Adsense Top Center

1/7/11

How to Reduce Home Energy Costs | Will new energy star appliances save you money

Below is an excerpt from a free WhitePaper called "Reducing Home Energy Costs by
Combining Solar and Energy Efficiency" found on the Westinghouse Solar website, which was formally part of Akeena Solar.  The Whitepaper discusses the cost and payback of Solar power for homeowners.  It also walks through the payback for appliances and the payback for lighting in your homes.  It answers the questions around "How much money would new Energy Star appliances" save me or "would a solar panel system save me money in my home"

-----------------

Energy efficiency and solar energy generation can effectively reduce -- and in many cases
virtually eliminate -- residential energy bills. However, factors such as climate, age of the
home and utility rates all dramatically affect the relative economic benefits of these
measures.  Since homeowners bear the brunt of these expenses, policies must be designed
that are consistent with individual homeowner economics.  For example, policies that
mandate defined energy efficiency retrofit measures before solar energy generation result in
bad economic investments for many homeowners.  This paper examines the tradeoffs
between energy efficiency retrofits and solar energy generation systems for homeowners
throughout the U.S., and proposes solutions to encourage investments by homeowners that
make good economic sense for their particular situation.3
Executive Summary
Saving energy in the U.S. starts right at home.  The residential sector consumes 22% of the
energy in the United States; by comparison, cars use about 17%.  Actions that individuals
take to reduce home energy costs will give them more disposable income -- while
simultaneously creating good local jobs, improving our environment and reducing our
dependence on foreign oil.
Numerous surveys validate that homeowners’ first goal is to save money when making
efficiency and solar improvements. Homeowners have two ways to structurally reduce their
energy costs: retrofit energy efficiency measures and solar energy generation.  Although they
bear most of the cost for these retrofits, it is very confusing to sort out the various energy
savings claims from contractors, retailers and manufacturers of these products and services.
In order to objectively determine what combination of energy efficiency and renewable
generation makes the most sense for homeowners, this White Paper uses Department of
Energy software to evaluate three different ages of homes (old, typical and new) in ten cities
in the U.S.  The results of these 30 different home simulations are that climate, local utility
rates and home condition are the biggest factors in determining what are the most cost
effective energy savings measures for homeowners.  In particular:
• Lighting retrofits are always cost effective (paybacks < 1 year).
• Weatherization and insulation energy efficiency measures are most cost effective in
old homes in cold climates (paybacks <3 years), but are not cost effective in newer
homes or in temperate climates.
• Basic building shell and ventilation energy efficiency measures are most cost-effective
in cold climates, but have long paybacks in more temperate zones (paybacks 20+
years).
• Rooftop solar power systems have good paybacks regardless of home condition in
sunny areas and in areas with either high electric rates or high solar incentives
(paybacks 5-15 years).
• Solar thermal systems have good paybacks when the fuel source for hot water is
electricity, or if there are local incentives in areas using natural gas with a tiered rate
structure.
• Upgrades to Energy Star appliances and equipment are generally cost-effective when
replacing broken or obsolete equipment, but are generally not cost effective when the
existing equipment is still functional (analogous to not upgrading to a new, higher
mileage car if the old one still works).
In almost all of the typical and new housing stock in the U.S., the “low hanging fruit” of basic
energy saving measures have already been harvested.  Consequently, for a typical home in
the U.S., rooftop solar energy systems (electric and thermal), will generate six times more 4
energy than can be saved with lighting, weatherization and insulation retrofits combined.
Generating the remaining energy required by the home will have the biggest impact on home
energy consumption.  Put simply, we cannot conserve our way to energy independence.
