How to retrofit 1 million homes

The federal government’s electricity strategy, which aims to “double the grid,” also includes a commitment to retrofit one million homes.

If the government implements good policies to hit this target, it could create the market changes and new delivery systems needed to retrofit millions more homes, while supporting equity and affordability.

The 1 million households target

The specific language in the electricity strategy is: “to further assist Canadians with affordability, the Government of Canada intends to take additional action on energy-saving retrofits for up to one million households across Canada.” 

Each element of this sentence has different policy implications.

The inclusion of “additional action” suggests the government will meet the target with additional retrofits rather than ones that have occurred because of previous policy initiatives.

The description of “energy-saving retrofits … across Canada” points to a plan to support multiple upgrades — including building envelope improvements, solar upgrades, and heating electrification — rather than restrictions to a specific measure like electrification or fuel type, such as heating oil that is prominently used in Atlantic Canada. 

Based on the government’s definition of a household — which includes single apartments, mobile homes, and attached and detached single-family dwellings — Canada had 15.7 million households in 2023.

A one-million retrofit target represents just over six per cent of total households in Canada.

Expressing the target as “up to one million households” is a significant concern. Taken at face value, this indicates the government intends to retrofit less than six per cent of residential homes and then withdraw policy support once it achieves this arbitrary and inadequate target. 

This would repeat the familiar boom-bust pattern seen most recently with the abrupt cancellation of the Greener Homes Grant and Loan programs, destroying jobs and damaging customer confidence and business development. 

However, an aggressive interim target could trigger a change in market and policy structures to retrofit all of Canada’s buildings for an affordable, net-zero emissions future. Inducing market and policy system change that can retrofit the other 94 per cent of buildings should be the government’s goal, rather than hitting an incremental target.

Budget implications

How much does it cost to retrofit a million homes? 

The Canada Greener Homes Loan program’s average loan amount was $23,664, and this program did not achieve particularly deep energy savings. If we multiply this average loan amount by one million households, it is a capital cost of $24 billion.

One reason the electricity strategy target is expressed as a maximum of one million households might be because the government already earmarked a fixed budget amount to achieve this target. If that is the case, the budget should be in the billions of dollars.

This investment level would be comparable to support for other “nation-building” projects. For comparison, the Canada Infrastructure Bank’s capital capacity is $45 billion, the estimated cost of the Alto high-speed rail project is $60 billion to $90 billion, and the federal government plans to invest $450 billion over five years on new infrastructure.

If a significant amount of capital for retrofit investments is loaned, the government gets money back, and the final budget impact will be limited to costs like administration, loan defaults, and any reductions potentially offered in the interest rate lower than the government’s (already low) borrowing costs. Mark Carney’s government has emphasized its plans to make strategic use of the federal capital budget. That means it encourages government spending that builds assets, and a loan that is expected to be paid back is booked as a financial asset on the government’s balance sheet.

Creating effective retrofit services

Becoming overly focused on the potential financial costs obscures the importance of effective strategies to make retrofits work for Canadians. There are several barriers to home retrofits that have little to do with the interest rate or the incentive amounts a customer can access, including:

• lack of access to expert advice 
• uncertainty in who to trust 
• lack of access to financing at the right time 
• unfamiliarity with technologies that match their needs 
• inability to negotiate with their landlord or resolve tenant-landlord split incentives 
• failure to realize that energy efficiency retrofits can help solve important problems with energy reliability, health and comfort 

A big part of the challenge is getting the right financial product to the right person to pay for the most effective retrofit solution(s) at the right time through someone they can trust. This requires better retrofit delivery platforms and not just lower interest rates. 

Retrofit delivery platforms specialize in meeting customer needs during key trigger points, when access to both finance and trusted advice matters most.

This includes emergency situations when a furnace breaks down. If low-cost financing is available at this moment — and delivered via a contractor whose advice and education the customer trusts — the furnace is more likely to be replaced by a heat pump.

Alternatively, some home upgrades are most effectively planned in a staged manner over years, such as improving airtightness and insulation before electrifying heating and hot water, and then installing solar panels and buying an electric car with smart home charging. This customer would benefit from expert advice that analyzes the house “as a system” and from access to a line of credit.

