator that met NYCHA’s needs (S. Brown, NYPA, personal communication, August 1998).

NYCHA, NYPA, the US Department of Energy, and the Consortium for Energy Efficiency (CEE) collaborated on this project. It was recognized early on that it is very difficult to persuade a manufacturer to produce a new product for one order or one customer. The group decided to put together a large enough group of orders initially, along with serious prospects for future orders, to convince the manufacturer that this was a business opportunity worth pursuing.

The needs went beyond the external dimensions of the refrigerators. NYCHA was also trying to better manage its budget and believed that reducing energy consumption would help. To accomplish this they desired a refrigerator that exceeded 1993 refrigerator efficiency standards by 20 percent for the 1997-98 program years, by 30 percent for 1998-99, and by 40 percent for 1999-00. General Electric won the 1996 contract and Maytag has had the contract in all subsequent years. More 70,000 refrigerators have been delivered to NYCHA and other housing authorities nationwide.

NYCHA estimates that it will save about 600 kWh per year per refrigerator. Total savings for the 1997 program year are estimated to be $1 million. These savings will accrue over time, and will increase as more old refrigerators are replaced(Consortium for Energy Efficiency, 1998).

Unlike NYCHA, smaller housing authorities don’t have the volume buying power to influence markets. The original program required large orders (lots of 90 refrigerators). To overcome this problem, orders of smaller housing authorities were combined to make large orders. The Energy Center of Wisconsin facilitated this by informing housing authorities of the opportunity and putting interested parties in touch with each other so they could order refrigerators together. More than 1500 high-efficiency refrigerators have so far been sold to small Wisconsin housing authorities.

Even these smaller purchases offer large benefits. In one sale, Stevens Point Housing Authority in Wisconsin purchased 178 refrigerators to replace their 12-year-old units. The old refrigerators were metered and were esti-


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mated to use about 1040 kWh/year. The new refrigerators use about 437 kWh/year thus saving 603 kWh/year per refrigerator. Even with low local electric rates of $0.07/kWh, the housing authority is saving about $42 per year per unit, or almost $7500 in total annual savings.

Unlike most other high-efficiency products, higher price is not a barrier to these high-efficiency refrigerators. Maytag, using conventional technology and better designs, has produced a high-efficiency unit at a very competitive $329 plus shipping. This is in line with bulk pricing of standard-efficiency refrigerators (M. Wilson, Maytag, personal communication, June 1998).

The requirement for bulk orders is no longer a barrier either, because Maytag has agreed to ship small quantities to customers. A possible remaining barrier is size—14.5 cubic feet is relatively small, even for apartments, but so far there is no evidence of customer complaints regarding size in Wisconsin.

Maytag is now working with the Los Angeles Department of Water and Power to produce a larger version. This one will be 18.6 cubic feet and rated at 485 kWh. It is expected to cost about $475 per unit plus shipping. Maytag has stated (Consortium for Energy Efficiency, 1998), and more importantly demonstrated, that they see a sustainable market emerging for more efficient refrigerators.


We can build on the great progress already made in this market. Maytag and other manufacturers have become more interested in these kinds of programs. Perhaps because of Maytag’s success in what may have been perceived as a risky venture, others such as Frigidaire have developed products that will be able to compete for the next, and last, program year.

The program is scheduled to end in 2000. Without sizable order quantities a replacement program may not be offered by the manufacturer. The Midwest could step into the place of NYCHA by pulling together the public housing authorities in the Midwest. This is an attractive opportunity for a Midwest market transformation organization because of the size of the market and perhaps more importantly because this program was the result of guaranteeing orders rather than offering rebates. The market is still open in the Midwest—although Chicago and Milwaukee have already purchased these new refrigerators, many other large cities have not.

There are also numerous smaller Midwest housing authorities that could take advantage of such a program. Eventually all housing authorities must buy replacement refrigerators and it is a simple matter of making them aware of the availability of such a program. The Energy Center of Wisconsin was able to build awareness by displaying the refrigerator at the Wisconsin Association of Housing Authorities yearly conference and by doing a quarterly mailing as a reminder.

