This newsletter is the second in a series on financial aspects of building sustainably. In the last newsletter, we explored the valuation of sustainable buildings, in particular the barriers to increased valuation of buildings with significant investment in efficiency measures and other sustainable features. In this newsletter we will explore another way to recoup an investment in sustainable measures- the Return on Investment, or ROI, that is accomplished through savings on utility bills and other benefits.
Whether building a new house or retrofitting an old one, an important consideration is cost. Choosing which aspects of the home you value most and are willing to spend your limited funds on is a necessary part of the process for almost everyone. In considering resource-efficiency measures, there are more choices to make, and one of the considerations is whether the investment in the measures will pay for itself over time through reduced utility bills and other added benefits, and in what time period.
Determining if installing an efficiency measure is a good investment can be a complicated endeavor that is dependent on a number of factors including:
If the feature will increase the market value of the home
How long you will be living in the home
How energy costs may change in the future
If financing will be necessary for the component
The lifetime expectancy of the feature
Potential added maintenance costs for the item
In addition to these more quantifiable factors, the following significant, but less concrete factors are also important considerations:
The improved comfort and health benefits the upgrades will deliver
The financial benefits of a more healthy environment (less missed work, higher productivity, less medical issues, better relationships, etc.)
The lower maintenance costs of a higher performing home
Salability down the road: high performing homes bring a higher sale price and spend less time on the market than those with standard construction
Energy source considerations. Electricity is safer and can be provided by solar PV, but there are losses in transmission when grid-tied. Wood for heat may be an economical source depending on circumstances. Connection to utilities may have a cost. These are all considerations when determining ROI.
Need for utilities. Off grid properties may benefit much more from high levels of energy efficiency than grid tied properties due to reduced investment in energy production infrastructure.
Benefits to the community of reduced energy use and carbon output; doing your part to reduce climate change impacts.
As you can see, Return on Investment can be complicated, and every project is different. Due to this, we thought a good approach to exploring the topic would be through a case study.
Tom Elsass of Ezra Builders has been working through the process of deciding what resource-efficiency measures to include in a spec home they are about to build. He has generously offered to share his process, and the results, in the following summary.
672 Project -
A Case Study in Optimizing ROI of Energy Efficiency Measures
Introduction
The following results are from a simple ROI study Ezra Builders did for a home that we are about to begin construction on. Using WUFIpassive as our energy modeling software, we used the planned home to examine how individual measures (single elements of the home) as well as packages of measures (e.g. insulation, windows, and furnace combined) affected the efficiency of the home and the projected utility bills. For those interested to see each upgrade option and its individual effect on the energy usage, we have included a full spreadsheet in PDF format that can be found HERE. The results below show four of the packages of upgrades. These upgrade packages range from simple plug-and-play elements of the home to full home performance measures effecting every part of the home. Each has its own upfront costs, efficiency level, and consequent ROI. All packages exceed the code minimum requirements reflected in the IRC 2012 code home baseline.
Case study parameters
2 bed/1.5 bath - two story - 1400 square feet
2 bed = 3 occupants
0.12 window to wall ratio
Slab on grade construction
$ 0.1309/kwh electricity costs + $13/mon fees
$ 0.4264/therm of natural gas + $10/mon fees
Total energy use is “site energy” – energy used on site (not source or primary energy)
Costs for improvements are estimates only
All space conditioning (heating only) by natural gas
All mechanicals are within conditioned space. Furnace and ductwork as well as water heater are inside the home. (This is not typical for most homes in Arizona)
ROI = Investment for upgrade ÷ annual utility expenses saved
The code inputs for energy modeling:
2012 IRC PRESCRIPTIVE PERFORMANCE ELEMENTS - CURRENT CODES FOR COCONINO COUNTY
Foundation:
R10 vertical foundation perimeter insulation, 24" deep
R10 horizontal slab on grade insulation for only 24” horizontal. This leaves a large portion of the floor/slab uninsulated.
Walls:
R19 insulation between framing at 16” on center
Windows:
U-value 0.32
Attic:
Vented attic with R50. Compressed insulation at the attic perimeter/truss heel. Compressed insulation reduces R-value and performance of the insulation.
Vaulted roof section at R38
Cantilevered floor section at R30
Space conditioning:
Natural gas furnace at 80% efficient induced draft
Water heating:
Storage tank style natural gas water heater at 67% efficient; natural draft
After running the energy modeling for 38 measures, packages of measures were assembled to look at varying levels of upgrades available to us. They spanned from simple one-for-one substitutions to Passive House level efficiencies. Our goal was to try and find the sweet spot for upgrades, without breaking the bank. As such, the following measures stood out as viable options that builders, designers, and home owners regularly are capable of implementing. Package 1: ROI of 5 years or less. This set of upgrades was assembled by looking at the measures with an ROI period of 5 years or less. These measures are easy to execute and don't require added design elements.