The results are somewhat contrary to the “conventional wisdom” regarding cost effectiveness
for energy efficiency and solar power systems.  However, these results are not surprising
when one considers the range of U.S. housing stock, varying climate conditions and current
costs of various retrofit and renewable energy options.  Most importantly, these results
provide guidance for good national energy efficiency and solar policies that are consistent
with homeowner economics.5
1. Introduction
In order for the U.S. to consume less energy, the place to start is right at home.  The
residential sector consumes 22% of the energy in the United States; by comparison, cars use
about 17%. Actions that individuals take to reduce home energy costs will give them more
disposable income -- while simultaneously creating good local jobs, improving our
environment and reducing our dependence on foreign oil.
Homeowners have two ways to structurally reduce their energy costs: retrofit energy
efficiency measures and solar energy generation. Retrofit energy efficiency measures
include caulking, ceiling insulation, energy efficient heating and air conditioning systems,
appliances (laundry, refrigerator), lighting, and windows.  Solar energy generation includes
solar power (photovoltaic), solar water heating, and solar space conditioning. Each of these
measures address specific aspects of a home’s energy requirements.  For example,
insulation addresses heating and cooling requirements, and energy efficient appliances
address electricity demand.  Photovoltaic systems reduce overall electricity demand by
generating electricity on-site, including ‘plug loads’ from televisions and appliances, as well
as the electricity needed to run heating and air conditioning systems.
In all cases, homeowners bear most of the costs for selecting and implementing these
measures.  Their individual economic situation and energy usage patterns directly impact
their choice of which measure or combination of measures to implement. Although some
portion of these costs can be reduced through local rebate programs and federal tax credits,
the majority of the cost of these improvements is borne by the individual.  Therefore, their
specific preferences and economic choices must be addressed when establishing energy
savings policies.  Failure to consider these consumer economic factors risks creating policies
that may look good on paper but will fail in practice.
For the last few decades, energy efficiency measures and rooftop solar power have proven
their ability to reduce homeowner’s utility bills.  While it is indeed important for energy
consumers to reduce energy consumption, it is not true that all efficiency measures make
sense for all homes.  The reality is that the climate region in which the home is located, the
age and condition of the home, and utility rates dramatically change the cost-effectiveness
and preference for various energy saving and energy generating measures.  To succeed in
home energy reduction goals policymakers must encourage consumers to reduce their
energy consumption in a way that is consistent with their best economic interests.
Numerous surveys validate that homeowners’ first goal is to save money when making
efficiency and solar improvements.  However, there is a wide range of retrofit and energy
audit options available to homeowners to reduce their energy costs.  Moreover, it can be
quite confusing to sort out the various energy savings claims from contractors, retailers and 6
manufacturers of these products and services.  The primary goal of this White Paper was to
use widely accepted software to determine if generalizations about the best energy savings
measures can be made for homeowners.7
2. Methodology
Home energy audit software has come a long way since the first punch card mainframe
programs were used by utilities in the late 1970s.  One of the best programs available is the
U.S. Department of Energy’s “Home Energy Saver” program, developed by the Lawrence
Berkeley National Laboratory
1
 This program has a comprehensive set of parameters that  .
can be used to model all of a home’s energy usage, taking into account heating loads,
cooling loads, hot water usage, lighting and appliance usage – all adjusted for local climate
and energy costs.
In order to provide policy guidance that would be relevant throughout the U.S., homes were
modeled in ten different cities: New York, San Jose, Los Angeles, Boston, Miami, Raleigh,
Cleveland, Dallas, Denver and Phoenix.  Since a key hypothesis is that the actual condition
of the home will have a big impact on the prioritization of energy efficiency and solar
measures, three different types of homes were modeled in each location:  old, typical and
new.  Old homes were pre-war, constructed before 1940; typical homes were constructed
between 1940 and 1975 (post war and pre-Carter), and new homes were constructed after
1975.  Obviously there is a great deal of variability of home construction practice in different
areas of the country during these timeframes, but these ranges roughly approximate periods
during which increasing attention was paid to home energy consumption.
The average home was defined to be 2,000 square feet, one story, 50x40 rectangle with
construction practices typical for the vintage of the home.  All home-specific parameters were
kept constant for each of the 30 different simulations except for minor heating system
variations (boiler in cold areas, furnace in temperate areas, heat pump in warmer areas),
foundations (basement in cold areas, crawl space in warmer areas), and siding (wood siding
in cold areas, stucco in warmer areas).
