The Profitability of Energy Efficiency Upgrades

Application of these 10 energy efficiency measures in a typical home yields nearly $600 in annual bill savings, and an impressive 16% overall return on investment. More...


This diagram provides a representative view of the high profitability of energy efficiency upgrades. Note that the home evaluated here is located in an average U.S. climate and has a heat pump, electric water heater, clothes washer, clothes dryer, and dishwasher.

The example cost-effectively surpasses the 30% savings target for existing homes under PATH (The Partnership for Advancing Technology in Housing). In fact, all of these measures yield a higher return on investment than an ordinary bank account, and most are as or even more profitable than the stock market has been in recent years! The efficiency savings shown above include the effect of income taxes. This makes the savings even more attractive, because you can keep all the money you save on your energy bills, but have to pay hefty taxes on most ordinary investment income.

Energy Efficiency Upgrade Purchase Price1 Annual Bill Savings2 Simple Payback (yrs) Rate of Return
Fluorescent Lamps & Fixtures $200 $80 2.5 41%
Duct sealing $250 $95 2.6 41%
ENERGY STAR Clothes washer $194 $66 2.9 37%
ENERGY STAR Programmable Thermostat $107 $29 3.7 30%
Water Heater Tank Wrap (R-12) $85 $23 3.7 28%
ENERGY STAR Refrigerator $97 $23 4.2 27%
ENERGY STAR Heat Pump $692 $126 5.5 19%
ENERGY STAR Dishwasher $29 $5 5.5 18%
Air sealing to 0.5 air changes per hour $522 $38 13.7 9%
Increase wall and attic insulation $1,784 $111 16.1 8%
Total $3,960 $597 6.6 16%
Total bill savings as % of baseline bill 3 36%

NOTES:
Assumes typical house with air-source heat pump, electric water heating, clotheswasher, clothes dryer, dishwasher. Purchase prices and annual bill savings for efficiency measures are in nominal 1997 dollars. The rate of return assumes 3% annual inflation in residential electricity prices. After-tax rates of return assume a 28% marginal income tax rate.
1Purchase price of clotheswasher, dishwasher, thermostat, and heat pump measures is incremental to the price of existing "NAECA" appliance standards. All other prices reflect the full cost of the measure, including installation.
2 Bill savings assume average electricity cost of 8.8¢ per kilowatt-hour. Bill savings of equipment measures are relative to a NAECA standard unit.
3 Heating and cooling consumption values are from LBNL energy modeling using DOE-2; other enduse consumptions are from the U.S. Department of Energy's Residential Energy Consumption Survey (RECS).