TODAY’S STUDY: Builders And Buyers Of Zero Energy Homes
The Economics of Zero Energy Homes
Jacob Corvidae, Michael Gartman, Alisa Petersen, November 30, 2018 (Rocky Mountain Institute)
Executive Summary Building new single-family homes to zero-energy (ZE) or zero-energy ready (ZER) home standards can save consumers thousands of dollars over the home’s life cycle. ZE homes produce as much renewable energy as they consume over the course of a year, and ZER homes have similar levels of efficiency without onsite solar photovoltaics (PV). In addition, increasing market penetration of ZE homes can help cities meet their aggressive greenhouse gas emission goals while building a more futureproofed and energy-secure building stock.
Despite these benefits, ZE and ZER homes make up less than 1% of the residential market, partially due to outdated perceptions of the incremental cost for these offerings. This report demonstrates that the cost increase to build a ZE or ZER home is modest (with incremental costs of 6.7%–8.1% for ZE homes and 0.9%–2.5% for ZER homes as shown in Figure 1)—far less than consumers, builders, and policymakers may realize—and highlights methods builders and policymakers can use to drive increased market penetration.
Rocky Mountain Institute (RMI) compared the incremental costs of building ZE and ZER homes in four US locations against four key consumer cost thresholds that reflect the metrics that both homebuyers and builders use to make investment decisions:
• Mortgage: The anticipated energy savings over the life of the mortgage.
• Resale: The anticipated energy savings over 12 years (the typical length of time homeowners stay in a home).
• Consumer Willingness to Pay (WTP): The 4% first cost premium customers have stated they’re willing to pay, according to consumer research.
• First Cost: The cost to build an identical home that meets local energy code.
When the incremental costs of building ZE and ZER homes are equal to or less than the cost thresholds, decision makers are more likely to bear the cost of investment in ZE or ZER homes. In many cases, the cost thresholds have already been achieved. Figure 2 and Figure 3, respectively, summarize the results for ZER and ZE homes compared against these cost thresholds.
Actions for Builders and Policymakers
Builders can use the recommendations provided in this report to fine-tune home designs and construction processes to minimize incremental costs. This report also outlines key actions that policymakers can take to drive increased adoption of ZE and ZER homes in their jurisdictions. Both builders and policymakers are essential to driving progress in this industry.
For the cases in which the cost thresholds are not met, it is important to remember that costs of building ZE and ZER homes continue to decline, with a projected incremental cost for ZE homes of 3%–5% by 2030. Although our analysis yielded concrete recommendations for cost-optimal ZE home designs, a variety of other solutions are available and may be specified based on local conditions or consumer priorities. This analysis also focused on all-electric solutions; we did not analyze natural gas options…
Recommendations For Builders
The following sections summarize the implications of this report for home builders and developers looking to provide ZE or ZER offerings.
Use this Report to Inform Future Construction
Both prospective and established ZE home builders can use the cost-optimized efficiency measures identified in this report as a starting point for informing or updating their home designs. Note that DOE provides additional ZERH climate-optimized efficiency packages as part of its Building America Solution Center.52 Home builders should iterate on these recommendations to ensure that the recommendations adequately consider their local context, including existing contractor relationships and pricing, climate considerations, code requirements, and available incentives.53
A truly cost-optimized design is dependent on an integrated design that considers the various systems that comprise home energy use in parallel. The Building America program is helping builders navigate these issues with focused research and development on integrated solutions, and it may be a valuable supplement to the resources provided in the DOE ZERH program.54 Builders should also work with energy modeling professionals to analyze integrated solutions that account for local climate, costs, incentives, and site constraints.
Collaborate in the DOE ZERH Program
The fact that home builders specializing in green homes report a cost premium less than half that stated by conventional home builders shows just how significantly experience itself can influence costs.55 However, for those conventional home builders looking to break into a new market segment, the promise of reduced costs after their first, tenth, or hundredth green home is not particularly soothing. The DOE ZERH program works to address this hurdle by offering dozens of case studies,56 encouraging collaboration between green home builders, providing training webinars on advanced building topics, and providing prescriptive guidance on the design and construction of ZER homes.
The ZER certification process also provides builders with a method of quality control by requiring that buildings undergo a HERS rating (including blower door tests and energy modeling) and use checklists for thermal and air barriers, quality HVAC installation, comprehensive indoor air quality measures, and solar-ready construction (in locations with a significant solar resource). These steps can help home builders (especially those new to super-efficient construction) ensure quality, regardless of whether they complete the other requirements for ZER certification. Although this report focuses on ZER certification, builders can pursue other certifications that also provide design guidance and credibility to a ZE home, including LEED, National Green Building Standard, and ENERGY STAR for homes.
Find the Right Subcontractors
The costs identified in this report assume that projects are bid competitively by subcontractors. Builders and developers rooted in conventional building practices may find that their preferred subcontractors have limited experience in the super-efficient technologies and building techniques incorporated in this report (e.g., commissioning the inverters on ductless mini splits) and that they thus quote prices substantially higher than those listed here to minimize their risk and uncertainty.