Insulate the unisulated area of the slab/floor with R5 insulation
Ensure fiberglass batt insulation in the walls is installed to a grade one quality
96% efficient sealed combustion natural gas furnace
Package 2:Mechanicals only. This measure is simply swapping out the furnace and water heater with commonly available higher performance units. These are sealed combustion and are therefore safer. In addition, an energy recovery ventilator (ERV) is installed instead of bath fans. The ERV is continuous full-time ventilation providing the building fresh, filtered air while removing stale polluted air. In addition to this, it recovers energy from the air exchange. This package has fairly easy to execute measures.
Upgrade to 96% efficient furnace (from 80% efficient gas furnace)
Upgrade to electric heat pump water heater (from 67% efficient gas water heater)
Add ERV for ventilation. Remove spot bathroom fans. (Code requires intermittent exhaust only with no energy recovery or operable window(s))
Package 3:Shell only - OVE framing, insulation and windows. This package only upgrades the floor, wall, attic insulation, windows, and changes the wall and roof structural framing to include "advanced framing" or "optimum value engineered (OVE)" techniques. OVE framing strategies provide more space for insulation by eliminating structural redundancies. These measures require the design of the home to reflect the OVE strategies.
Insulate the entire concrete slab/floor with R10 insulation
Wall framing structural members moved to 24" on center layout (code is typically 16" oc)
Use R4.7 per inch spray foam insulation in the walls (instead of R3 per inch fiberglass [grade 2 or less] batt insulation)
Use windows with thermal performance of U0.22 (R4.5) instead of code required U0.32 (R3.125)
Building air tightness at 2 ACH50 (code max is 3 ACH 50). Lower ACH50 = less leaky and drafty.
Package 4:Whole house as a system. The last package is one that takes the code home to the level of DOE Zero Energy Ready Home program certification, a higher level than Energy Star certification. This package looks at the home as a system and makes optimized upgrades everywhere. There is nothing inherently exotic about these upgrades and most can be done with relative ease, though these upgrades take planning at the early stages of design.
Insulate the entire concrete slab/floor with R10 insulation
OVE wall and roof framing
Use R3.8 spray foam insulation in the walls
Use windows with thermal performance of U0.25 (R4)
R50 attic insulation
96% efficient sealed combustion natural gas furnace
Upgrade to electric heat pump water heater
Building air tightness at 1 ACH50
ERV for ventilation
Note: Annual energy use obtained from WUFIpassive software.
Balancing the budget: Utility savings + upgrade costs + home purchase
Taking the ROI study one step further, with respect to dollars and cents, if one were to finance the upgrade costs into their mortgage, an annualized cost for utilities and mortgage can be examined. Using the Zillow mortgage calculator and a base home cost of $330,000, we can add the upgrade cost into the mortgage and compare the yearly and total mortgage term savings. The previous four packages all have a net savings at the end of the year/mortgage. For a financing buyer interested in the benefits of Package 4, this study shows that while the front end purchase price seems higher, the long term benefits leave them with money saved, not to mention the multitude of other benefits higher quality homes offer.
Parameters for the mortgage calculation are as follows: 20% down payment, 30 year fixed, 4.437% interest, no property tax, no PMI, no home insurance, and no HOA fees.
Take aways for us
As a design-build general contractor who, on occasion, builds speculative homes for the general buying public, we have a balancing act we must pull off. This project’s ROI equation for us is not simply utility bills and upgrade costs. As the designer and builder, we feel a certain obligation for crafting the best home we can. We believe homes should be places for healthy, thriving families. We know our product has a great impact on that. Homes should be safe. Homes can be efficient and cost less to operate and maintain. Our homes are part of a larger energy equation whose efficiencies effect our local and global climate. Our homes must also be affordable for as many people as possible. Our homes must yield profits, and more work, so that our team of constructors can thrive in their own lives.
As we examined our ethics, passions, and profit margin, we had to look at this project through the proper lens. Someone is likely going to have to finance this home in a conventional manner. That means the home would have to appraise in the current market and upgrades can be risky business. Using this study, we were able to develop Package 4 as our value engineered design intent. With an upgrade cost that comes in around the 5% mark, an ROI of between 10-15 years, and a net annual savings with respect to the mortgage and utility bills, we should be able to successfully achieve our many goals, selling this project as one of the top goals of this specific venture.
Conclusion
This study also shows that in order to achieve the best occupant health and comfort, building efficiency, and overall energy use reductions, we must examine the home as system, not a segmented pile of separate components. Package 1 is the best bang for the buck, but it is the least efficient and likely the least comfortable package. Package 3 is the most comfortable option, but also has the longest ROI period. Package 2 would be the easiest to execute, but leads one to consider that Package 4 would yield much more value and only has an ROI period of two more years.