DOE program defaults were used for retrofit recommendations, savings and costs.  No
attempt was made to change the default recommendations and savings produced by the
DOE program, although these defaults were adjusted for local energy efficiency and solar
incentives where applicable.  Since the DOE program did not consider solar power or solar
thermal retrofit measures, industry-accepted calculations were used to determine solar retrofit
savings based on home electricity usage and hot water usage as modeled by the program.
Local utility rates were used where possible, and adjustments were made to reflect marginal
electric rates.
Retrofit costs for solar power systems (not including incentives) were $5.50/watt, which is
consistent with current California Solar Initiative costs for residential systems
2
 In cases  .
                                          
1
http://hes.lbl.gov/consumer/
2
23% of residential systems reserved throughout 2010 were between $5 and $6/DC watt.  See
http://www.californiasolarstatistics.ca.gov/reports/cost_per_watt/8
where retrofit costs were specified on an incremental basis (for example, the “extra” amount
to install a high efficiency appliance or building shell measures compared to normal), the cost
for the entire retrofit measure was used instead of the incremental cost to provide a more
accurate retrofit payback.  For new homes, retrofit work suggested by the program for air
leakage and weatherization was not considered since these homes should, by definition, be
in good shape – and if work were required it would be covered by an existing home warranty.9
3. Results
A key first step in validating the accuracy of the modeled consumption for typical homes is to
verify that the home’s energy consumption is realistic.  The table below shows the modeled
home energy usage for old, typical and new homes in the ten home simulation cities.
Modeled home energy consumption is reasonable based on age-specific factors and climate.
U.S. average electric consumption is approximately 1,000 kwh/month.  Heating and cooling
energy consumption varies by climate, as one would expect.  Variations by home condition
reflect the expected relatively higher heating and cooling requirements for old homes
compared to new homes.
The table below shows the average simple paybacks for categorized retrofit measures in all
ten cities, calculated across all old, typical and new homes in these locations.  The “payback”
metric, calculated as net retrofit cost (after incentives) divided by first year savings, is a
simple and intuitive way to prioritize retrofit measures.  More refined metrics such as Net
Present Value or Return on Investment can be used, but since the average tenure of home
ownership is about seven years – payback provides a good representation of the cost
effectiveness of various retrofit measures.10
It is extremely important to note that the payback table above showing national averages is
very misleading as far as guidance towards specific retrofit measures.  As discussed in the
following section, the large energy savings potential for older homes in cold climates distorts
the picture for more typical homes throughout the United States.
Categorizing retrofit measures is important since different types of contractors specialize in
different types of retrofits.  From a practical standpoint, if a homeowner wanted to upgrade
their furnace, install attic insulation, double-pane windows and solar – they would have to hire
four different contractors.  This type of multi-contractor buying process is complicated for a
homeowner.  Homeowners are more likely to do the retrofits in one contractor category than
the “best” retrofits in multiple categories.
Appendix 1 shows the details of all energy retrofit measures recommended by the DOE
Home Energy Saver program in each of the 30 modeled home scenarios, ranked by payback.11
4. Analysis
Given the right information and a simple “buying” process, consumers will generally act
quickly on retrofit measures that have paybacks of less than one year.  Lighting retrofits --
generally replacing incandescent lights with compact fluorescent lights -- almost always have
a very short payback.  On the average, weatherization and insulation measures have short
paybacks where they are lacking– but are very sensitive to the location and condition of the
home, as described below.  Solar power retrofits show a fairly consistent payback regardless
of location or home condition; paybacks are mostly dependent on local electric rates and
incentives.  HVAC retrofits have moderate paybacks for old and cold homes, but long
paybacks in newer homes and homes in more temperate regions.
