Payback Periods of Big Ticket Home Energy Improvements

If you've got a few thousand dollars to invest, the safest investment with the best return might be one involving reducing your homes energy costs.

The largest consumer of energy in most homes is the climate control system: the furnace, boiler, air conditioner, etc. The second largest consumer of energy is usually the hot water tank. Since newer, more energy efficient heating and cooling systems can produce heat using much less energy than older models, they can largely decrease your energy costs.

Another way to get a large reduction in utility costs is to generate your own electricity, using either solar panels or a wind turbine.

The purpose of this article is to give the reader a general idea of how quickly these investments will pay for themselves. It should be noted that more accurate estimates of energy savings will involve consideration of many factors including the owner's location, energy needs, how the house was built, current utility rates and expected future rates, etc. This article is intended only as a starting point- smart homeowners should undertake more research before investing several thousand dollars in one of these energy improvements.

One note in particular is that the prices given for the installation of these systems is a ballpark figure only. The price of a quality installation will vary significantly from city to city and contractor to contractor.

Rebates on the installation of these systems are also available from the government and many local utilities. To find out the rebates available for different energy upgrades in your area, I suggest you check out the Database for State Incentives for Renewables and Efficiency (DSIRE). The prices and payback periods given below do not consider these rebates, although in many cases they can cover a large portion of the investment and reduce the payback period (the number of years it takes for the investment to be made back by energy savings) substantially.

Heating & AC Upgrades

A very important factor in determining the payback on a new high efficiency heating or air conditioning system are your current heating and air conditioning costs. If you are only spending $500 a year on heating and air conditioning your house right now, then you are don't have much incentive to spend more on a high efficiency system. However, if you spend over $2000 on heating and/or air conditioning every year, you can get a very impressive return on your investment.

Air Source Heat Pumps

An air source heat pump is basically an air conditioner that can operate in reverse in the winter. It can move about 3 units of heat energy for every unit of electrical energy it consumes. In some homes (see our heat pump article) these units can pay for themselves in as little as 5-7 years, but in less suitable homes they might result in little energy savings. Note that heat pumps also provide air conditioning in addition to reducing heating costs.

• Cost: $4000-5000 for a larger than average home
• Annual Savings: $0-$1200 off a $2000 heating bill

Geothermal Heat Pumps

A geothermal heat pump is the most efficient way to heat and cool your home. They absorb heat from the ground in the winter and release it back in the summer. They can cut your heating costs by up to 75% and use about 50% less electricity to cool than new air conditioners. A typical payback period will be about 25 years, but it may be lower for some homes.

• Cost: $15000-$25000 for a larger than average home
• Annual Savings: $500-$1500 off a $2000 heating bill

High Efficiency Furnaces/Boilers

New furnaces and boilers are now a minimum of 80% efficient. High efficiency boilers are now 85-92% efficient, and high efficiency furnaces are 90-95% efficient. This means that for every unit of heat they create, 95% of it is used to heat your home, whereas in older units up to 40% leaves up the chimney to facilitate easier exhaust.

• 90% efficient gas furnace: Costs about $700 more than comparable 80% efficient furnace, saves and additional 11% on heating costs
• 95% efficient gas furnace: Costs about $1200 more than comparable 80% efficient furnace, saves an additional 16% on heating costs
• 85% efficient gas boiler: Costs about $800 more than comparable 80% boiler, saves an additional 6% on heating costs
• 92% efficient gas boiler: A 92% efficient modulating boiler costs about $5000 more than an 80% efficient unit, and saves an additional 13% or more on heating costs

Solar Water Heaters

Installing a solar hot water system involves placing panels on your roof that look a lot like solar electric panels. Instead of generating electric current, these have a dark metallic material that absorbs the suns heat. Water will be heated up as it flows through these panels, and it will then enter a gas or electric water tank which will heat it the rest of the way up to the required temperature. In Southern regions, about 70% of your hot water heating needs can be provided for free by the sun, and the figure is about 50% for the Northern US.

• Cost: $4000
• Annual Savings: South: $210 a year North: $150 a year (off a typical $300 annual hot water heating cost)

Tankless Water Heaters

A tankless water heater heats the water as it is being used, rather than heating it up and then storing it. This means that heat does not escape up the chimney and through the insulation while the tank is not in use.

• Cost: $1500 (Single shower unit), $2500 (Double shower unit)
• Annual Savings: $60 a year (A tankless unit should also last about twice as long as a hot water tank)

Higher SEER Air Conditioners

Most AC units made before the minimum SEER rating became 10 in 1992 are only about 8 SEER, and most made between 1992 and 2006 when the minimum standard became 13 SEER are only the minimum 10 SEER. Now, if your air conditioner has failed, and you want to replace it, you will have a choice between a 13 SEER unit and more expensive units with efficiencies as high as 20 SEER. SEER describes the number of Btu's of heat removed for every watt hour of electricity consumed. A higher efficiency 18 SEER unit will thus use about 28% less energy than the now minimum standard 13 SEER unit.

• Cost: $1000 extra for a 18 SEER unit instead of a 13 SEER unit
• Savings: $280 a year off of a $1000 cooling bill, vs. 13 SEER

Solar Electric Panels

Solar panels have come down in price a lot over the past couple decades and prices are expected to continue to fall. But right now, in most cases, the value of the electricity the panels generate over their lifetime will be less than the cost of the panel installation. A 2kW solar system will cost about $20,000 to install. This system will generate 2kW of electricity when 1 kW of sunlight is hitting every square meter of the system. You can multiply the systems rated output by the average daily insolation level (amount of sunlight in kWh/m2/day) times 365 to determine the number of kWh's of electricity generated per year. You can find the insolation levels for major American cities here.

Here are estimates of the value of the electricity generated for a better city for solar (LA) and a poorer city for solar (Seattle):

• LA: 2kW system x 5.4 hours/day x 365 days/year x 10 cents/ kWh = $394 a year return on a $20,000 investment
• Seattle: 2 kW system x 3.5 hours/day x 365 days/year x 5 cents/ kWh = $129 a year return on a $20,000 investment

Some States are offering very impressive incentives on solar panels which can sometimes make the investment much more appealing.

Wind Power

If your home is in an area with higher average wind speeds (find out if it is here), then a wind turbine should deliver a much higher return than a solar electric system. If your roof rises above any obstructions, then a 1 kW system can be installed for about $5000. In an area with average wind speeds of 6.25 m/s, this system should generate about 2400 kWh's of electricity per year, which is between $120 and $310 worth of electricity depending on your area's rates.

If you are really serious about wind power, you should look into a larger system, such as a 5 kW system. Such a system will involve the installation of a tower about 100 feet tall, supported by guy wires, elevating a turbine with 20 foot long blades. This will cost about $25,000, and will generate a bit more than 5 times as much power as the 1 kW system.

It's easy to see why wind power hasn't caught on. The installation of such a tower is not permitted in many cities, and many homeowners (or some of their neighbors) consider such a system a major eyesore. Also, unlike solar electric panels which are expected to last 50+ years, a windmill will wear out in about 20.

Still, in many areas a wind system can largely reduce your home's greenhouse gas emissions and be a reasonably profitable investment as well.
 

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