The benefits for the Midwest would accrue to many people and organizations. Public housing authorities can better manage their budgets through lowering their electricity bills and maintenance costs. Midwest appliance manufacturers’ product sales could increase if they were to produce these refrigerators.


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Discussion

Summary

Market transformation, as illustrated by the preceding case studies, can only be achieved when a social objective—increased energy efficiency—can be aligned with business objectives of meeting demand for products and services that provide value to customers. Without such alignment, the initiative is unlikely to achieve sustainable changes in the market. Instead, once the program (intervention) ends, the market is likely to revert to previous behavior and outcomes. The case studies described are either promising for achieving a sustainable transformation in the market or have actually achieved such an objective. These successes (or promises of success) are direct results of ensuring that businesses involved in the activity reap real benefits from their involvement. The key to success is that such benefits must continue absent external motivations arising from the market transformation activity or initiative.

Although experience with market transformation is growing rapidly, in most cases the activities are still too new to measure and evaluate results. A critical step in any market transformation initiative is to establish measurable goals and benchmarks as means to track program impacts and progress. Below we discuss observations and lessons from the case studies that may be applicable to any new initiatives taken in the Midwest and elsewhere. These lessons also may help refine and improve existing market transformation efforts.


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Table 8: Summary of case studies

Furnace Compressed Air Challenge

Clothes Washer

ENERGY STAR Insulation Motor Challenge

Refrigerator

Sectors served Residential Industrial Residential All Residential Industrial Government, residential

Technology or service

T T&S T T&S S T&S T

Geographic scope & year started

State

1983

National

1998

Regional/ national

1990

National

199#

test markets

1996

National

198#

National

1996

Initiating organization

Public service

commission

US DOE, ACEEE,

ASERTTI

US DOE

NEEA

US DOE

US EPA

NAHB RC US DOE CEE

Distribution channel target

manufacturer No No Yes (Maytag) Yes Yes Yes Yes

distributor No Yes No No Yes Yes No

retailer No NA Yes Yes No Yes No

contractors Yes Yes N/A Yes Yes Yes No

customers Yes Yes Yes Yes Yes Yes Yes

Goals Energy savings

Productivity, efficiency

improvements, emissions reductions

Resource savings & standards

Efficiency, education, emissions reductions, information

Product differentiation,

efficiency, market share

Efficiency improvements,

emissions reductions

Energy savings & market

transformation

Successful? Yes Too early to tell

In some areas Too early to tell

In some areas Too early to tell

Yes

Sustained? Mostly Too early to tell

Yes Too early to tell

Yes

Effects on competition

Many contractors install only

high efficiency furnaces

N/A Retailers now commonly

stock frontload clothes washers

N/A One other manufacturer,

Dow, has developed a competing

service

N/A Other manufacturers now bidding on program

Applicable Markets

The case studies illustrate that market transformation can be applied to virtually every market for a product or service that involves energy use—from industrial compressed air products and services to residential clothes washers to commercial office products.

Early market transformation efforts have tended to focus on promoting energy-efficient technologies (products). This reflects the evolution of market transformation from earlier demand-side management efforts, which were


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predominantly technology-focused. Technological advances do have a strong record of delivering energy efficiency improvements. However, many of the large gains to be made in energy efficiency don’t necessarily involve simply replacing less efficient with more efficient devices, but rather require fundamental changes in services, such as engineering practices.

For example, replacing a standard-efficiency air compressor with a more energy-efficient compressor of the same horsepower certainly improves energy efficiency. However, if a plant manager learns how to optimize the com-pressed air system that the compressor serves, they might well discover that the compressor is oversized and can be replaced with not only a smaller compressor, but an energy-efficient one as well. Or maybe the compressor isn’t even needed—it simply backed up an inefficient system. And maybe an improved maintenance program will improve efficiency and reliability.

Such changes in system design and operation are key elements of market transformation programs such as the Compressed Air Challenge. It provides a comprehensive approach for customers, including maintenance, sizing, and controls to develop more effective solutions than simple technology upgrades or retrofits. This can lead to energy savings and productivity improvements that have a larger impact not only on the current transaction but also on future consumer behavior.

Improving building construction practices—both residential and commercial—is another example of service-based market transformation. The Certified Performance Home Program illustrates an improved service developed to change how customers value construction practices.

