Will your Home Energy Score Improvement Pay for Itself?

home energy score improvement value portland

“How much will it cost?” That’s the question most frequently asked by Portland homeowners considering improvements that will boost their Home Energy Score. It’s a good question, but there’s a better one: How long will it take to recuperate these costs in energy savings?

After all, you’re not insulating the attic or investing in a better HVAC pump just for the aesthetic value, or to make your home more efficient than your neighbor’s. For most improvements, the benefits come down to improved comfort (something that we can’t really put a dollar value on) and savings in energy (which we can). Since energy costs money, making the decision to make an improvement that will save energy can be boiled down to whether up-front costs are less than long-term savings. 

What is Simple Payback?

The way most energy-efficiency experts think about long-term versus up-front costs is through a method called Simple Payback. In short, Simple Payback tells us how long it takes the improvement to “pay itself back”. To give a simple example, if an improvement costs $100 up front, and saves $50/year, it will have a very short payback period of two years. But if that $100 improvement only saves a few cents per year, it will take hundreds of years to get a payback.

For most energy efficiency upgrades, homeowners are looking for a sweet spot of fewer than ten years for a payback period. In Portland, most people own their homes for about ten years, so if the payback is much longer than that, you’re putting in more money up front than you’re likely to get back before you sell the home. 

On your Home Energy Score report, the recommended upgrades to make your home more efficient are listed on the second page. Those with a payback period of under ten years are listed first. But what if you want to find out for yourself the exact number of months or years it will take for an energy efficiency investment to pay for itself? You’ll need to get out the calculator. 

How to Calculate Payback Time for Home Energy Score Improvements

For DIY homeowners, knowing how to do this calculation is the most important tool in the toolkit. It will help you decide whether to take on the project yourself, or hire a professional. It can also help you figure out whether to spring the extra dollars for a top-of-the-line product, or if something midrange will get you the energy savings you need. 

First, get the numbers

Figuring out payback is pretty easy (that’s why it’s called simple payback!) You need three numbers to start out:

1. The up-front costs: Materials and labor.

Get a contractor to give you an estimate (don’t forget to check their CCB license number online before you hire). Or, if you’re DIY, price out the cost of materials and, if you desire, the cost of your time. 

2. The total annual energy cost for your home. 

To arrive at this number, you could add up all your home’s electric or natural gas bills for the year. Or, you could look at the simple cost breakdown of gas, electricity or other energy sources on your Home Energy Score report. Use the relevant energy source for the energy use you’re evaluating — for example, if you are upgrading a natural gas furnace, use the total annual cost of natural gas for your home.

3. The annual energy savings you’ll see after the improvement is made.

Consumer appliances like HVAC units and hot water heaters have yellow labels that give the energy usage per year, so by comparing that to your current unit, you should be able to arrive at the energy savings. If making an upgrade like new insulation or air sealing, however, the exact amount of energy that will be saved will depend on the home. Your Home Energy Score Assessor should be able to give you a number. For example, the DOE estimates that insulating your attic could reduce your energy use by 10%, and that air sealing a home reduces heating and cooling needs by an average of 15%!

Now, get the payback

  1. Figure out the yearly dollar value of your energy efficiency improvement using numbers 2 and 3. For example, if your annual energy cost is $2,000, and your improvement can save you 10% of your annual energy cost, your energy savings are $200 a year. 
  2. Divide the up-front cost by the annual energy savings amount. If the up-front cost of the improvement in our example above is $1000, you’ll divide $1000 by $200 to arrive at the number 5. That’s the number of years it will take for that improvement to “pay for itself”. 

Simple Payback vs Return on Investment

Return on Investment, often shortened to ROI, is similar to Simple Payback, but it’s not quite the same thing. Return on Investment asks, will I make my money back (get a return) when I go to sell this home with improvements made (the investment)? Simple Payback looks at the actual costs versus savings of a project over the course of years; ROI is a little harder to measure because it depends on what someone is willing to pay for the home overall when it comes time to change owners. 

The good news is, home energy efficiency improvements almost always offer some kind of return on investment. After all, who doesn’t want to live in a home that’s comfortable, friendly to the environment and affordable to heat and cool? The Home Energy Score helps home buyers put a value on energy efficiency, and compare homes by how much energy they actually use. 

In essence, your Portland home energy efficiency improvement now has the potential to pay for itself in two different ways. The old way was by actually saving you money on your energy bill. The new way is by improving the perceived value of the home to its next buyer, offering a greater return on investment. 

Ready to improve the value of your home? Start with a Home Energy Score Assessment! Our Portland-based professionals are always happy to answer your questions about how much you can save.