What Energy Upgrades Should Homeowners Do First? Posted on Jun 03, 2019

Do homeowners get more cost benefit from purchasing energy efficiency retrofits or solar energy generation systems?  According to a white paper titled “Reducing Home Energy Costs by Combining Solar and Energy Efficiency”¹ after “low hanging fruit” upgrades such as LED lighting and air leak repairs, rooftop solar is the next best economic thing for homeowners to do everywhere except for on old buildings in cold climates. But, should the policies that promote energy efficiency retrofits and solar energy generation systems be structured based on consumer economic benefits? And, if so, what solutions will encourage investments by homeowners that make good economic sense for their particular situation?

The answers to these questions are important not only for structuring energy policies that work, but also for selling clean technologies as numerous surveys validate that homeowners’ first goal is to save money when making efficiency and solar improvements.  Also, homeowners find it confusing to sort out the various energy savings claims from contractors, retailers and manufacturers of these products and services.

Based on the U.S. Department of Energy’s “Home Energy Saver” software program, developed by the Lawrence Berkeley National Laboratory, the White Paper evaluated three different ages of homes -- old, typical and new -- in ten U.S. cities: New York, San Jose, Los Angeles, Boston, Miami, Raleigh, Cleveland, Dallas, Denver and Phoenix. Retrofit energy efficiency measures looked at included caulking, ceiling insulation, energy efficient heating and air conditioning systems, appliances (laundry, refrigerator), lighting, and windows. Solar energy generation types included solar power (photovoltaic), solar water heating, and solar space conditioning.

The results of the 30 different home simulations found 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, as follows: 

• 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 most of the typical and new housing stock in the U.S., the “low hanging fruit” of basic energy saving measures have already been harvested.

The payback metric, calculated as net retrofit cost (after incentives) divided by first year savings was used to provide a simple and intuitive way to prioritize retrofit measures.  Use of this method showed that differences in paybacks were very sensitive to both a home’s condition and location.

Homes were categorized as “old” if they 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. Those time ranges were thought to roughly approximate periods during which increasing attention was paid to home energy consumption.

The simulations showed a statistically significant difference between old and new home paybacks across hot and cold climates and provided a few examples:

• "Old" house in San Jose, CA: Attic and duct insulation were found to 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.
• "New" house in San Jose, CA: Since it already had 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.
• "Typical" house in New York City: Retrofit items that reduce heating requirements, such as air infiltration and easily accessible insulation, had good paybacks, but because of high electric rates and favorable incentives, solar power systems also showed a good payback.
• "Typical" house in Los Angeles, CA: 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.

Overall, the study found that, for a "typical" home in the U.S., rooftop solar energy systems (electric and thermal), generate six times more energy than can be saved with lighting, weatherization and insulation retrofits combined.

Should Energy Policies Focus on Energy Reduction or Consumer Economics?

Failure to consider consumer economic factors risks creating policies that may look good on paper but will fail in practice. 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 greenhouse gas reduction goals, policymakers must encourage consumers to reduce their energy consumption in a way that is consistent with their best economic interests.

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.

Successful Energy Policy Must be Based on Successful Consumer Economics

Public policy that is well aligned with consumer economics will have a tremendously positive impact on overall reduction in greenhouse gases.  What has remained true over the past decade, is that it is apparent that some of these factors are being overlooked in policy debates about energy goals. 

For example, key improvements to our energy policies should include “Loading Orders” -- the preferred energy efficiency, demand response, renewables, and distributed generation orders established by principal government energy agencies -- and retrofit priorities that consider actual homeowner economics or public policies will 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.  

For example, energy audits are not necessary to determine the suitability of a home for some of the most cost effective retrofits --  some home energy audits cost as much as $1,000 per homes, and this cost is generally not factored in to energy efficiency cost- effectiveness 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. New homes and most homes in temperate areas, however, may not justify the cost of an expensive HERS-type energy audit and such audits are simply not necessary to determine the applicability of the obvious lighting and solar retrofits.

If the goal is to reduce our dependence on fossil energy sources, homeowners should be encouraged to implement retrofits in payback order rather than in an arbitrary fashion.

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1. "Reducing Home Energy Costs by Combining Solar and Energy Efficiency,” White Paper, Sponsored by The California Solar and Storage Association and Westinghouse Solar; republished here in part by permission. Specific questions about the paper’s methodologies and conclusions can be directed to Barry Cinnamon at info@cinnamon.energy.