Effective retrofit delivery platforms also need to give customers confidence that they can trust the advice they are getting and the quality of the work. The previous Greener Homes Loan program offered a zero per cent interest rate, but all the risk was on the customer. If a heat pump wasn’t installed properly or a retrofit didn’t save energy, the customer still had to repay the loan. 

Retrofit businesses and platform providers can increase customer confidence by taking on some responsibility for performance and sharing the financial risk with customers. This could include payments based on energy bill reductions, warranties, and long-term performance guarantees, or process improvements such as verified system commissioning and performance monitoring. The federal government could encourage these business models by offering them preferential financial terms. These better business models not only contribute to customer fairness — they ensure retrofits contribute to real energy savings, GHG reductions and improved comfort for residents.

The federal government’s ability to offer low-cost and patient capital is unparalleled. Therefore, lowering the interest rate for customers might be a core federal government role. Most importantly, the federal government should use its unique capital provision capacity to encourage innovative home retrofit delivery platforms that solve multiple problems and make the retrofit process easier for Canadians. Such a strategy would transform markets and produce lasting change.

A National Home Energy Performance Fund

Considering these different retrofit barriers and possible solutions, a transformative policy from the federal government should focus on providing low-cost and patient finance to a variety of delivery platforms. This could include fintech companies, utility on-bill financing, municipal property assessed clean energy initiatives, home equity lines of credit, and contractor-led and community-based financing. The federal government would set standards and requirements for the use of its capital to protect customers and meet climate, energy-saving, and electrification goals, and then collect data to monitor the transformation of the retrofit sector and continue to reward the highest performers.

This is the model followed by “green banks” around the world. A good example of a residential sector-focused initiative is Australia’s Home Energy Upgrades Fund, which provides capital for a variety of personal loans, subscription plans and green mortgages.

An additional benefit of this model is that the federal government can make deals that blend federal capital with other public and private capital to maximize the impact of each investment. This partner capital could come from the traditional banks, but capital that supports the most innovative solutions is just as likely to come from utility demand-side management programs, credit unions, social impact investors and municipalities.

Another implication of supporting effective retrofit platforms is that the federal government might not need to provide a zero per cent interest rate (like the previous Greener Homes Loan), which creates a net cost to the government budget. It can provide its own below-market interest rate or a more modest interest rate buy-down and still achieve results because it is promoting platforms that more effectively deploy public capital by delivering a more convenient and trusted service to customers.

To implement this model, Canada should create a National Home Energy Performance Fund with a capitalization consistent with the one million retrofit goal, led by a small team of experts in finance, residential energy efficiency, and home contractor business models.

A mission to protect customers and transform the home contractor sector

While there is potential to blend public and private capital to retrofit homes, a relatively robust role for public capital is critical to protect customers and achieve the transformative goal of shifting business models in the home retrofit sector. 

Providing wholesale capital to retrofit solution platforms instead of directly to homeowners opens up the opportunity to shape markets in the interest of customers and the environment. The federal government can establish standards, undertake due diligence, and monitor the performance of its platform partners. This can provide a competitive advantage to contractors and delivery platforms that are following “high road business models” aligned with customers and climate goals over predatory lenders that are unfair to customers. To produce these market transformations, the federal government’s financial offer and partnership agreements must be powerful enough to give high-quality retrofit solution providers a competitive edge.

To understand the change this could create in markets, we only need to think about the story of an HVAC contractor telling homeowners that heat pumps don’t work. The platforms supported by the National Energy Performance Fund would not give this contractor access to its low-cost capital. It would instead support platforms that provide services and tools for HVAC contractors to properly size the heat pump and work with other contractors to make complementary building envelope improvements or install smart systems to avoid expensive electric panel upgrades.

Customer protection should be central to meeting the retrofit goal, not an afterthought or something government policy neglects taking responsibility for. Consider that provinces are banning aggressive door-to-door sales tactics and sneaky contract renewals. In Ontario, several homeowners and tenants are trapped in expensive water heater rental contracts, which can make it cost-prohibitive to upgrade a fossil fuel water heater to a more efficient electric one. An effective retrofit policy should discourage these business practices.

At the same time, the federal government could give preferential financing to those businesses committed to offering the most climate- and customer-friendly services — including integrated “whole home” services, long-term performance guarantees, third-party verification, continuous monitoring and maintenance contracts, and flexible and fair contract exit.

