TODAY’S STUDY: SOLAR PLUS ENERGY EFFICIENCY = BEST SAVINGS

Singular solutions are appealingly simple but often the best answers are as complicated as real life. Example: Some people advocate for wind, others are passionate about solar and yet others say there is no answer to the energy conundrum that comes before efficiency. It turns out those are all oversimplified approaches.

And what is apparently contradictory often turns out to be true. Example: It takes spending money to make money.

Running the numbers on home energy use, as in the study below, turns up paired, nuanced insights: The cheapest way to use energy in a home in almost any city in the U.S. is to spend the money to install solar AND retrofit for energy efficiency.

Life lesson: Combinations complicate the question but can offer the ultimate answer.

Reducing Home Energy Costs by Combining Solar and Energy Efficiency
November 2010 (California Solar Energy Industries Association (CALSEIA) and Westinghouse Solar)

Abstract

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.

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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:


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• 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).

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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 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.

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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.

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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 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.

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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.

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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.

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.

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• 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 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. 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 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.

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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.

• Policies that anticipate long-term programs should consider likely future costs of retrofit measures.