Simple Economics of Energy Efficiency

I've been working in the residential building field now for 8+ years and the market still isn't quite sure how to properly value energy efficiencies. One of my best friends is a very experienced residential appraiser and he says that, even though the governing bodies for appraisers have/are working on this issue, there is still no standard value added formula to adjust the appraisal of a home based on how energy efficient it is. The Department of Energy back in the 90's did a study and came up with the 1:20 ratio rule: for every $1 of energy saved that equals $20 of added value to the home. That sure seems like a lot at face value, but after some simple calculations, I feel that the experts that performed these tests and released this study were pretty close in their valuations. Let me explain.

So far I have received 5 montly utility bills for this prototype. The total = $292.38 or an average $58.48 per month. The code based model home that this prototype is compared to was expected to average $175 for each monthly bill. 5 X $175 = $875. If these figures were to stay consistent for an entire year, my prototype home's yearly energy bill total would be $701.76 and the code based model home would be $2,100.00. Because Asheville has more heating degree days than cooling, it would be safe to assume that these costs should be even higher for the model home, but I'm trying not to make too many assumptions. Ok, back to the math. Subtracting $701.76 from $2,100.00, I get $1398.24. Divide this # by 12 (months) and this prototype home is averaging a savings of $116.52 each month on energy costs. A well qualified buyer, at today's interest rates, that adds $116.52 to their mortgage, instead of paying the local utility, would be able to borrow about $23,000.00 more. Using the 1:20 DOE rule, this prototype should be worth an additional $27,964.80 ($1398.24 X 20)--so not too far off my prototype figures. Please understand that these #'s are based on my KW/HR rate of $.10. Savings could be higher or lower depending on your utility rates. Also, it is very likely that utility rates will continue to increase in the future. Would you rather put the money into your home or pay the utility company? Easy question right?

Now the issue of payback. "What is the payback?" is a question I hear often. Although this prototype is a great example of the true monetary value of energy efficiencies, the cost factor is difficult to calulate. I put in a fair amount of sweat equity and also worked very hard to find quality materials at an affordable price. So I will use a more simplified example: If a homeowner added $20,000 in improvements to their home to be more energy efficient and those improvement saved $150 a month in energy costs, at today's interest rates there would be an immediate payback. The reason is because your total month expenditures would be less the very 1st month you live in the home. $20,000 added to a 30 yr mortgage would add about $105 to your monthly mortage payments, but you are saving $150 a month is utility costs.

I've written about alternative and renewable energy options/costs in previous posts, but a really good blog entry discussing the return on investment (ROI) for solar (PV) is available at Eco-Panels website. Not only does this prototype home save me quite a bit of money in energy costs, this home is also stronger, healthier, safer and lower maintenance than the vast majority of new homes built today. How much are these added benifits worth? That's a question that's impossible to put a price on!