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Is The Juice Worth The Squeeze: Energy-Efficiency Projects Make Cents
Homeowners can have both energy efficient heating/cooling and savings with the help of an energy ... More analyst.
With the burden of rising energy costs, many homeowners are feeling the pinch in their pockets. The National Foundation for Credit Counseling reports that 'Government agencies define utilities above 6% of your income as a high energy burden.' However, it is not just the high energy costs that are the issue, but also the site's energy consumption that is driving up the bill. But there is hope—energy efficiency projects can provide relief from this financial strain. According to the American Council for an Energy-Efficient Economy (ACEEE), the average U.S. household spends about 3.1% of income on energy, while low-income households spend more than 8%, with some exceeding 16%.
To resolve high energy utilization, homeowners should look into home energy-retrofit projects that are cost-effective—meaning that the investment has a positive impact on the household budget. Take a look at the Forbes article in April titled, 'Our Energy Bills Are High, And This Is Why,' to learn about the 'why' behind high energy bills.
After an energy audit, the building science practitioner should review the report with the homeowner. The report should capture all diagnostic testing and show where the customer should start investing. The energy-modeling software report should provide detailed information to empower customers to make informed decisions. The solutions often come with cost-benefit metrics such as 'Simple Payback,' 'Savings-to-Investment Ratio (SIR),' and 'Return on Investment (ROI),' all of which can give homeowners a sense of control over their energy usage and costs.
Simple payback is a financial metric that calculates how quickly an investment is recovered. This may be important to some people, as money has more value today than it will in the future due to inflation. This concept is known as the 'Time Value of Money.' For commercial projects, the ideal goal is for a project to pay for itself within five years. In the residential sector, projects are considered fair if they pay for themselves within 10 years or less.
Example: Retrofit costs $1,000 and saves $100 per year.
Payback = (1,000/100) = 10 years
The SIR metric indicates that a project will pay for itself. To calculate the SIR, divide a project's savings by its initial investment. The SIR considers the life cycle cost of the retrofit project. An SIR of 1 means that the project will pay for itself in its useful life. The higher the number, the more the project will pay for itself. SIR may not matter to some customers, as comfort may be what they value. For example, in the Midwest region of the country with short summers, an air conditioner, even if considered high efficiency, will not run long enough to offset its initial investment. Despite this, customers still want to be comfortable and will purchase the system anyway.
$30,000.00 (existing system) - $20,000.00 (cost of the new system) = $10,000.00 (savings)
$10,000.00 (savings) ÷ $5,000.00 (initial cost) = 2 SIR
2 SIR means the retrofit will pay for itself twice during its life cycle.
The Annual Return is the interest rate your money earns on your retrofit project. It is similar to returns in a 401(k) or investment account. The Annual Return is the reciprocal of the SIR. To calculate the Annual Return, take the annual savings of a project and divide it by the initial investment of the project.
Example: Retrofit costs $1,000 and saves $100 per year.
Annual Return = (100/1,000) = 10%
The energy savings from the project can often cover the financing payments, making the retrofit budget-neutral.
In conclusion, energy-efficiency retrofit projects are not just practical—they are essential. They empower homeowners to lower utility costs, increase comfort, and invest wisely in their property's future. With supportive data, financing options, and a clear return on investment, the case is clear: energy efficiency is a smart financial move and a step toward a more sustainable, affordable lifestyle.