Some market transformation efforts clearly target technologies—such as resource- efficient clothes washers. In these cases, the desired behavior for market transformation is the purchase decision itself. Programs don’t try to change the way people wash clothes—they simply try to get them to purchase and use a more efficient appliance. It also may be important to change manufacturer and retailer behavior. Manufacturers must produce energy-efficient products, and retailers must stock and sell them. But for these behaviors to occur requires that manufacturers and retailers have clear business motivations. ENERGY STAR® is an effort to create a brand for energy-efficiency that helps to sell energy-efficient products by increasing customer demand, which in turn provides the needed motivation for manufacturers and retailers.

Certain products have low involvement by customers—such as furnaces and air conditioners. Customers don’t necessarily “shop” for these products, but rather rely heavily on advice of their contractors. The opportunities to affect consumer purchase behavior in these markets are limited. Furnaces typically last at least 20 years and most people do not buy more than one in their lifetime. It may be better in these markets to assure that the contractors push the benefits of high-efficiency furnaces and that programs continue to encourage contractors to do this. Although programs can encourage certain behavior (for example, through education), ultimately the contractors must benefit from such behavior—such as improved customer satisfaction or higher profits—or the changed behavior will not be sustainable.

Geographic Scope

Market transformation programs range from relatively small test markets to national markets. The nature of the targeted product or service is a key determinant for the most effective geographic scope. Introducing energy-efficient products generally requires sufficient market size to warrant manufacturer involvement. For example, the commercial introduction of energy-efficient clothes washers largely has been a regional and national effort. But the energy-efficient apartment refrigerators also illustrate that sufficient buyer aggregation can be used in smaller regions—as long as the total number of units is large enough to warrant manufacturer involvement. In either case, manufacturers must make capital investments or significant changes to production schedules. It takes the prospect of a good-sized market opportunity to persuade manufacturers to make these large investments or changes.


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The Wisconsin furnace market illustrates that smaller regional or state efforts also can be successful. In this case, the activities did not require introduction of new technologies—merely promotion of existing and readily available technologies. Changes in services also may work effectively in smaller regions or states because large capital investments in new production are not required.

Successful programs in smaller regions may be readily adapted to other markets. For example, after some positive experience with the Super Efficient Apartment Size Refrigerator program, Maytag entered into a subsequent program with the Los Angeles Department of Water and Power offering a larger refrigerator. Other regions—such as states in the Midwest—also may be able to convince manufacturers to produce and ship more energy-efficient products by approaching them as a group and guaranteeing minimum order quantities.

Although many of the programs profiled in the case studies are national in scope, they are implemented and delivered at a regional, state, or even substate level. ENERGY STAR is a good example: he materials and program have been developed at the national level, but partners are recruited at the state and regional level to participate in the program. The partners determine how the programs are delivered—which allows the partners to customize the programs to suit their particular markets.

Initiating Organization

Without exception, each of the initiating organizations of the market transformation efforts was not a direct market participant: they were government agencies, trade associations, utilities, energy efficiency organizations, and regulators. This supports the model of market transformation as a “catalyst” that generally is external to the market, but provides the means and motivations for direct market participants to work towards the market transformation objective. A Midwest market transformation organization could play this role for the Midwest.

The case studies demonstrate that effective collaboration is vital for market transformation to be successful. Market transformation requires demonstration of “win-win” propositions among market participants. Market transformation activities should build on existing market relationships—not cause disruptions or threats within the markets. The cooperative nature of market transformation is well illustrated by the Compressed Air Challenge, Motor Challenge and ENERGY STAR programs. In these cases the manufacturers, retailers, and others work together to discuss program designs. This assures they have a sense of participation and control over programs that affect their businesses.

Target Populations

Early market transformation efforts tended to focus on only one or two targets in a market such as manufacturers, retailers, or customers. Programs for the Wisconsin furnace market—initiated in the 1980s—only involved contractors and consumers. More recent efforts like the Challenge programs and ENERGY STAR involve all of the distribution channels and consumers.