The costs listed in this report are derived from trusted resources based on real-world cost data (see Appendix A for details). Home builders should be able to achieve similar costs in their locations. Home builders should look for subcontractors that are amenable to taking on new technologies and techniques without introducing extreme contingency costs to learn new skills—more likely if a high-volume builder is asking. Where meeting resistance to change, home builders should look to establish and build new relationships.
Hone Your Salesmanship
There is some disagreement in the real estate community regarding the difficulty in selling green homes, with 34% reporting a sales advantage and 29% reporting a disadvantage.57 Regardless of the current state of affairs, it’s clear that there is room to improve.
Many of the first movers in this industry can share painful stories about the overly technical presentations they first used to try to sell a ZE or ZER home. These builders have learned through experience that a successful sales pitch does not focus on technical aspects. In fact, many home builders report that even highlighting the superior total cost of ownership for a super-efficient home doesn’t provide the emotional pull necessary for a prospective buyer. Green home builders are quickly learning that establishing this emotional connection is essential to their success.
Home builders can learn more about successful marketing strategies and phrases for super-efficient homes using the Building America Building Science Translator58 and the Building America Solution Center Sales Tool.59
Engage with Local Policymakers
This report includes recommendations for policymakers interested in promoting ZE or ZER new construction. Builders should share those recommendations with government officials in the cities or states where they operate to help accelerate this industry. Better, they should work with those government officials to share their perspective as a local home builder to ensure that enacted policies represent an optimal approach to accelerating adoption.
Recommendations For Policymakers
Policymakers have an important role in improving grid reliability, meeting community energy needs, supporting affordability, improving the housing stock, and addressing climate change. Driving ZE home construction can be an essential action in addressing all of these issues. The following sections summarize the implications of this report for policymakers interested in driving the construction of ZE and ZER single-family homes in their city, county, or state.
Clarify Goals to Inform Actions
It is essential to set clear, ambitious, and measurable goals to guide policies and actions. The content of this report can be used in concert with other available resources to inform the discussions and analysis necessary to define the goals that policies will drive toward. RMI will be providing additional tools for policymakers to accelerate ZE construction in 2019.60
Use This Report to Inform and Support Policy
The cost-optimized home constructions highlighted in this report can be used to guide incentives and quantify the economic impact that these measures will have on real estate developers and home buyers. The previous pages highlight several high-value opportunities, including:
1. Prescriptive incentives, especially for heat pump HVAC systems, HPWHs, and high-performance windows (climate dependent)
2. Subsidized costs for building certifications (e.g., the DOE ZERH program); the cost of ZER certification can make up over one-quarter of the cost for a ZER home,61 though the cost is significantly less for production homes
3. Incentives for solar-ready roofing
4. State standardization of permitting, inspection, and interconnection procedures to reduce soft costs for installing solar PV
5. State legislation enabling community solar, PPAs, or property-assessed clean energy (PACE) financing
Policy can also be used to enable a number of other benefits to incentivize first movers, including expedited permitting, density or height bonuses, and setback exceptions. Although most builders interviewed didn’t consider these bonuses essential drivers of adoption, they can be provided at little to no cost to governing bodies and communities.
It’s also worth highlighting the benefit of energy disclosure programs in promoting the value of highperformance homes. Particularly innovative disclosure programs are in place in Portland, Oregon; Austin, Texas; and Berkeley, California.62 Although these policies aren’t focused on new construction, they are an important piece in ensuring that the energy performance of all homes is considered and properly valued by consumers.
Support Labor Training Programs
This report highlights that an essential aspect driving adoption of ZE and ZER homes is supporting a larger and more skilled construction workforce. Labor shortages are driving up costs as the industry struggles to secure skilled specialty subcontractors. Policymakers can address this issue by supporting, promoting, or partnering with local trade schools.
Super-efficient home builders are particularly affected by skilled labor shortages due to the specialty requirements for advanced building techniques and products. Policymakers can work to address this issue by establishing or supporting training programs, especially in the following topic areas:
• Installing, commissioning, and servicing heat pump ACs with inverters
• Installing and servicing HPWHs
• Air sealing techniques and products
• Certification program compliance
• Solar-ready roofing
• Window specification
It is worth incentivizing home builders to collaborate with the DOE ZERH program, which provides both a performance and prescriptive path for ZER homes that has been vetted with hundreds of buildings on thousands of homes across the country. Moreover, the program actively encourages collaboration between builders to share experiences and proliferate lessons learned…
Support Training for Other Influencing Parties
Home builders are not the only stakeholder group that will need to enhance skill sets to support a push toward ZE or ZER new construction. The real estate appraisal industry is critical to ensuring that efficiency and renewable energy investments are properly and transparently considered as part of the home valuation process. The Appraisal Institute, the nation’s largest professional association of real estate appraisers, offers a professional development program on the valuation of sustainable buildings (among other resources), and its registry of green residential appraisers continues to grow.63
Real estate agents can also benefit from training to learn how to best market the largely hidden value of high-performance features to prospective home buyers. In addition, as with skilled labor in the construction industry, training and capacity building for residential solar installers—particularly in lessdeveloped solar markets in parts of the country outside of California—can also be important as demand for ZE and ZER new construction scales nationally…