Parts 1, 2 and 3 of this series have given a framework for thinking about energy investments in commercial energy buildings. This part will relate it to investments for homeowners and will finally sum up the blog series.
Energy Investment for Homeowners
On a final note for homeowners, the guidelines for investment don’t apply to just Fortune 500 CFO’s. Most homeowners think of any energy project as just another expense of owning a home. But if the energy project is thought of as an investment, it can give eye-popping returns compared to alternatives. Say you have a $1,000 project which has two-year payback and will keep paying back for five years. These are pretty conservative assumptions for many residential projects. The $1,000 investment will generate $500 a year and at the end of five years, you will have $2,500, equivalent to a 20% annual return! That is a pretty stark comparison to current CD and savings rates and even the high end for stock market returns is around 10-15%.
Typical ECM’s for homes include adding insulation, cleaning ducts, sealing the building envelope and ductwork, maintaining HVAC equipment and adding smart thermostats. The EPA through the Energy Star program has a good overview of home improvement here.
From part 3, you now know how to calculate a baseline with cooling degree days as the only variable. However, real-life baselines can be a good bit more complex and involve multivariable linear regression. Electric heat would need to include heating degree days. A hotel model may use occupancy and a warehouse may use production or hours. In some cases, we have seen warehouses with electric truck chargers add electric usage. By going green and replacing diesel trucks with electric trucks, the warehouse actually made their energy savings look worse. I have to keep stressing that the end goal is comparing actual usage to usage in a world where the ECM’s never happened.
Financial analysis and baseline creation are not particularly simple, but they are ultimately vital to ensuring continued energy reduction and creating a sustainable enterprise. Not adjusting for external factors can make good energy projects look bad and bad energy projects look good. Honestly and transparently accounting for the factors is in the interests of the client and in the long-term interests of companies implementing ECM’s. At Burton, we try at all times to give solid, independent analysis of all ECM’s and guide our clients to the measures right for them.