Remodeler's Exchange: Energy Retrofits

This month, the Remodeler’s Exchange focuses on the advantages a company can gain in the marketplace by offering customers energy retrofits for their homes. Professional Remodeler’s Tom Swartz spoke with Chad Ruhoff and Nathan Cross about the retrofit services their firms offer clients and how other companies can begin performing energy-efficiency renovations.

TOM SWARTZ: When you use the term “energy retrofit,” what detailed description would you include in your company?

CHAD RUHOFF: Neil Kelly Home Performance is involved in window replacements, HVAC, water heating, insulation and air sealing, full BPI audits on homes, and solar-related work. We bought a solar company last year and started doing PV and hot-water systems. We look to grow the energy-related work again in 2014 to between $10 million and $11 million.

NATHAN CROSS: When we talk about energy retrofits, we are talking green; but it’s not one-size fits all. We interview the clients to see what their overall goals are for the project and how long they plan on being in the house. PV is the sexy part of being green and energy efficiency. It is not a necessity and it comes after securing the thermal envelope of the home. We are a big fan of spray foam and most of the retrofits we are doing involve exposing the drywall and ceilings, so as long as the attic has proper ventilation while the foam is curing, there is no problem with odor. Windows are also a big factor in central Florida. Most of the homes are block home construction, so we are using non-expanding foam. In the climate we are in, there is often mold. We remove the drywall and put up a foil backing insulation paper to get an R-12 rating. Double-pane, low-E windows are also very big, including the type of glass. The overall heat gain of the windows is also a very important factor. We look at shading, the location of the sun, the side of the home with the most exposure, and how the light of the sun penetrates the windows and heats up the house. In Florida, we are more worried about heating than cooling the home.

Nathan Cross, NWC Construction, Orlando, Fla.

NWC primarily does high-end custom homes, remodeling projects, and energy retrofits. The firm generates approximately $1.5 million annually from between four and 14 projects per year. The firm currently has three employees.

Chad Ruhoff, General Manager of Energy Services, Neil Kelly Co., Portland, Ore.

Neil Kelly Co.’s work includes energy retrofits, design-build remodels, cabinets, as well as a handyman division. Last year, the firm generated approximately $28 million in revenue overall, $8 million of which came from retrofits. The company currently has 185 employees, 65 of which are involved in energy retrofits.

SWARTZ: What’s the main reason customers want an energy retrofit for their home? Is it comfort, cost savings, or some other reason?

CROSS: It all evolves around the dollar bill. Very rarely we will get someone who is very compassionate about the earth and they are doing this work because it is the right thing to do in their mind. Most of the time we are pursuing the customer about an energy retrofit and they are not pursuing us about this type of work. We are telling them, “Let’s put this system in if you are going to be in this house five-to-10 years.” It can save the customer money every month for the next 10 years, and it can have some payback over that five-to-10 years. We will go over that scenario with the customer because of the extreme heating situation with our climate and having to cool the house so much. We encourage clients to have energy-efficient windows because the energy codes here are very strict. On a side note, the peak energy use in Florida is usually the coldest day we have in February, not the hottest day in July, because in Florida no one is used to the cold. They have inefficient heating systems and between the hours of 6 and 9 a.m. on the coldest day in February, it is typically the highest energy usage.

SWARTZ: Do you show a payback schedule to the customer that explains how the impact a retrofit may have in the long run?

CROSS: We don’t because we are more of a relationship company. We only have a maximum of 12 to 14 customers per year. Everything that we do is very much conversational with our customers. We do design-build work so we work backwards from their budget and their needs, and we give them some guidance; out of that we give them a scope of work and a design that we can work within their budget. A lot of times when we do that, they have a certain amount they want to spend. If a client has a $90k budget, we have a conversation where we talk about how we could install a less-expensive window, but if the client wants to stay in the home for 10 years, it’s not going to be less expensive over the life of 10 years.

SWARTZ: Are there any tax credits still available and if so can you explain the benefits?

RUHOFF: Yes, there are still some tax credits that are available through the state. The federal tax credit is gone, but the state still has some for certain products such as energy-efficient furnaces, heat pumps, and those types of products—not necessarily for windows or insulation. There are some dollars still available for that but they have been in decline. As the market has been increasing, the need for incentive is going away. When I started in 2009, the average incentive was $3,500; the average incentive now is probably $1,500 but we are doing four times more retrofits now than we did in 2009. The market is increasing so the incentive has gone away. It’s not as critical but it’s still very important to get people interested in a retrofit. It’s all about the dollar bill to get people interested in our energy-related services; but in the end, after conversations with clients where we explain what we are going to do with their home, the incentive becomes the fourth or fifth priority in why they are investing in an energy retrofit. The first priority is comfort, then indoor-air quality, health and safety, and then the environment; those all come before the dollar bill. After we have the conversation, the client realizes they’ve been living uncomfortably. We can make them comfortable for somewhere between $2 and $3 per day. The client doesn’t start with that type of thought. They don’t realize they have that feeling of being uncomfortable until we have a conversation about how they can live more comfortably. Why the client is interested in a retrofit is the dollar bill, but that is just a bonus to when they realize how much more comfortable they can be in their home.

SWARTZ: Are there companies that do energy certification?

RUHOFF: Yes, the Building Performance Institute (BPI) is a non-profit group that oversees the certifications and standards for energy retrofits.

SWARTZ: Are the companies that do certification for health, safety, comfort, and energy efficiency, and recommend potential improvements?

