Can you beat this return on investment? A calculating look at home energy retrofitting

January 4, 2013
by Brian Kaminer

When I evaluated energy improvements to my home in 2008, I spent a lot of time looking at the financial return.  In order for this to work, I said to myself, the financial return must be there – and, as it turns out, it is.  The amount of air leaking out of my house was equal to having a 5-foot by 5-foot hole in one of my exterior walls, open all the time.  Heated and cooled air was being sucked out my house and money was floating away with it.  I was determined to capture those dollars.

Financially, I evaluated the retrofit / energy conservation and renewable energy improvements to our 5,000 square foot 1976 Colonial as an investment.  I was seeking a 7- to 8-year payback, where my energy (electric and oil) savings would cumulatively be more than the initial cost of the improvements.  The upfront investment/cost created an annuity of savings that continues to increase the return on investment for every year of savings.

In fact, my first year of savings (see below) equals a 13% return on investment, which occurs every year going forward.  If I calculate a 2% annual increase in energy prices, then by year 10 the savings equal a 16% annual return— and 22% by year 25. Where else can you find that kind of dependable return?

My investment

While the gross cost of my home energy retrofit – for air sealing and insulation ($9,700), boiler ($8300), appliances ($2000) and changing to compact florescent lights—was around $20,000, my net cost/investment (after rebates and tax credits) was around $14,500.  Installation of solar electric and solar hot water heating was around $34,000.  And although the solar was supposed to supply 30% of my electric use, because of the other energy conservation work, due to reduced consumption it ended up supplying 50% of it. 

So back to my calculations:  The warranty on the solar equipment is 25 years.  The air sealing and insulation—expected to last at least that long—had the fastest return and magnified the impact of the renewable, solar energy. 

Results

Our electric bills alone were running $760 per month in summer, $240 per month in winter.  I cut both my electric usage and oil consumption in half.  We now annually consume 1,000 gallons of oil and 14,000 kilowatt hours of electricity.

My current annual savings is $6,600 based on $3.5 per gallon for oil and $.22 per kilowatt hour of electricity. Rising energy prices will yield even more savings and a faster payback.

The question of resale

As far as resale goes, I ask myself whether reasonable energy bills would matter to me in buying my next house—and I answer “Absolutely.”  Besides, it’s certainly something I would use to promote the value of my house.

From a sustainability perspective, I look at these improvements as smart investments that yielded:

• Healthier and more comfortable home
• Lower cost of living
• Reduced exposure to energy price increases
• Increased value and marketability of home

—as well as additional long-term streams of environmental benefits and community impact, such as

• Cut carbon emissions and green house gas emissions in half
• Less pollution, improved air and water quality
• Lowered demand for fossil fuels and decreased dependency on foreign oil
• Savings justified purchasing green supplied electricity to further reduce environmental impact
• Local job creation

Find out more about how to sign up for a free or reduced-rate home energy assessment and how to connect with reputable contractors on Tuesday, January 8, at 7:00 p.m. at the Chappaqua Library.  Meet Norm Jen, local energy coach, and some New Castle residents who have made home energy improvements. See “Save energy, save money, increase comfort,” NCNOW.org, 12/28/12.

As founder of Talgra, Brian Kaminer consults with people looking to align their money and values through sustainable, community and impact investments. He recently released a Money and Impact Investing Directory. He is also a co-chair of Slow Money NYC and NYC LION (a Slow Money investor group). Brian has consulted on award-winning energy conservation projects.

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