Old Versus New Homes
Differences in paybacks are very sensitive to both a home’s condition and location.  The
differences in home condition can be seen in the two tables below, in which an old house in
San Jose (circa 1935) is compared to a new house in San Jose (circa 1980).12
For the Old house in San Jose, attic and duct insulation have a short payback (since there
was originally no insulation at all), and duct sealing and air sealing have a moderate payback
(since these items are “leaky” in the old house).  However, popular retrofit measures such as
wall insulation and double pane windows have 11 and 30 year paybacks respectively–
primarily because in the relatively temperate San Jose climate the conductive energy losses
through the building shell do not justify the expense of retrofitting these items.
For the new house in San Jose -- since it is assumed to already have reasonably effective
weatherization, insulation and building systems – only lighting upgrades, solar power and
appliance upgrades have short paybacks.   Generally, as long as new homes were built
properly up to modern construction standards, there is virtually no opportunity at all for
weatherization, insulation, building shell and HVAC upgrades.
Cold Climate Versus Temperate Climate Homes
The differences that climate have on similarly constructed homes can be seen in the two
tables below, in which a typical house in New York City is compared to a typical house in Los
Angeles.1314
For the typical house in New York City, retrofit items that reduce heating requirements, such
as air infiltration and easily accessible insulation, have good paybacks.  Because of high
electric rates and favorable incentives, solar power systems also show a good payback.
On the other hand, for a typical house in Los Angeles, building shell, insulation (except for
attic insulation) and air sealing measures have long paybacks.  Measures directed towards
reducing electrical costs such as solar power and appliance upgrades show the fastest
paybacks.
Making a Big Dent in Home Energy Expenses
In almost all of the typical and new housing stock in the U.S., the “low hanging fruit” of basic
energy saving measures has already been harvested.  Generating the remaining energy
required will have the biggest impact on home energy consumption. The table below shows
the annual energy savings achievable in each retrofit category for typical homes averaged
across all ten cities.
For a typical home in the U.S., rooftop solar energy systems (electric and thermal), will
generate six times more energy than can be saved with lighting, weatherization and
insulation retrofits combined.  Rooftop solar energy systems can reduce annual energy
expenses by an average of 32%, whereas basic lighting, weatherization and insulation
retrofits combined can reduce energy expenses by only 5%.  It is clear that policies focusing
on energy efficiency alone will not make a meaningful dent in home energy expenses.  Put
another way, we simply cannot conserve our way to energy independence. 15
5. Retrofit Recommendations
One cannot generalize retrofit priorities for the entire U.S.  However, certain retrofit priorities
are clear when considering the location and condition of the home, as summarized below:
• Lighting retrofits always show a rapid payback (< 1 year); these are low cost, mostly
DIY activities.
• Weatherization energy efficiency measures are most cost effective in old homes in
cold climates (<3 years), but are not cost effective at all in newer homes or in
temperate climates.
• Basic building shell and ventilation energy efficiency measures are most cost-effective
in cold climates (5-15 years), but have long paybacks in more temperate zones (20+
years).
• Rooftop solar power systems have good paybacks, in the range of 5-15 years
regardless of home age and climate as long as there are either high electric rates or
high solar incentives. Due to technology advancements and mass production, costs for
rooftop solar power systems are dropping rapidly – likely making these measures even
more cost effective in future years.
• Solar thermal systems have good paybacks when the fuel source for hot water is
electricity, or if there are local incentives in areas using natural gas with a tiered rate
structure.
• Upgrades to Energy Star appliances and equipment are generally cost-effective when
replacing broken or obsolete equipment, but are generally not cost effective when the
existing equipment is still functional (analogous to not upgrading to a new, higher
mileage car if the old one still works).
Financing of retrofit measures is a critical consideration to homeowners.  Many homeowners
decide to take out a bank loan, PACE loan or lease financing.  These loans have fixed
transaction costs that make them impractical for low cost retrofits.  When one considers both
the financing costs and contractor project costs, packages of retrofits with relatively high
costs (justifying the financing) and high annual savings (generating a short payback) are most
likely to be widely adopted – saving the most residential energy in the U.S.