There still may be situations where targeting just manufacturers or other points in the distribution channel as part of a staged or demonstration market transformation effort is appropriate. The Apartment Size Super Efficient Refrigerator program targeted a selected set of buyers (government assisted housing) and refrigerator manufacturers. However, the level of sales in this targeted market has attracted higher levels of interest and competition for bidding by other manufacturers not initially interested in the program. There also have been other refrigerator programs offered to a broader range of customers as a result of the experience with the original program.


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Participant Motivation

The key to successful market transformation is first to identify the benefits—such as superior performance, energy efficiency, improved productivity, or superior quality—that customers value. The next step is to develop marketing strategies and other program measures that address these benefits.

For example, we describe three residential market transformation efforts—clothes washers, insulation, and furnaces. The motivations for customers in these initiatives are different. For clothes washers it appears that superior performance is the primary driving factor and selling point. With insulation and furnaces however, the energy efficiency itself is the motivating factor behind customer choice. But it isn’t energy efficiency itself that sells, but the promise of cost savings over the life of the product.

Industrial and commercial customers also have different motivations. The main objectives for commercial and industrial customers tend to be productivity and bottom-line costs. However, in some cases other factors may be important, such as promoting a certain image—like using recycled paper to demonstrate environmental sensitivity. But even in such cases, ultimately choices for products and services must meet fundamental business objectives. For market transformation to succeed in commercial and industrial markets requires that such efforts align energy efficiency with business objectives.

Manufacturers, distributors, and sellers also must have sufficient motivations for market transformation to be successful. Suppliers of goods and services must benefit from participation in market transformation activities. Businesses are ultimately motivated by profits, so sales of energy-efficient products and services must be profitable if market transformation is to be sustainable. For example, one of CertainTeed’s goals in its Certified Performance Home program was to set CertainTeed products apart from the competition. By adding guarantees of energy savings, the commodity product—fiberglass insulation—was set apart or differentiated from the competition. In turn this objective is to increase sales of CertainTeed products and services. Profits can be increased by either selling a premium product at a premium price, increasing market share, increasing market size, or a combination of these strategies.

Level of Success

The programs described here have been successful in many respects, although in some cases it is too early to evaluate program results and determine ultimate success or failure. The definition of success varies with the goals and scope of the program, and sometimes the goals were not stated in objective terms. Despite these caveats, there are some indications from the case studies suggesting the activities have been successful so far.

In the northwest US more than 54,000 clothes washers have been rebated and consumers have come to associate frontload washing machines with high efficiency. Maytag designed an entirely new machine, built a production line, and enthusiastically markets the Neptune washing machine. Other manufacturers are also responding. These positive experiences and changes at Maytag—as well as Maytag’s participation in refrigerator programs— are an indication of success.

The furnace market in Wisconsin has been dramatically improved in terms of market share of high efficiency furnaces and selling practices of many HVAC contractors. But there are some areas, such as in the southeast, where market share has fallen somewhat. New HVAC contractors do not sell as many high-efficiency furnaces as more established contractors. (Energy Center of Wisconsin, 1996a)

Another form of success is the development of the Compressed Air Challenge from the Motor Challenge. The increases in high-efficiency motor sales is good but the expansion of the concept into other equipment categories is


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even better. Going further than high-efficiency motor standards is Baldor Motors and Drives, which is upgrading its super-efficiency motor line to meet the Consortium for Energy Efficiency’s Premium Efficiency ratings.

Sales of ENERGY STAR products are generally meeting or exceeding program goals and signal program success. CertainTeed’s Certified Performance Home Program appears to be commercially viable, indicating the success of this program.

Sustainability

Sustainability is a critical feature of market transformation. Like the level of success, it is too early to tell whether some of these efficiency gains will be sustained. Those consumers who purchased high-efficiency products will continue to save energy and enjoy the high performance that the product offered. But will manufacturers and vendors continue to produce and offer these products? And will customers still continue to make the energy-efficient choices for these products? Again, sustainability of market transformation is ultimately tied to aligning customer value and business objectives with energy efficiency. If consumers don’t find value in energy-efficient goods and services, and if suppliers don’t achieve business objectives like increased sales or profits, the market will not be sustained.

