For existing homes, energy efficiency often has a better return on investment than solar

(ACEEE blog, 21 May 2019) Looking for an investment with a high, secure return on investment? A light energy efficiency retrofit of a typical existing home can deliver a whopping 18.5% return annually, nearly double that of long-term stocks. It’s also a much higher return than that of residential rooftop solar, though they both deliver complementary cuts in carbon emissions that are necessary to address the climate challenge.

Ideally, homeowners will combine energy efficiency and solar, using the former to reduce energy demand and improve comfort, and then adding the latter to serve the now-smaller power load. If their budget is limited, though, homeowners will often get a bigger bang for their buck by prioritizing efficiency. We documented this finding in a recent blog post and paper by ACEEE’s Chris Perry about new home construction.

In today’s post, we explore the economics of efficiency and solar for an average existing home. We find that a light efficiency retrofit, which reduces energy use by 10%, has the best return on investment. A medium efficiency retrofit saves more energy (29%), but because of its higher cost, has a lower return. Its return is similar to that of solar with net metering at a fixed rate — that is, when homeowners sell the excess electricity generated from their rooftop arrays back to the grid at a fixed retail power price.

Not surprisingly, a deep efficiency retrofit saves the most energy but takes longer to pay back. Its return is similar to solar with net metering and typical time-of-use rates — when homeowners sell their excess power back to the grid at a rate that varies based on time of day. (They often earn less from their solar with a varying rate than a flat one.)

We based our analysis on the energy use of an average American home that uses about 11,500 kWh of electricity and 400 therms of natural gas each year. For solar, we use St. Louis weather, which is about average for the United States. Our costs and savings for the light retrofit, which includes sealing air leaks and other low-cost efficiency measures, are based on the Connecticut Home Energy Solutions program. For this retrofit, the annual energy savings are worth $185, providing an 18.5% annual return on the $1,000 retrofit cost. Additional details on the assumptions, calculations, and sources can be found here.

This rate of return is much better than the approximately 2% annual return paid by banks or money market funds and nearly double the approximately 10% long-term returns by the stock market.

External link

ACEEE blog, 21 May 2019: For existing homes, energy efficiency often has a better return on investment than solar