6. Conclusions and Policy Recommendations
Public policy that is well aligned with consumer economics will have a tremendously positive
impact in reducing home energy costs.  In the course of doing this research it is apparent that
some of these factors are being overlooked in the overall debate about energy savings.
Policy recommendations are summarized below.16
Conclusions
• “Loading Orders”
3
 or retrofit priorities that do not consider actual homeowner
economics can lead to public policies that fail in the marketplace.
• The conventional wisdom approach of “energy efficiency first” does not consider four
factors: the actual condition of the housing stock; local climatic conditions; electricity
rates that are escalating faster than heating fuel rates; and the rapidly declining costs
for solar and lighting upgrades.
• If the goal is to reduce our dependence on foreign energy sources, then rooftop solar
electric and thermal systems are clearly the best retrofit option. For a typical home in
the U.S., these systems will generate six times more energy than can be saved with
lighting, weatherization and insulation retrofits combined.
• Overall, solar upgrades will save eight times more energy for typical California
homeowners than lighting, weatherization and insulation measures combined -- and
should therefore be the first priority rather than the last option.
• Traditional retrofit measures such as insulation, weatherstripping and HVAC upgrades
do not show fast paybacks, except in old homes in cold climates.
• Homeowners should be encouraged to implement retrofits in payback or NPV order
rather than in an arbitrary fashion
• The DOE Home Energy Saver program is a tremendously useful web-based tool for
both homeowners and energy auditors to use.  The internal energy simulation and
recommendations it provides are well calibrated to local climate and home design
parameters.  However, the program should be adjusted for local energy costs, total
(not incremental) retrofit costs, marginal electric rates, and solar power and solar
thermal retrofit measures.
• Energy audits are not necessary to determine the suitability of a home for some of the
most cost effective retrofits (note that some home energy audits cost as much as
$1,000 per homes – and this cost is generally not factored in to energy efficiency costeffectiveness evaluations).  Old homes in poor condition in cold areas will almost
always need insulation and air infiltration improvements – these homes are good
energy audit candidates.  However, new homes and most homes in temperate areas
may not justify the cost of an expensive HERS-type energy audit; moreover, these
audits are simply not necessary to determine the applicability of the obvious lighting
and solar retrofits.
• Monitoring and control systems have great potential for reducing home energy
consumption, although they were not considered in this analysis.  Part of the problem
is that thermostats can be over-ridden and consumption monitors can be ignored –
whereas efficient lighting, rooftop solar or building insulation will deliver savings
regardless of homeowner actions (or inactions).  Nevertheless, innovations such as
                                          
3
 .  For example, the California Energy Commission has adopted a “Loading Order” requiring comprehensive
home insulation, envelope sealing, HVAC upgrades and comprehensive energy auditing before considering
solar retrofits.  Lighting upgrades (which have the fastest payback) are not eligible, and solar upgrades are at
the end of the list.17
the “smart grid”, internet-connected thermostats and automatic load-shedding
appliances can overcome some of the behavioral limitations that inhibit many energy
savings efforts.
• Due to technology advancements and mass production, costs for rooftop solar power
systems are dropping rapidly – likely making rooftop solar even more cost effective in
future years.  On the other hand, since building shell and weatherization retrofits use
conventional construction materials and labor techniques it is not likely that these
costs will be substantially less in future years.
Policy Recommendations:
• Modify loading order policies to encourage homeowners to select energy efficiency
and self-generation in the appropriate payback order for their individual situation.
• Modify loading order policies to take into account factors such as the actual condition
of the housing stock and local climate conditions,
• The cost of energy audits should be incorporated into the cost effectiveness
evaluations for home energy efficiency retrofit measures.
• The DOE Home Energy Saver program should be adjusted for local energy costs, total
(not incremental) retrofit costs, marginal electric rates, and solar power and solar
thermal retrofit measures.