To help ensure sustainability of market transformation activities, program designers and managers should anticipate how program changes, including complete discontinuation, may affect the market. If the program results in significant changes in production by manufacturers then the chances of continued success or sustainability are enhanced. However, desired changes in the market can be eroded by other factors.

The HVAC contractor market is an example of where gains in efficiency can be eroded. In Wisconsin new entrants into the HVAC contracting market had little or no exposure to efficiency programs and thus competed on price much more than on efficiency. Continuing education efforts for both customers and contractors might help alleviate such problems. Continued monitoring and evaluation of market developments should be an integral part of market transformation to determine ultimate program success, sustainability, and the need for continuing or new activities.

Market Impacts

There have been some indications of competition developing in markets targeted by transformation efforts. In the cases of the two Challenge programs and ENERGY STAR, the form in which competition might appear is not clear. One indication of developing competition might be retailers and other ENERGY STAR partners stocking more ENERGY STAR products in order to compete. Another indication would be the development of similar but proprietary programs within the private sector. It is too early to determine whether any of these competitive responses have occurred in these markets.

There is evidence that competition has developed in furnace, clothes washer, insulation, and the refrigerator markets. In Wisconsin some contractors sell only high-efficiency furnaces, and consumers in some areas demand bids from more than one contractor using high-efficiency furnaces. Most appliance dealers now display and stock front-loading clothes washers. Another insulation manufacturer, Dow Corning, now offers the Intelligent Wall System through builders, the same approach used by CertainTeed. Finally, the Consortium for Energy Efficiency reports that at least three manufacturers have developed products that meet the standards of the Apartment Size Super Efficient refrigerator program and are able to submit bids. This is an improvement over earlier years when only one manufacturer produced qualifying products.


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Market Transformation in the Midwest

To date there has been no regional coordination, planning, implementation and administration of market trans-formation in the Midwest. The efforts that do exist have tended to occur only in selected states, or even within specific utility service territories. The opportunity and potential benefits of a regional organization for market transformation in the Midwest appear promising. Such an effort could build on existing programs and increase the geographic scope to attract more participation from manufacturers and service providers. Regional advertising and promotion would provide consistent information across the region and reach more people. Program resources could be leveraged to get more impact per program dollar. Experiences and lessons from one initiative could be shared with others in the region to improve program designs.

Private-sector participation in any Midwest market transformation organization would be crucial. Such an organization could not hope to serve any sizable market or even sector by itself if it relies only on government agencies and support. Market transformation means changing behavior within markets. Transforming markets begins with understanding consumer preferences and values—knowledge that is the foundation for any private business enterprise. Private business and industry possess this critical knowledge. And transforming markets occurs when market participants—consumers and suppliers—make desired behavioral changes according to true market forces, supplemented by selective efficiency standards, objective information, and a variety of other measures.

Although a Midwest organization could coordinate and facilitate market transformation efforts in the region as a whole, actual implementation and delivery of program measures should be local. As shown in the case studies, successful market transformation activities rely largely on the existing infrastructure for delivery of programs and services. This helps assure support from local market participants and will ensure that the infrastructure is sustainable. It also helps enhance local relationships between customers and suppliers.

The Midwest has all the ingredients for transforming energy product and service markets. Market transformation has occurred in parts of the Midwest as detailed in the case studies. The region is home to numerous manufacturers of energy appliances and products—from refrigerators and other white goods to windows and industrial motors. The Midwest is also home to many regional and national retailers—another key target group for market transformation. Developing a Midwest market transformation organization could build on these strengths and resources to create an entity uniquely adapted to and focused on the needs and opportunities of the Midwest.

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References Albert, S. 1998. “Navigating Market Transformation through New England’s Minefield of Deregulation.” Proceedings from the 1998 American Council for an Energy-Efficient Economy Summer Study on Energy Efficiency in Buildings, 7:1-12. Washington, DC: ACEEE.

Bagwell, L. 1998. “Washway Tests.” Which?, December.

Baylon, D., Davis, B. and Hewes, T. 1998. “Buying Market Transformation – A Cautionary Tale from the Northwest.” Proceedings from the 1998 American Council for an Energy-Efficient Economy Summer Study on Energy Efficiency in Buildings, 7:13-20. Washington, DC: ACEEE.

