How It Works: Understand the Fundamentals of Shifting Incentives to a Distributor

For many years, energy efficiency program implementers provided “downstream” incentives, typically mail-in rebates, to homeowners for ENERGY STAR certified residential water heaters and HVAC equipment. Program outreach focused on homeowners as well as the plumbers and HVAC contractors responsible for product selection and installation. However, studies showed these mail-in rebate programs were difficult to administer, had high overhead and marketing costs, and low participation.1 Recently, program implementers have begun to focus outreach up the supply channel to better engage a different “midstream” market actor – the wholesale distributor2 – with impressive results.

Figure 1: HVAC and Water Heater Residential Incentive Program:  Shift from Downstream to Midstream

Figure 1: HVAC and Water Heater Residential Incentive Program:

Shift from Downstream to Midstream

A residential water heater or HVAC system is sold by a manufacturer to a wholesale distributor, then sold again by the distributor to a plumber or HVAC contractor, and then sold one more time by the plumber or HVAC contractor to the residential customer (Figure 1). Distributors strongly influence product selection by offering expert advice and training on the latest products to HVAC contractors and plumbers.

In the distributor-focused midstream program approach, efficiency programs enter into a cooperative agreement with wholesale distributors to provide discounts on eligible efficient equipment. Most programs require the distributor to pass along the entire discount to the contractor and some put systems in place to assure the contractor passes the discount to the customer. By targeting distributors, programs increase the availability and market share of energy-efficient products to a broader contractor network, therefore increasing the likelihood customers purchase more efficient equipment.

Through this website resource, ENERGY STAR hopes to:

  • Allow interested program implementers to take steps towards understanding a midstream distributor-focused residential HVAC and water heater incentive program.
  • Facilitate conversations and information exchange between industry experts and program implementers interested in shifting to midstream.

Contact ENERGY STAR at if interested.

Next: Astonishing Results: Examine surges in participation at distributor-focused midstream programs>

1 “Swimming to Midstream: New Residential HVAC Program Models and Tools” VEIC, D&R International, Mass Save, Energize CT, HARDI. Presented at the 2016 ACEEE Summer Study on Energy Efficiency in Buildings. Available online at: (PDF, 144KB).

2 EPA considers the distributor a “midstream” actor in the market chain although some efficiency program administrators label distributors as “upstream” actors.