Similar to truly examining a personal return on investment equation, this is not a simple task. Being able to identify all the variables and assign a value to them is important to be able to make the best decision possible, be that as a home owner or construction company owner.
As a word of caution, this data set is specific to the home we are about to build. There are some general truths that can be derived from the study, but every home is different and it is possible that in a one story home, the effect each measure has on the overall efficiency will be different. Existing homes of various ages will also show differing results. That said, after defining the variables of your ROI equation, it would be wise to consult your building professionals for an assessment of measures that will help you achieve your goals, be they lower operating costs, improving your health and comfort, lowering your carbon footprint, or all of the above.
Ezra Builders LLC - Science driven green construction company, building with the future in mind. Certified Passive House Builder and Consultant specializing in Energy Star, Net-Zero, and Passive House technology. A design-build company for homes with reduced energy consumption. Information at ezrabuilders.com.
As you can see from the above case study, modeling can be a very helpful tool in determining the best use of your dollar for maximum benefit when it comes to resource efficiency. Our Sustainable Building Service Provider Directory does not currently have a category for modeling, so we will be updating it in the next couple of weeks to include local businesses that provide this service. Please check in at our Resources for Sustainable Building page for a revised Directory in the near future.
Announcements
2018 Season
Sunday Market
May 6-October 21 8am-noon
211 W Aspen Ave
City Hall Parking Lot
Essential Functions:
35% - Serves as liaison between the Sustainable Food Systems programs and the community, other programs, students, and related constituencies; represents the program at events for marketing and recruitment purposes
25% - Assists in the planning, development, and evaluation of course curricula and programs for Sustainable Food Systems programs, revises online courses as needed to reflect current industry standards; maintains curriculum and course changes to assist in preparing catalog materials
20% - Assists in the development of proposals, reports, and marketing materials for dissemination at events and to community partners
10% - Assists in the design of program elements such as, but not limited to student recruitment, retention, and tracking strategies to monitor growth of the Sustainable Food Systems program
10% - Receives inquiries and provides related program information related to the Sustainable Food Systems program; performs other duties as assigned
This full-time position will be located in Durango, Colorado focusing on public outreach, education and organizing to advance programs that mitigate climate change at the local and regional level in the San Juan Basin by addressing electric supply as well as energy extraction, production and utilization. See full job description.
ICC Grand Canyon Chapter
ICC 2018 Code Update Training Series
2018 International Energy Conservation Code & 2018 International Solar Energy Provisions
Thursday, September 13, 2018
8:00am - 4:00pm
Training Lab - City of Flagstaff - Cherry Building
101 W Cherry Ave
Flagstaff, AZ 86001
This class will present the significant changes from the 2012 IECC to the 2015 IECC and from the 2015 IECC and ISEP to the 2018 IECC and ISEP. This class is designed for building department staff, architects, engineers, designers, contractors, homeowners, and all interested individuals.
Presented by:
Steve White, PE - Coconino County
Ralph Garcia - Bureau Veritas
Class is ICC registered: .7 CEUs
Lunch On Your Own
COST: $20
Willow Bend Environmental Education Center is building a storage shed and is looking for donations of building materials. Willow Bend and the gardens receive about 10,000 visitors each year.
Your support will be acknowledged on Willow Bend's website and on a sign located on the shed. Willow Bend is a 501 C 3 non profit organization and your donation will be tax deductible. If you are able to donate any of the supplies on the following list of items, please contact Bob Baer at robertottob@gmail.com or call our office 928 779-1745.
Vermicomposting
August 15th, 5:30PM
Join Willow Bend Environmental Education Center and the City of Flagstaff Sustainability Section for our annual worm composting workshop. The workshop will teach you how to convert kitchen waste into nutrient rich soil using worm composting. Workshop is open to the public.
Cost: $5/participant. FREE to Willow Bend members. Each participant will receive a raffle ticket for a worm composting bin drawing.
Spots are limited. Please sign-up TODAY to secure your spot.
Save the date to innovate!
Thursday, September 20th, 5:30 - 7:30 pm at NACET
Join us for the Innovate Waste Challenge Kick-off Reception at the Moonshot Accelerator! Innovate Waste is a sustainable business competition to convert waste into marketable products. The winner will receive cash prizes and business coaching from Moonshot, the Small Business Development Center, and the City of Flagstaff. Attend the Kick-off Reception to learn more about the challenge, as well as meet the Program Development Team and other participants. Light snacks and refreshments will be provided.
What is the Innovate Waste Challenge?
Your team will develop ideas to repurpose or recycle the troublesome waste in Flagstaff by converting these materials into a product or service that can be turned into a business. Build your team of entrepreneurs, people with ideas, students, or a combination of those. City staff will provide access to materials that may be part of your project, or make a case using the materials you select. Work with your team to convert that material into a commercially viable product or service. Questions? Email InnovateWasteInfo@flagstaffaz.gov
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