Bermman, E. 1987. A Compendium of Utility Sponsored Energy Efficiency Rebate Programs (EPRI EM-5579). Palo Alto, CA: Electric Power Research Institute.

Comet. 1999. Company website: www.comet.co.uk.

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Compressed Air Challenge. 1998b. Improving Compressed Air System Performance—A Sourcebook for Industry. Washington, DC: US Department of Energy.

Consortium for Energy Efficiency. 1999. Market Transformation (Spring). Boston, MA: CEE.

Consortium for Energy Efficiency. 1998. Super-Efficient, Apartment-Sized Refrigerator Initiative (CEE Fact Sheet). Posted at www.cccformt.org. Boston, MA: CEE.

Cowart, R. 1997. “Restructuring and the Public Good: Creating a National System Benefits Trust,” Electricity Journal, April.

Curtes, J. 1996. HVAC equipment distributor data. Milwaukee, WI: Auer Steel Heating and Supply Company.

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Energy Center of Wisconsin. 1998. Appliance Sales Tracking—1997 Residential Survey (171-1). Madison, WI: ECW.

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Energy Center of Wisconsin. 1997c. Forced-Air Furnace and Central Air Conditioner Markets—Tracking Sales Through Wisconsin HVAC Contractors (164-1). Madison, WI: ECW.


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Energy Center of Wisconsin. 1997d. Responsible Power Management—High-Efficiency Motors Program (163-1). Madison, WI: ECW.

Energy Center of Wisconsin. 1996a. Tracking the HVAC Market for Energy Efficiency Services (143-1). Madison, WI: ECW.

Energy Center of Wisconsin. 1996b. Tracking the Insulation Market for Energy Efficiency Services (149-1). Madison, WI: ECW.

Energy Center of Wisconsin. 1995. Wisconsin's Statewide Technical and Economic Potential (119-1). Madison, WI: ECW (originally published by the Wisconsin Center for Demand-Side Research).

Eto, J., Prahl, R. and Schlegel, J. 1996. A Scoping Study on Energy-Efficiency Market Transformation by California Utility DSM Programs (LBNL-39058). Lawrence Berkeley Laboratory.

Geller, H. and Nadel, S. 1994, June. Market Transformation Strategies to Promote End-Use Efficiency. American Council for an Energy Efficient Economy.

Gordon, F., Grabner, K., Hewitt, D., Pratt, J., Schlegel, J., Richardson, C., and Horowitz, P. 1998. “Metrics for Measuring Performance of Market Transformation Initiatives. Proceedings from the 1998 American Council for an Energy-Efficient Economy Summer Study on Energy Efficiency in Buildings, 7:99-110. Washington, DC: ACEEE.

Keating, K.M., Goldstein, D.B., Eckman, T. and Miller, P. 1998. “Wheat, Chaff and Conflicting Definitions in Market Transformation.” Proceedings from the 1998 American Council for an Energy-Efficient Economy Summer Study on Energy Efficiency in Buildings, 7:157-170. Washington, DC: ACEEE.

Kunkle, R. and Lutzenhiser, L. 1998. “The Evolution of Market Transformation in the Energy Efficiency Industry.” Proceedings from the 1998 American Council for an Energy-Efficient Economy Summer Study on Energy Efficiency in Buildings, 7:171-184. Washington, DC: ACEEE.

Mast, B., Peters, J.S., Megdal, L., Ignelzi, P. and Horowitz, N. 1998. “Measuring the Market Effects of Utility Programs: Lessons from California,” ACEEE Summer Study 1998, 7:213-224. Washington, DC: American Council for an Energy Efficient Economy.

Nadel, S. and Latham, L. 1998, March. The Role of Market Transformation Strategies in Achieving a More Sustainable Energy Future. American Council for an Energy Efficient Economy.

Nadel, S. and Suozzo, M. 1998. “Selecting Technologies and Practices for New Market Transformation Initiatives,” ACEEE Summer Study 1998, 7:237-252. Washington, DC: American Council for an Energy Efficient Economy.

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Nelson, D.J., Tiedemann, K.H. and Henriques, G.D. 1998. “Ten Years of Market Transformation Programs: From the Home of Power Smart.” Proceedings from the 1998 American Council for an Energy-Efficient Economy Summer Study on Energy Efficiency in Buildings, 7:253-264. Washington, DC: ACEEE.