A policy that strategically uses federal capital to transform markets will produce significantly more bang for the buck. The key markets to transform go beyond the lending practices of banks and other financial institutions. The big impact will come when home retrofit contractors are aligned with climate goals and compete to reduce risks and improve benefits for customers.

How fast can we retrofit?

Another ambiguity with the one million energy-saving retrofit target is that there is no associated timeline.

If the federal government wanted to meet this goal within three years to show results within its mandate, it would need to retrofit two to three per cent of households a year on average. Some provinces already achieve this, while nationally, this rate has been met as part of a boom-bust cycle instead of a sustained pattern. The federal government’s Green Building Strategy sets a retrofit rate goal of three per cent for homes and buildings until net-zero emissions are achieved in 2050.

The reality is that we won’t be able to retrofit three per cent of the housing stock per year consistently if we continue to retrofit the way we do today. Using EnerGuide post-retrofit audits as an indicator, it took over 14 years to retrofit one million homes. While this likely fails to include multi-unit residential units or account for retrofits supported by external policies, we do not yet know how to achieve comprehensive retrofits in one million homes quickly.

A recent report published by Efficiency Canada describes an “atomized” retrofit system where too much responsibility for program management and financing is placed on the building owner, and retrofits happen one-at-a-time instead of as part of a large-scale strategy.

The federal government launched two programs — the Deep Retrofit Accelerator Initiative and the Greener Neighbourhoods Pilot Program — to streamline, modernize, and scale up the retrofit process, especially in multi-unit residential buildings that house tenants and condo owners. However, they are short-term pilot programs that will run out of money soon.

The one-million retrofit goal should thus include a strategy to modernize and scale building retrofits so we can meet this goal — and the next million after that — faster and at lower cost. The federal government can take action by renewing funding for existing programs and converting them from pilots toward mission-oriented teams focused on improving retrofit productivity, deploying modern methods of construction, and matching retrofit needs with innovative Canadian businesses and technologies.

Address equity and energy poverty

Low-income Canadians can benefit the most from home retrofits through lower bills and better energy services, such as cool temperatures to escape from extreme heat. However, loan-based programs do not make sense for Canadian households already struggling with high energy costs. The objective should be immediate energy bill reductions instead of more household debt.

The federal electricity strategy, which announced the one million home retrofit goal, cited research estimating that seven out of 10 Canadians will pay lower energy bills by 2050 by electrifying home heating and vehicles. However, the same research acknowledged that many low-income households will face higher bills because they are less likely to benefit from electric vehicle cost savings. Without further action, Canadians who already have unaffordable bills could experience further increases. 

The federal government already has a program designed to retrofit low-income homes to improve affordability called the Canada Greener Homes Affordability Program. It is a no-cost, direct-install program instead of a loan program. Also, it effectively crowds in other public funding because delivery partners (e.g., utility demand-side management programs, municipalities, or provincial programs) must co-fund by an amount equal to at least 30 per cent of the federal contribution.

It makes sense for a component of the one million retrofit goal to be dedicated to helping low-income households and supporting Indigenous-led initiatives to reduce energy poverty and improve housing. 

In Canada, 2024 spending on demand-side management dedicated 17 per cent to low-income or northern, remote and Indigenous community programs, with BC Hydro, the Ontario Independent Electricity System Operator, and Efficiency Nova Scotia spending over 20 per cent of their portfolios on equity-oriented programs. A federal investment to retrofit one million homes should dedicate at least 15–20 per cent of its budget to boosting the Canada Greener Homes Affordability Program and/or other income-targeted programs like the Oil to Heat Pump Affordability Program.

3 actions to retrofit 1 million homes

The federal government can take three big actions to retrofit one million homes — and the next million after that — in a way that is equitable and produces lasting change.

1. Create a National Home Energy Performance Fund modelled after residential-focused “green banks” to effectively deploy finance to middle- and upper-income households and multi-unit residential buildings, with transformative goals to increase customer fairness and transform home retrofit business models.
2. Transition the Deep Retrofit Accelerator Initiative and the Greener Neighbourhoods Pilot Program from pilot projects to mission-based teams with the goal of modernizing and scaling retrofits.
3. Dedicate a fair portion of federal investment to expanding low-income energy efficiency by expanding the Canada Greener Homes Affordability Program or other equity-oriented programs.