RUHOFF: There are a couple of companies that are training remodelers in the energy-efficiency industry. The primary group is BPI. They have a very intensive class to teach people about building envelopes, the basic physics of how energy moves, the importance of ventilating mechanically or naturally depending on the situation, and how moisture moves from one place to the next so the home does not end up with rotting or mold issues. There is a two-week class that involves an investment of a couple thousand dollars to learn how to diagnose and install retrofits properly.

SWARTZ: If someone were to be certified, how would they start?

RUHOFF: I would go to BPI website and find a class that is being done nearby and sign up. It’s a very enlightening class and it’s an investment of both time and money but it’s well worth it. We have nearly 25 BPI-certified people on staff. We’ve invested heavily in this program; if you have people trained and certified by BPI, you are not going to end up with troubles down the road.

SWARTZ: How do you go about assessing a home and making suggestions for improvements?

CROSS: Our work is based on knowledge and education. At the beginning of the conversation, it’s about money. We sell them on the comforts of home, not just the savings. We are educated on this type of work so the client doesn’t necessarily need a third party. Sometimes it’s hard for people to trust a contractor, but you have a conversation with the client about the work you are going to do on their home. For me it came in the field. We had a third party, Drew Smith from Two Trails, a green consulting firm based in Sarasota, Fla., that rates our green homes and also educated us on this type of work. We are certified with the NAHB Green Designation. Also here in Florida, the climate is so different than the rest of the U.S. that we have our own green coalition that gives us a lot of support, and it is a good place for consumers to go as well as builders and remodelers if they are looking to getting into green building. Look at your local Home Builders Associations or building industry associations, and they should have the green building courses that NAHB offers about green building. Florida, in particular, whether you are a contractor or a consumer, the Florida Green Building Coalition is specific to Florida climate and they provide information about how to properly build in the climate.

SWARTZ: When you do energy retrofit work, do you need a license?

CROSS: In Florida, for any work that is over $2,500 you need a license. There are three different type of licenses: a residential contractor license in which you are allowed to do any work under three stories, a commercial builder license where you are eligible to do residential and commercial work that is no taller than three stories, and there is the certified general contractor license that you can build anything in the state of Florida except underground utilities.

SWARTZ: If you were going to retrofit a home, is that a situation where you need a specific license?

CROSS: For installing insulation in the state of Florida you do not need a license; however, if you are installing windows you are considered a builder at that point. Mainly in Florida, the wind codes drive that license because we are surrounded by ocean and we do get hurricanes quite frequently. Because of the regulations with the wind code, the state wants a licensed professional to uninstall and reinstall windows, and the permits require the windows are inspected properly.

RUHOFF: In Oregon, you need a general contractor license from the state of Oregon in order to perform work on a house. Insulation, windows, and any of that type of work is included. In order to apply for any of the incentives for home performance work such as air sealing, you need to have a BPI license, be a HERS rater, or have specialized training.

SWARTZ: Where does the state draw the line in terms of what type of work requires a license or a building permit?

RUHOFF: You do have to be licensed to get a building permit, and you need a license in order to do the work legally. But to change out windows, if you’re not changing the opening size, you do not need a building permit. You do not need a building permit for installing insulation.

SWARTZ: What is the best energy retrofit in terms of saving clients money?

RUHOFF: As far as the most cost effective, I would say air sealing. If hot air stays inside the home, you don’t have to turn on the furnace. Most of it is labor based, and the work does not involve a lot of material, which ends up being fairly cost effective.

CROSS: In Florida, it’s the thermal package. We are also trying to ensure that a client’s home is air sealed. We have the same problems here except we need to keep the heat on the outside and prevent the cold air from leaving the house. Next would be windows and, finally, the insulation. If you only perform one of those three, the client should not expect major results. Doing only one is like putting a Band-Aid on something that really needs stitches. In Florida, don’t expect to solve the problem unless you concentrate on all three before you see the true benefits. You can see how heat escapes a home in the thermal imaging pictures. We recommend doing all three options in an energy retrofit.

SWARTZ: What advice would you give to remodelers or builders who want to get into the energy retrofit business and be successful?

CROSS: The consumer does not have any place to go to outside of some Web-based options when it comes to finding out more information. As a remodeler, you need to get as educated and get certified so that when you meet with the consumer, you can offer professional opinions on the home and what work should not be done, especially for energy efficiency. You can tell the client why you are the right person for the job and why you have the edge on the competitor who may not have the abilities that your business does in terms of energy retrofits. It’s like any other construction job; five guys look at a job and there are five different opinions about how to do that job. Energy-efficiency work is no different. You might have somebody that may or may not know what they are doing, but you need to have yourself educated on energy-efficiency work if you plan to take it on as part of your business. The biggest reward is an energy-efficient home where we doubled the size of the home with an addition, but their energy costs are the same price as they were prior to the addition. Get educated, do some projects, and share the results of the projects with your other customers—they are the lifeline of your company,

RUHOFF: Get educated and go to BPI or one of the other certification programs. It’s an investment and you are also going to need some equipment and in-house expertise on how to do this type of work. It will be a $10,000-to-$12,000 investment in time, equipment, and materials to get going with thus type of work. Start integrating the energy retrofit work into your business model and market the work as a separate line of business. It will give you an edge over the competition; not too many of your competitors are bringing in a blower door to find out how you can make the existing home more energy efficient while the other work or the addition is being done. It gives you a professional look in the client’s eyes, and it will take your business to the next level. PR

Professional Remodeler’s Tom Swartz spoke with Chad Ruhoff and Nathan Cross about the retrofit services their firms offer clients and how other companies can begin performing energy-efficiency renovations.