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R e f e r e n c e s

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Prahl, R. 1994. Market Transformation: Getting More Conservation and Energy Efficiency for Less Money. Affordable Comfort Conference Selected Readings. Washington, PA: Affordable Comfort, Inc.

Suozzo, M. and Nadel, S. 1996, August. What Have We Learned from Early Market Transformation Efforts? Washington, DC: American Council for an Energy Efficient Economy.

Synergic Resources Corporation. 1996. Market Transformation in a Changing Utility Environment. Washington, DC: National Association of Regulatory Utility Commissioners.

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Further Reading

Blumstein, C., Goldstone, S., and Lutzenhiser, L. 1998. “A Theory-based Approach to Market Transformation.” Proceedings from the 1998 American Council for an Energy-Efficient Economy Summer Study on Energy Efficiency in Buildings, 7:21-32. Washington, DC: ACEEE.

Gordon, L.M., Banks, D.L., and Brenneke, M.E. 1998. “WashWise Cleans up the Northwest: Lessons Learned from the Northwest High-Efficiency Clothes Washer Initiative.” Proceedings from the 1998 American Council for an Energy-Efficient Economy Summer Study on Energy Efficiency in Buildings, 7:111-122. Washington, DC: ACEEE.

Grundon, T. and Pacific Gas & Electric Company. 1998. ACEEE Second Annual Market Transformation Workshop, section 12, March 23-24. Washington, DC: American Council for an Energy-Efficient Economy.

Hanson, M.E. and York, D.W. 1998. “Energy Centers as Providers of Energy Public Benefits.” Proceedings from the 1998 American Council for an Energy-Efficient Economy Summer Study on Energy Efficiency in Buildings, 6:91-104. Washington, DC: ACEEE.

Horowitz, P.A. and Schlegel, J.A. 1998. “Energy-Efficiency in Massachusetts: Going Beyond the Mantra of Market Transformation.” Proceedings from the 1998 American Council for an Energy-Efficient Economy Summer Study on Energy Efficiency in Buildings, 7:147-156. Washington, DC: ACEEE.

Janda, K. 1998. “Building Change: Characteristics of Design Firms and Their Effects on Energy Efficiency Adoption.” Proceedings from the 1998 American Council for an Energy-Efficient Economy Summer Study on Energy Efficiency in Buildings, 8:193-202. Washington, DC: ACEEE.

Kushler, M., Schlegel, J., and Prahl, R. 1996. “A Tale of Two States: A Case Study Analysis of the Effects of Market Transformation.” Proceedings of the 1996 ACEEE Summer Study on Energy Efficiency in Buildings, August, Volume 3, pp. 59-68. Washington, DC: ACEEE.


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Northwest Energy Efficiency Alliance. Website: http://www.nwalliance.org.

Payne, C. 1998. “Organizational Dynamics and Energy Policy.” Proceedings from the 1998 American Council for an Energy-Efficient Economy Summer Study on Energy Efficiency in Buildings, 8:239-250. Washington, DC: ACEEE.

Prahl, R. and Pigg, S. 1997. “Do the Market Effects of Utility Energy Efficiency Programs Last? Evidence from Wisconsin.” The Future of Energy Markets: Evaluation in a Changing Environment. August. Chicago, IL: National Energy Program Evaluation Conference.

Schlegel, J., Prahl, R., DeForest, W., and Kushler, M. 1992. Are Markets Being Transformed by DSM Programs? Paper presented at the Fourth National Conference on Integrated Resource Planning, Burlington, VT. Washington, DC: National Association of Regulatory Utility Commissioners.

Shove, E., Lutzenhiser, L., Guy, S., Hackett, B., and Wilhite, H. 1998. “Energy and Social Systems,” in Human Choice and Climate Change, Volume Two, Resources and Technology. S Rayner and E L Malone, editors. Batelle Press.

York, D. 1997. “Issues for Evaluation of Public Benefits Energy Programs.” The Future of Energy Markets: Evaluation in a Changing Environment. August. Chicago, IL, National Energy Program Evaluation Conference.

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